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we are significantly affected by prevailing economic conditions , particularly interest rates , as well as government policies concerning , among other things , monetary and fiscal affairs , housing and financial institutions and regulations regarding lending and other operations , privacy and consumer disclosure . attracting and maintaining deposits is influenced by a number of factors , including interest rates paid on competing investments offered by other financial and non-financial institutions , account maturities , fee structures and levels of personal income and savings . lending activities are affected by the demand for funds and thus are influenced by interest rates , the number and quality of lenders and regional economic conditions . sources of funds for lending activities include deposits , borrowings , repayments on loans , cash flows from maturities of investment securities and income provided from operations . our earnings depend primarily on our level of net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans , mortgage-backed securities and other investment securities , and the interest paid on interest-bearing liabilities , consisting primarily of deposits , borrowed funds , and trust-preferred securities . net interest income is a function of our interest rate spread , which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest- bearing liabilities , as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities . also contributing to our earnings is noninterest income , which consists primarily of service charges and fees on loan and deposit products and services , net gains and losses on sale of assets , and mortgage loan service fees . net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including salaries and employee benefits and occupancy and equipment costs , as well as by state and federal income tax expense . the bank has a strong mortgage lending focus , with the majority of its loan originations in single-family residential mortgages , which has enabled it to successfully market home equity loans , as well as a wide range of shorter term consumer loans for various personal needs ( automobiles , recreational vehicles , etc. ) . in recent years we have also focused on adding commercial loans to our portfolio , both real estate and non-real estate . we have made significant progress in this initiative . as of december 31 , 2015 , commercial real estate and land loans and commercial business loans represented 41.2 % and 9.6 % of the total loan portfolio , respectively . the purpose of this diversification is to mitigate our dependence on the mortgage market , as well as to improve our ability to manage our interest rate spread . the bank 's management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio , which provides a steady source of fee income . as of december 31 , 2015 , we had mortgage servicing rights , net of $ 4.97 million compared to $ 4.12 million as of december 31 , 2014. gain on sale of loans also provides significant fee income or noninterest income in periods of high mortgage loan origination volumes . such income will be adversely affected in periods of lower mortgage activity . 21 fee income is also supplemented with fees generated from our deposit accounts . the bank has a high percentage of non-maturity deposits , such as checking accounts and savings accounts , which allows management flexibility in managing its spread . non-maturity deposits do not automatically reprice as interest rates rise , as do certificates of deposit . in recent years , management 's focus has been on improving our core earnings . core earnings can be described as income before taxes , with the exclusion of gain on sale of loans and adjustments to the market value of our loans serviced portfolio . management believes that we will need to continue to focus on increasing net interest margin , other areas of fee income , and control operating expenses to achieve earnings growth going forward . management 's strategy of growing the loan portfolio and deposit base is expected to help achieve these goals : loans typically earn higher rates of return than investments ; a larger deposit base will yield higher fee income ; increasing the asset base will reduce the relative impact of fixed operating costs . the biggest challenge to management 's strategy is funding the growth of our balance sheet in an efficient manner . though deposit growth this last year was steady , it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes . other than in limited circumstances for certain high-credit-quality customers , we do not offer “ interest only ” mortgage loans on residential ( 1-4 family ) properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as “ option arm ” loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . we do not offer “ subprime loans ” ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . the level and movement of interest rates impacts the bank 's earnings as well . story_separator_special_tag the allowance for loan losses is based on management 's evaluation of the collectability of the loan portfolio , including past loan loss experience , known and inherent losses , information about specific borrower situations and estimated collateral values , and current economic conditions . the loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses . the methodology for assessing the appropriateness of the allowance includes a review of historical losses , internal data including delinquencies among others , industry data , and economic conditions . as an integral part of their examination process , the federal reserve board ( “ frb ” ) and the montana division of banking will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management . in establishing the allowance for loan losses , loss factors are applied to various pools of outstanding loans . loss factors are derived using our historical loss experience and may be adjusted for factors that affect the collectability of the portfolio as of the evaluation date . commercial business loans that are criticized are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans under fasb asc topic 310 receivables . although management believes that it uses the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . the allowance is based on information known at the time of the review . changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . 23 valuation of investment securities substantially all of our investment securities are classified as available-for-sale and recorded at current fair value . unrealized gains or losses , net of deferred taxes , are reported in other comprehensive income as a separate component of shareholders ' equity . in general , fair value is based upon quoted market prices of identical assets , when available . if quoted market prices are not available , fair value is based upon valuation models that use cash flow , security structure and other observable information . where sufficient data is not available to produce a fair valuation , fair value is based on broker quotes for similar assets . broker quotes may be adjusted to ensure that financial instruments are recorded at fair value . adjustments may include unobservable parameters , among other things . no adjustments were made to any broker quotes received by us . we conduct a quarterly review and evaluation of our investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities were in a loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income . deferred income taxes we use the asset and liability method of accounting for income taxes as prescribed in fasb asc topic 740 income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . financial condition december 31 , 2015 compared to december 31 , 2014 total assets increased $ 70.14 million , or 12.5 % , to $ 630.35 million at december 31 , 2015 from $ 560.21 million at december 31 , 2014. the loan portfolio increased $ 87.46 million or 27.7 % , to $ 403.73 million at december 31 , 2015 from $ 316.27 million at december 31 , 2014. securities available-for-sale decreased $ 16.05 million or 9.9 % , to $ 145.74 million from $ 161.79 million at december 31 , 2014. total liabilities increased by $ 69.19 million , or 13.7 % , to $ 574.90 million from $ 505.71 million at december 31 , 2014. total deposits increased $
| results of operations as a result of eagle 's election to change its fiscal year from june 30 to december 31 , the audited periods presented in the consolidated statements of income include the year ended december 31 , 2015 , the six month transition period ended december 31 , 2014 and the year ended june 30 , 2014. to facilitate a better understanding of eagle 's results of operations and business trends , the following discussion is based on the comparison of the audited year ended december 31 , 2015 to the unaudited year ended december 31 , 2014. financial information for the year ended december 31 , 2014 is derived from eagle 's audited consolidated financial statements for the six month transition period ended december 31 , 2014 and eagle 's unaudited consolidated financial statements for the three month period ended june 30 , 2014 and march 31 , 2014. comparison of operating results for the years ended december 31 , 2015 and 2014 net income eagle 's net income for the year ended december 31 , 2015 was $ 2.58 million compared to $ 2.61 million for the year ended december 31 , 2014. the slight decrease of $ 32,000 or 1.2 % was due to increases in noninterest expense of $ 2.31 million and increases in income tax expense of $ 1.04 million partially offset by increases in net interest income after loan loss provision of $ 1.12 million and increases in noninterest income of $ 2.19 million . basic and diluted earnings per share were $ 0.68 and $ 0.67 , respectively , for the year ended december 31 , 2015 compared to $ 0.67 and 0.66 , respectively , for the prior period .
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historical results and trends which might appear in the consolidated financial statements should not be interpreted as being indicative of future operations . we consider portions of this report to be “ forward-looking ” within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , both as amended , with respect to our expectations for future periods . forward-looking statements do not discuss historical fact , but instead include statements related to expectations , projections , intentions , or other items relating to the future ; forward-looking statements are not guarantees of future performance , results , or events . although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions , we can give no assurance our expectations will be achieved . any statements contained herein which are not statements of historical fact should be deemed forward-looking statements . reliance should not be placed on these forward-looking statements as these statements are subject to known and unknown risks , uncertainties , and other factors beyond our control and could differ materially from our actual results and performance . factors which may cause our actual results or performance to differ materially from those contemplated by forward-looking statements include , but are not limited to , the following : volatility in capital and credit markets , or other unfavorable changes in economic conditions , either nationally or regionally in one or more of the markets in which we operate , could adversely impact us ; short-term leases expose us to the effects of declining market rents ; competition could limit our ability to lease apartments or increase or maintain rental income ; we face risks associated with land holdings and related activities ; potential reforms to fannie mae and freddie mac could adversely affect us ; development , redevelopment and construction risks could impact our profitability ; investments through joint ventures and discretionary funds involve risks not present in investments in which we are the sole investor ; competition could adversely affect our ability to acquire properties ; our acquisition strategy may not produce the cash flows expected ; tax matters , including failure to qualify as a reit , could have adverse consequences ; litigation risks could affect our business ; losses from catastrophes may exceed our insurance coverage ; a cybersecurity incident and other technology disruptions could negatively impact our business ; we have significant debt , which could have adverse consequences ; insufficient cash flows could limit our ability to make required payments for debt obligations or pay distributions to shareholders ; issuances of additional debt may adversely impact our financial condition ; we may be unable to renew , repay , or refinance our outstanding debt ; variable rate debt is subject to interest rate risk ; failure to maintain our current credit ratings could adversely affect our cost of funds , related margins , liquidity , and access to capital markets ; share ownership limits and our ability to issue additional equity securities may prevent takeovers beneficial to shareholders ; our share price will fluctuate ; and the form , timing and amount of dividend distributions in future periods may vary and be impacted by economic and other considerations . these forward-looking statements represent our estimates and assumptions as of the date of this report , and we assume no obligation to update or supplement forward-looking statements because of subsequent events . 20 executive summary we are primarily engaged in the ownership , management , development , redevelopment , acquisition , and construction of multifamily apartment communities . as of december 31 , 2015 , we owned interests in , operated , or were developing 180 multifamily properties comprised of 62,649 apartment homes across the united states as detailed in the following property portfolio table . in addition , we own other land holdings which we may develop into multifamily apartment communities in the future . property operations our results for the year ended december 31 , 2015 reflect an increase in same store revenues of 5.2 % as compared to 2014 . we believe this increase was due to the continuation of improving economic conditions , including job growth , favorable demographics , a manageable supply of new multifamily housing , and in part to more individuals choosing to rent versus buy as evidenced by the moderating level of homeownership rates , all of which have resulted in higher rental rates and average occupancy levels . we believe u.s. economic and employment growth is likely to continue during the remainder of 2016 and the supply of new multifamily homes , although increasing , will likely remain at manageable levels . if economic conditions were to worsen , our operating results could be adversely affected . construction activity at december 31 , 2015 , we had eight projects under construction to be comprised of 2,857 apartment homes , with initial occupancy scheduled to occur within the next 23 months . as of december 31 , 2015 , we estimate the additional cost to complete the construction of the eight projects to be approximately $ 310.1 million . acquisitions during the year ended december 31 , 2015 , we acquired three land parcels comprised of 58.1 acres of land located in phoenix , arizona , los angeles , california and gaithersburg , maryland for approximately $ 59.1 million . dispositions during the year ended december 31 , 2015 , we sold three operating properties comprised of 1,376 apartment homes located in austin , texas and tampa and brandon , florida for approximately $ 147.4 million and we recognized a gain of approximately $ 104.0 million relating to these property sales . we also sold two land holdings adjacent to operating properties in dallas and houston , texas for approximately $ 1.1 million and recognized a gain of approximately $ 0.3 million . future outlook subject to market conditions , we intend to continue to seek opportunities to develop , redevelop and acquire existing communities . story_separator_special_tag the decrease in 2015 was primarily due to the disposition of five operating properties in 2014 and three operating properties in 2015. the decrease in 2014 was primarily due to a $ 0.9 million decrease in revenue from dispositions due to the timing of completion of the disposition of five operating properties in 2014. the decrease was also due to a lower below market lease amortization of approximately $ 0.9 million due to the timing of completion of the acquisition of operating properties in 2012 and 2013. below market leases are generally amortized over approximately six months upon completion of an acquisition , which reflects the remaining average term of acquired leases . the decrease was also due to a decrease in other income of approximately $ 0.8 million for the year ended december 31 , 2014 resulting from our non-multifamily rental properties . dispositions/other property expenses decreased approximately $ 14.4 million for the year ended december 31 , 2015 as compared to 2014 , and decreased approximately $ 0.7 million for the year ended december 31 , 2014 as compared to 2013 . the decrease in 2015 was primarily due to the disposition of five operating properties in 2014 and three operating properties in 2015. the decrease in 2014 was primarily due to lower property taxes expensed on land holdings on which we initiated development activities in the fourth quarter of 2013 as we start capitalizing expenses , including property taxes , on development properties at such time . non-property income replace_table_token_20_th fee and asset management income , which represents income related to property management of our joint ventures and fees from third-party construction projects , decreased approximately $ 2.8 million for the year ended december 31 , 2015 as compared to 2014 and decreased approximately $ 1.9 million for the year ended december 31 , 2014 as compared to 2013 . the decrease for 2015 as compared to 2014 was primarily due to lower development and construction fees earned due to the timing of development communities started and completed by our funds during 2014 and 2015 , and our increase in ownership interest in two of the funds from 20 % to 31.3 % effective december 23 , 2014. we eliminate fee income provided by our funds to the extent of our ownership . the decrease for 2014 as compared to 2013 was primarily due to the sale of 18 operating properties by three of our unconsolidated joint ventures in 2013 and 2014. this decrease was also due to lower construction fees resulting from a reduced level of third-party construction activities and lower development and construction fees earned due to the timing of development communities started and completed by our funds during 2013 and 2014 . 30 our deferred compensation plans recognized a loss of approximately $ 0.3 million in 2015 and recognized income of approximately $ 3.9 million and $ 8.3 million in 2014 and 2013 , respectively . the net income ( loss ) for each period was related to the performance of the investments held in deferred compensation plans for participants and was directly offset by the expense ( benefit ) related to these plans , as discussed below . other expenses replace_table_token_21_th property management expense , which represents regional supervision and accounting costs related to property operations , increased approximately $ 1.1 million for the year ended december 31 , 2015 as compared to 2014 and increased approximately $ 0.9 million for the year ended december 31 , 2014 as compared to 2013 . these increases were primarily due to increases in salaries , benefits , and incentive compensation expenses . property management expenses were 2.7 % of total property revenues for each of the years ended december 31 , 2015 and 2014 , and 2.8 % of total property revenues for the year ended december 31 , 2013. fee and asset management expense , which represents expenses related to property management of our joint ventures and fees from third-party construction projects , decreased approximately $ 0.6 million for the year ended december 31 , 2015 as compared to 2014 and decreased approximately $ 0.4 million for the year ended december 31 , 2014 as compared to 2013 . the decrease for 2015 as compared to 2014 was primarily due to lower expenses directly related to lower net revenues resulting from our change in ownership interest in two of the funds effective december 23 , 2014. the decrease in fee and asset management expense for 2014 as compared to 2013 was primarily due to decreases in expenses relating to the sale of 18 operating properties by three of our unconsolidated joint ventures in 2013 and 2014. the decrease for 2014 as compared to 2013 was also due to lower expenses relating to the timing of communities started and completed by the funds during 2013 and 2014. general and administrative expenses decreased approximately $ 4.8 million during the year ended december 31 , 2015 as compared to 2014 and increased approximately $ 10.4 million during the year ended december 31 , 2014 as compared to 2013 . general and administrative expenses were 5.1 % , 6.0 % and 5.1 % of total revenues , excluding income ( loss ) on deferred compensation plans , for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the decrease in 2015 as compared to 2014 was primarily due to approximately $ 10.0 million in one-time bonuses paid to employees in 2014 relating to the restructuring of the funds in december 2014. excluding the $ 10.0 million one-time bonus in 2014 , general and administrative expenses increased by approximately $ 5.2 million in 2015 as compared to 2014 , which was primarily related to an increase in salaries , benefits and incentive compensation expenses , partially offset by a slight decrease in professional fees .
| results of operations changes in revenues and expenses related to our operating properties from period to period are due primarily to the performance of stabilized properties in the portfolio , the lease-up of newly constructed properties , acquisitions , and dispositions . where appropriate , comparisons of income and expense for communities included in continuing operations are made on a dollars-per-weighted average apartment home basis in order to adjust for such changes in the number of apartment homes owned during each period . selected weighted averages for the years ended december 31 are as follows : replace_table_token_16_th 27 property-level operating results ( 1 ) the following tables present the property-level revenues and property-level expenses , excluding discontinued operations , for the year ended december 31 , 2015 as compared to 2014 and for the year ended december 31 , 2014 as compared to 2013 : replace_table_token_17_th * not a meaningful percentage . ( 1 ) same store communities are communities we owned and were stabilized as of january 1 , 2014 . non-same store communities are stabilized communities not owned or stabilized as of january 1 , 2014 . development and lease-up communities are non-stabilized communities we have acquired or developed since january 1 , 2014 . dispositions/other includes operating properties sold subsequent to january 1 , 2014 , operating properties held for sale and also results from non-multifamily rental properties , below market lease amortization related to acquired communities , and expenses related to land holdings not under active development . replace_table_token_18_th * not a meaningful percentage . ( 1 ) same store communities are communities we owned and were stabilized as of january 1 , 2013 . non-same store communities are stabilized communities not owned or stabilized as of january 1 , 2013 . development and lease-up communities are non-stabilized communities we have acquired or developed since january 1 , 2013 .
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the december 2011 offering closed on december 27 , 2011. in connection with the december 2011 offering , crede and david smith agreed to convert their outstanding convertible notes in the aggregate principal amount of $ 2,285,000 story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed due to factors such as , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1.a - “ risk factors. ” overview general we are a healthcare services company , providing specialized health services designed to assist health plans , employers and unions to manage and treat their high cost substance dependence members through a network of healthcare providers and our employees . the on trak substance dependence program was designed to address substance dependence as a chronic disease . the program seeks to lower costs and improve member health through the delivery of integrated medical and psychosocial interventions in combination with long term “ care coaching. ” we also offer the prometa treatment program for alcoholism and stimulant dependence on a private-pay basis through licensed treatment providers and a company managed treatment center that offers the prometa treatment program , as well as other treatments for substance dependencies . our strategy our business strategy is to provide a quality integrated medical and behavioral program to help organizations treat and manage substance dependent populations to impact total healthcare costs associated with members with a substance dependence diagnosis . we intend to grow our business through increased adoption of our on trak integrated substance dependence solutions by managed care health plans , employers , unions and other third-party payors . key elements of our business strategy include : ● demonstrating the potential for improved clinical outcomes and reduced cost associated with using our catasys programs with key managed care and other third-party payors ; ● educating third-party payors on the disproportionately high cost of their substance dependent population ; ● providing our catasys integrated substance dependence solutions to third-party payors for reimbursement on a case rate or monthly fee ; and ● generating outcomes data from our on trak program to demonstrate cost reductions and utilization of this outcomes data to facilitate broader adoption . as an early entrant into offering integrated medical and behavioral programs for substance dependence , catasys will be well positioned to address increasing market demand . our on trak program will help fill the gap that exists today : a lack of programs that focus on smaller populations with disproportionately higher costs and that improve patient care while controlling overall treatment costs . as of march 2013 , we are in contact with organizations representing approximately 13.7 million covered lives . we consider the process to have moved to a second stage when we are asked to perform data analysis for the prospect organization or the prospect organization has asked for a formal proposal . we are currently in the data analysis/proposal phase or further with organizations representing approximately 3 million covered lives . as noted in more detail below , the fact that we have moved into the second phase or beyond with a prospect organization provides no assurance that we will ultimately enter into a contract with such prospect . even if contracts are entered into with such organizations , there is no assurance that a substantial number , or even a significant number , of their covered lives would enroll in our programs . the sales cycle with respect to the execution of such contracts is a fairly long one and there may be substantial delays at any point in the process . further , organizations may decide to not move forward at any time and we may remove an organization from the pipeline if we feel that we are unlikely to make future progress towards a contract or that our limited sales resources are better employed on other prospects . even if we advance to what we may consider to be the final stages , including contract negotiations , things may happen to delay or prevent the execution of such contracts . 24 we currently have contracts with organizations covering approximately 500,000 lives , excluding the contract we signed in march with a national health plan . the number of covered lives included in the contracts we have signed varies on a month to month basis , sometimes substantially , due to changes in members ' program eligibility status , members ' coverage and changes in the number and or composition of health plan customers . we estimate that in order for us to break even on a cash flow basis , we will need to have contracts with organizations covering approximately 1,500,000 lives . based on projected enrollment rate of 20 % this would be expected to result in having approximately 1,500 enrollees at full projected enrollment which is expected no less than a year after enrollment commences . this assumption is based on our generating our current standard pricing of $ 8,500 in annual fees per enrollee in the form of monthly fees . not all of our contracts pay us on our standard monthly fee basis . other fee arrangements include payment per member visit to our network providers and case rates upon enrollment . these fee arrangements may result in fees being billed significantly faster or slower than they would be under our standard monthly fee arrangements , which could significantly impact the number of enrollees needed to break even . in some of our contracts we are required to pay all or a portion of our fees back in the event that the total cost of our enrolled members does not decrease by at least the amount of our fees . story_separator_special_tag ( “ crede ” ) , an affiliate of terren s. peizer , our chairman and chief executive officer , and david smith , one of our affiliates , relating to the sale and issuance of an aggregate of 21,440,050 shares of common stock , and warrants to purchase an aggregate of 21,440,050 shares of common stock at an exercise price of $ 0.16 per share , for an aggregate gross proceeds of approximately $ 3,430,000. in may 2012 , we entered into a securities purchase agreement with an accredited investor on the same terms of the securities purchase agreements disclosed above , relating to the sale and issuance of 250,000 shares of common stock and warrants to purchase an aggregate of 250,000 shares of common stock , at an exercise price of $ 0.16 per share , for gross proceeds of $ 40,000. in september 2012 , we entered into securities purchase agreements with several investors , including crede and david smith , relating to the sale and issuance of an aggregate of 17,190,000 shares of common stock , and warrants to purchase an aggregate of 17,190,000 shares of common stock , at an exercise price of $ 0.10 per share , for an aggregate gross proceeds of approximately $ 1.7 million . 30 in december 2012 , we entered into securities purchase agreements with several investors , including crede and david smith , relating to the sale and issuance of an aggregate of 47,121,432 shares of common stock , and warrants to purchase an aggregate of 47,121,432 shares of common stock , at an exercise price of $ 0.07 per share , for an aggregate gross proceeds of approximately $ 3.3 million . we have a related party receivable from xoftek , inc. , an affiliate of terren s. peizer , our chairman and chief executive officer , in the amount of $ 173,000 at december 31 , 2012 , which represents unpaid monthly rent related to a january 1 , 2011 sublease agreement . our ability to fund our ongoing operations and continue as a going concern is dependent on signing and generating fees from existing and new contracts for our catasys managed care programs and the success of management 's plans to increase revenue and continue to control expenses . we are operating programs in kansas , massachusetts , oklahoma and louisiana . in march 2013 , we signed an agreement with a national health plan to provide services to their members in new jersey , which we expect to commence enrollment in the second quarter of 2013. we have begun to generate fees from the launched programs , increased fees in 2012 compared to the prior year both in aggregate and on a quarterly basis , and expect to increase enrollment and fees throughout 2013. however , there can be no assurance that we will generate such fees . in addition , we continue to seek ways to streamline our operating expenses . over the last two years , management took actions that have resulted in reduced annual operating expenses . these reductions have been offset by increased expenditures related to contract implementations . we anticipate increasing the number of personnel and incurring additional operating costs throughout 2013 to service our contracts as they become operational . we have continued to focus on promoting our on trak program . in addition , we and our chief executive officer are party to a litigation in which the plaintiffs assert causes of action for conversion , a request for an order to set aside fraudulent conveyance and breach of contract . while we believe the plaintiffs ' claims are without merit and we intend to continue to vigorously defend the case , there can be no assurance that the litigation will be resolved in our favor . if this case is decided against us or our chief executive officer , it may cause us to pay substantial damages , and other related fees . regardless of whether this litigation is resolved in our favor , any lawsuit to which we are a party will likely be expensive and time consuming to defend or resolve . costs of defense and any damages resulting from litigation , a ruling against us or a settlement of the litigation could have a significant negative impact on our liquidity , including our cash flows . cash flows we used $ 6.2 million of cash for continuing operating activities during the year ended december 31 , 2012 compared with $ 6.8 million in 2011. significant non-cash adjustments to operating activities for the year ended december 31 , 2012 , included amortization of debt discount and issuance costs of $ 4.8 million , share-based compensation expense of $ 2.2 million , offset by fair value adjustment on warrant liability of $ 2.7 million . capital expenditures for the year ended 2012 were not material . our future capital expenditure requirements will depend upon many factors , including progress with our marketing efforts , the time and costs involved in preparing , filing , prosecuting , maintaining and enforcing patent claims and other proprietary rights , the necessity of , and time and costs involved in obtaining , regulatory approvals , competing technological and market developments , and our ability to establish collaborative arrangements , effective commercialization , marketing activities and other arrangements . our net cash provided by financing activities was $ 8.5 million year ended december 31 , 2012 , compared with net cash provided by financing activities of $ 3.0 million for the year ended december 31 , 2011. cash provided by financing activities for the twelve months ended december 31 , 2012 consisted of the net proceeds from the securities offerings in april 2012 , may 2012 , september 2012 , and december 2012 , leaving a balance of $ 3.2 million in cash and cash equivalents at december 31 , 2012 . 31 as discussed above , we currently expend cash at a rate of approximately $ 450,000 per month , excluding non-current accrued liability payments .
| summary of consolidated operating results loss from operations before provision for income taxes for the twelve months ended december 31 , 2012 amounted to $ 11.6 million compared with $ 8.1 million for the twelve months ended december 31 , 2011. overall , the loss from operations increased by $ 3.5 million for the fiscal year ended december 31 , 2012. the increase was primarily due to a smaller gain on change in fair value of warrant liabilities during 2012 , an increase in interest expense related to our 2012 financings , offset by a decrease in operating expenses and an increase in revenue during 2012. general and administrative expenses decreased by $ 2.8 million for the fiscal year ended december 31 , 2012 , as we continued to streamline operations during 2011 and 2012. in addition , we recorded impairment charges totaling $ 656,000 related to intellectual property underlying the prometa treatment program . in 2012 , we continued to focus our attention on our healthcare services segment and repositioning ourselves in the marketplace . as a result , our revenues increased by $ 274,000 mostly from the revenue related to our healthcare services segment . included in the loss from operations before provision for taxes , were consolidated non-cash charges for depreciation and amortization expense of $ 289,000 and $ 349,000 , and share-based compensation expense of $ 2.2 million and $ 4.4 million , for the years ended december 31 , 2012 and 2011 , respectively .
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our primary lending market is madison and st. clair counties , illinois and , to a lesser extent , st. louis county , missouri . our business consists primarily of taking retail deposits from the general public and investing those deposits , together with funds generated from operations and borrowings , typically fhlb borrowings , in loans . our primary lending activity includes one- to four-family residential real estate loans , including non-owner occupied one- to four-family real estate loans , commercial and multi-family real estate loans and construction and land loans . we also make commercial business loans and consumer loans , including home equity loans and lines of credit . we also invest in securities , which at december 31 , 2018 , consisted of securities issued by u.s. government-sponsored enterprises and u.s. government agencies . at december 31 , 2018 , we had total assets of $ 109.4 million , total deposits of $ 90.4 million and total equity of $ 12.2 million . in 2016 under bhb investment services , we began offering brokerage services to our customers through a networking arrangement with a registered broker-dealer . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . additional discussions of these policies are discussed in note 1 “ summary of significant accounting policies ” to the accompanying consolidated financial statements contained in item 8. we consider the following to be our critical accounting policies : allowance for loan losses . our allowance for loan losses is the estimated amount considered necessary to reflect probable losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged against income . in determining the allowance for loan losses , management makes significant estimates and judgments , which to some extent involve assumptions about borrowers ' abilities to continue to make future principal and interest payments . these estimates and judgments involve a high degree of judgment and subjectivity and are based on facts and circumstances that existed at the date in which the allowance is determined . changes in the macro and micro economic environment can have a significant impact on these estimates and judgments in the future that could result in changes to the allowance for loan losses . integral to our allowance methodology is the use of a loan grading system whereby all loans are assigned a grade based on the risk profile of each loan . loan grades are initially assigned at origination and are routinely evaluated to determine if grades need to be changed . through our internal credit review function , ongoing credit monitoring , and continuous review of past due trends , loan grades are adjusted by management either to respond to improvements in or deterioration of credit . loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information , historical payment experience , credit documentation , public information , and current economic trends , among other factors . the allowance methodology consists of two parts : an evaluation of loss for specific loans and an evaluation of loss for homogenous pools of loans , commonly referred to as the specific and general valuation allowance . certain loans exhibiting signs of potential credit weakness are evaluated individually for impairment . a loan is considered to be impaired if it is probable that we will not receive substantially all contractual principal and interest payments . the amount of impairment , or specific valuation allowance , is measured by a comparison of the present value of expected future cash flows less selling expenses to the loan 's carrying value , or in the case of collateral dependent loans a comparison to the fair value of the collateral less selling costs . to the extent the carrying value of the loan exceeds the present value of a loan 's 36 expected cash flows less selling expenses , a specific allowance is recorded . if the carrying value is less than the present value of the impaired loan 's expected future cash flows , no specific allowance is recorded however the loan is not included in the determination of the general valuation allowance . as a substantial amount of our loan portfolio is collateralized by real estate , appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans . assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties . overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined . the assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans . the general valuation allowance is determined for loans not determined to be impaired . we segregate our loan portfolio into portfolio segments . these portfolio segments share common characteristics such as the type of loan , its purpose , its underlying collateral , and other risk characteristics . once segregated , these loans are further segregated by loan grade . to calculate the allowance by grade , we apply internally developed loss factors comprised of both quantitative and qualitative considerations . we estimate our loss factors by taking into consideration both quantitative and qualitative aspects that would affect our estimation of probable incurred losses . story_separator_special_tag our shift in focus is evidenced by the $ 2.9 million , or 12.1 % , increase in commercial and multi-family real estate loans to $ 26.7 million at december 31 , 2018 from $ 23.8 million at december 31 , 2017 and the $ 3.5 million , or ( 7.8 ) % , decrease in owner occupied one-to four-family loans to $ 41.2 million at december 31 , 2018 from $ 44.7 million at december 31 , 2017 . maintain a modest portfolio of commercial business loans . consistent with our strategy to increase our loan portfolio yield and earnings , we are continuing to maintain a modest portfolio of commercial business loans . these loans have higher yields but also involve more credit risk as repayment of commercial business loans is primarily contingent upon the success of the business . commercial business loans at december 31 , 2018 were $ 2.6 million compared to $ 2.0 million at december 31 , 2017 . increase noninterest income . to continue our focus on being a community lender and reduce our exposure to changes in interest rates inherent in residential one-to four-family real estate loans , we began originating and selling single family one-to four-family loans with terms of 20 years or more to the federal home loan bank of chicago through its mortgage partnership finance ® ( mpf ® ) . additionally , we are continuing offering brokerage services to our customers through a networking arrangement with a registered broker-dealer . manage interest rate risk while maintaining or enhancing , to the extent practicable , our net interest margin . subject to market conditions , we have sought to enhance net interest income by focusing our lending efforts more heavily toward commercial and multi-family real estate lending . 38 at the same time , we are attempting to lessen our exposure to interest rate risk by shifting our focus away from retention of longer-term residential one-to four-family loans in our portfolio and securing longer-term deposits through our certificates of deposit . rely on community orientation and high quality service to maintain and build a loyal local customer base and maintain our status as an independent community-based institution . we were organized in 1887 and have been operating continuously in madison county since that time . by using our recognized brand name and the goodwill developed over years of providing timely , efficient banking services , we have been able to attract a solid base of local retail customers on which to continue to build our banking business . we have historically focused on promoting relationships within our community rather than specific banking products , and we expect to continue to build our customer base by relying on customer referrals and referrals from local builders and realtors . adhere to conservative underwriting guidelines to maintain strong asset quality . we have emphasized maintaining strong asset quality by following conservative underwriting guidelines , sound loan administration , and focusing on loans secured by real estate located within our market area only . our nonperforming assets totaled $ 246,000 , or 0.22 % of total assets at december 31 , 2018. our total nonperforming loans to total gross loans ratio was 0.19 % at december 31 , 2018. total loan delinquencies , 30 days or more past due , as of december 31 , 2018 , were $ 856,000 , or 1.0 % of total gross loans . comparison of financial condition at december 31 , 2018 and 2017 our total assets decreased by $ 918,000 , or ( 0.83 ) % , to $ 109.4 million at december 31 , 2018 from $ 110.3 million at december 31 , 2017. the decrease in total assets is primarily due to cash and available-for-sale securities decrease of $ 1.9 million and $ 3.4 million , respectively as well as an increase of $ 4.5 million in net loans during 2018. the decrease in cash was offset partially by a $ 3.5 million , or ( 38.9 ) % , decrease in fhlb advances to $ 5.5 million at december 31 , 2018 from $ 9.0 million at december 31 , 2017. the decrease in available-for-sale securities and cash and cash equivalents is also reflective of our loan growth since december 31 , 2017. gross loans increased by $ 4.5 million , or 5.5 % , to $ 86.9 million at december 31 , 2018 from $ 82.3 million at december 31 , 2017. all of our loan portfolio segments increased except for our one-to four-family owner occupied loans , which decreased by $ 3.5 million . our one-to four-family non-owner occupied loans increased by $ 4.1 million . combined , our one-to four-family loans increased by $ 635,000. the one-to four-family non-owner occupied loans was the largest increase in 2018. the decrease in one-to four-family loans and increases in other loan portfolios , particularly our commercial and multi-family real estate portfolio , reflect our strategy of focusing our lending efforts more on commercial lending and an increase in demand for these types of loans during 2018. securities available for sale decreased by $ 3.4 million , or ( 20.8 ) % , to $ 12.8 million at december 31 , 2018 from $ 16.2 million at december 31 , 2017. the decrease is attributable to principle pay downs of mortgage-backed securities during the year ended december 31 , 2018. real estate owned , remained at $ 81,000 at december 31 , 2018. during 2018 , there were two foreclosures that resulted in $ 38,000 addition to other real estate owned . those properties were subsequently sold in 2018 also .
| general . our net loss increased by $ 475,000 , or 89.0 % , to $ 1,009,000 for the year ended december 31 , 2018 from a net loss of $ 534,000 for the year ended december 31 , 2017. of the increase , $ 619,000 was an increase in non-interest expense and primarily was attributable to the settlement expense recognized as a result of the payout completed on the defined benefit plan , which was partially offset by the increase in net interest income of $ 9,000 as well as an increase in non-interest income of $ 86,000. the remaining $ 49,000 is related to the 2017 income tax expense that was recognized , in 2018 there was no income tax expense . interest income . interest income increased to $ 4.0 million for the year ended december 31 , 2018 from $ 3.8 million for the year ended december 31 , 2017. the increase was the result of a decrease in the average balance of interest-earning assets offset partially by an increase in the yield on interest-earning assets . the average balance of interest-earning assets decreased to $ 101.9 million for the year ended december 31 , 2018 from $ 104.7 million for the year ended december 31 , 2017. the average yield on interest-earning assets increased to 3.87 % for the year ended december 31 , 2018 from 3.67 % for the year ended december 31 , 2017. interest income on loans increased by $ 228,000 , or 6.6 % , to $ 3.7 million for the year ended december 31 , 2018. the increase reflected an increase in the average balance of loans to $ 84.8 million for the year ended december 31 , 2018 from $ 79.8 million for the year ended december 31 , 2017. the increase in interest income on loans as a result of the increase in the average balance of loans was offset partially by the decrease in the yield on loans to 4.27
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the net profits interest , and ( b ) conclusions and reports regarding reserves by the trust 's independent reserve engineers . changes in internal control over financial reporting . during the quarter ended december 31 , 2013 , there were no changes in the trust 's internal control over financial reporting that have materially affected , or are reasonably likely to materially affect , the trust 's internal control over financial reporting . the trustee notes for purposes of clarification that it has no authority over , and makes no statement concerning , the internal control over financial reporting of enduro . 68 trustee 's report on internal control over financial reporting the trustee is responsible for establishing and maintaining adequate internal control over financial reporting , as such term is defined in rule 13a-15 ( f ) promulgated under the securities and exchange act of 1934 , as amended . internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with the modified cash basis of accounting . the trustee conducted an evaluation of the effectiveness of the trust 's internal control over financial reporting based on the criteria established in internal controlintegrated framework ( 1992 ) issued by the committee of sponsoring organizations of the treadway commission . based on the trustee 's evaluation under the framework in internal controlintegrated framework ( 1992 ) story_separator_special_tag this discussion contains forward-looking statements . please refer to forward-looking statements for an explanation of these types of statements . overview the trust is a statutory trust created under the delaware statutory trust act in may 2011. the business and affairs of the trust are managed by the trustee . the trustee has no authority over or responsibility for , and no involvement with , any aspect of the oil and gas operations or other activities on the underlying properties . the delaware trustee has only minimal rights and duties that are necessary to satisfy the requirements of the delaware statutory trust act . in connection with the closing of the initial public offering , on november 8 , 2011 , enduro contributed the net profits interest to the trust in exchange for 33,000,000 newly issued trust units . the net profits interest entitles the trust to receive 80 % of the net profits from the sale and production of oil and natural gas attributable to the underlying properties that are produced during the term of the conveyance , which commenced on july 1 , 2011. the trust is not subject to any pre-set termination provisions based on a maximum volume of oil or natural gas to be produced or the passage of time . the trust will dissolve upon the earliest to occur of the following : ( 1 ) the trust , upon approval of the holders of at least 75 % of the outstanding trust units , sells the net profits interest , ( 2 ) the annual cash proceeds received by the trust attributable to the net profits interest are less than $ 2 million for each of any two consecutive years , ( 3 ) the holders of at least 75 % of the outstanding trust units vote in favor of dissolution or ( 4 ) the trust is judicially dissolved . the trust is required to make monthly cash distributions of substantially all of its monthly cash receipts , after deducting the trust 's administrative expenses , to holders of record ( generally the last business day of each calendar month ) on or before the 10 th business day after the record date . the net profits interest will be entitled to a share of the profits from and after july 1 , 2011 attributable to production occurring on or after june 1 , 2011. during 2011 , the trust paid one distribution , which was announced on november 18 , 2011. the trust 's first distribution related to net profits generated during the calculation period from july 1 , 2011 through september 30 , 2011 as provided in the conveyance . the distribution primarily represented oil and natural gas production during the months of june and july 2011 and a portion of oil production related to august 2011 , while expenses were included for the full three months in the calculation period . the amount of trust revenues and cash distributions to trust unitholders depends on , among other things : oil and gas sales prices ; volumes of oil and natural gas produced and sold attributable to the underlying properties ; production and development costs ; price differentials ; potential reductions or suspensions of production ; and the amount and timing of trust administrative expenses . 38 story_separator_special_tag ended december 31 , 2013 were approximately $ 14.0 million as compared to capital expenditures of $ 16.3 million in 2012. capital expenditures decreased in 2013 compared to 2012 primarily as a result of a decrease in natural gas drilling projects in louisiana and the timing of capital projects . the trust paid general and administrative expenses of $ 0.7 million during the year ended december 31 , 2013. expenses paid during the period primarily consisted of fees for the preparation of 2012 tax information for unitholders , preparation of the trust 's reserve report and annual report on form 10-k for 2012 , 2012 financial statement audit fees , trustee fees , and new york stock exchange listing fees . for the year ended december 31 , 2012 , the trust paid general and administrative expenses of $ 1.0 million . story_separator_special_tag this development is anticipated to increase the trust 's oil production in 2014. historical results of the underlying properties the following table sets forth revenues , direct operating expenses and the excess of revenues over direct operating expenses relating to the underlying properties for the six months ended june 30 , 2011 derived from the historical revenues and direct operating expenses of the underlying properties included elsewhere in this annual report on form 10-k. replace_table_token_15_th 42 the following table provides oil and natural gas sales volumes , average sales prices , average costs per boe and capital expenditures relating to the underlying properties for the six months ended june 30 , 2011. replace_table_token_16_th 43 liquidity and capital resources the trust 's principal sources of liquidity are cash flow generated from the net profits interest and borrowing capacity under the letter of credit described below . other than trust administrative expenses , including any reserves established by the trustee for future liabilities , the trust 's only use of cash is for distributions to trust unitholders . available funds are the excess cash , if any , received by the trust from the net profits interest and other sources ( such as interest earned on any amounts reserved by the trustee ) in that month , over the trust 's expenses paid for that month . available funds are reduced by any cash the trustee determines to hold as a reserve against future expenses . the trustee may create a cash reserve to pay for future liabilities of the trust . if the trustee determines that the cash on hand and the cash to be received are , or will be , insufficient to cover the trust 's liabilities , the trustee may authorize the trust to borrow money to pay administrative or incidental expenses of the trust that exceed cash held by the trust . the trustee may authorize the trust to borrow from any person , including the trustee or the delaware trustee or an affiliate thereof , although none of the trustee , the delaware trustee or any affiliate thereof intends to lend funds to the trust . the trustee may also cause the trust to mortgage its assets to secure payment of the indebtedness . the terms of such indebtedness and security interest , if funds were loaned by the entity serving as trustee or delaware trustee or an affiliate thereof , would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship . in addition , enduro has agreed to provide the trust with a $ 1 million letter of credit to be used by the trust in the event that its cash on hand ( including available cash reserves ) is not sufficient to pay ordinary course administrative expenses . further , if the trust requires more than the $ 1 million under the letter of credit to pay administrative expenses , enduro has agreed to loan funds to the trust necessary to pay such expenses . any loan made by enduro to the trust would be evidenced by a written promissory note , be on an unsecured basis , and have terms that are no less favorable to enduro as those that would be obtained in an arm 's length transaction between enduro and an unaffiliated third party . if the trust borrows funds , draws on the letter of credit or enduro loans funds to the trust , no further distributions will be made to trust unitholders until such amounts borrowed or drawn are repaid . except for the foregoing , the trust has no source of liquidity or capital resources . the trustee has no current plans to authorize the trust to borrow money . at december 31 , 2013 and 2012 , the trust held cash reserves of $ 85,352 and $ 194,538 , respectively , for future trust expenses . since its formation , the trust has not borrowed any funds and no amounts have been drawn on the letter of credit . cash held by the trustee as a reserve against future liabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in : interest-bearing obligations of the united states government ; money market funds that invest only in united states government securities ; repurchase agreements secured by interest-bearing obligations of the united states government ; or bank certificates of deposit . as substantially all of the underlying properties are located in mature fields , enduro does not expect future costs for the underlying properties to change significantly as compared to recent historical costs other than changes due to fluctuations in the cost of oilfield services generally . the amounts received by enduro from hedge contract counterparties upon settlement of the hedge contracts reduced the operating expenses related to the underlying properties in calculating income from the net profits interest in 2013. enduro has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after 2013 and the terms of the conveyance prohibit enduro from entering into new hedging arrangements burdening the trust . the remaining hedge settlements for 2013 production reduced or will reduce operating expenses related to the underlying properties in calculating income from the net profits interest during the first and second quarters of 2014. the trust pays the trustee an administrative fee of $ 200,000 per year . the trust pays the delaware trustee a fee of $ 2,000 per year . the trust also incurs , either directly or as a reimbursement to the trustee , legal , accounting , tax and engineering fees , printing costs and other expenses that are deducted by the trust before distributions are made to trust unitholders .
| results of operations the following table displays oil and natural gas sales , volumes and average prices ( excluding the effects of the hedging arrangements discussed in note 4 of the notes to financial statements ) from the underlying properties , representing the amounts included in the net profits calculation for the distributions paid during the years ended december 31 , 2013 and 2012 and for the period from inception through december 31 , 2011. replace_table_token_12_th commodity hedges the trust is exposed to fluctuations in energy prices in the normal course of business due to the net profits interest in the underlying properties . the revenues derived from the underlying properties depend substantially on prevailing crude oil prices and , to a lesser extent , natural gas prices . as a result , commodity prices affect the amount of cash flow available for distribution to the trust unitholders . lower prices may also reduce the amount of oil and natural gas that enduro and its third party operators can economically produce . to mitigate the negative effects of a possible decline in oil and natural gas prices on distributable income to the trust and to achieve more predictable cash flows , enduro entered into hedge contracts with respect to approximately 52 % and 48 % of oil and natural gas production for 2012 and 2013 , respectively . enduro has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after 2013 and the terms of the net profits interest prohibit enduro from entering into new hedging arrangements burdening the trust . as of december 31 , 2013 , all hedge contracts had matured . consequently , all production attributable to the trust in 2014 and thereafter is expected to be unhedged .
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if any event of default occurs and is continuing , subject to certain exceptions , the trustee or the holders of at least 25 % in aggregate principal amount of the then outstanding notes may declare all the notes to be due and story_separator_special_tag this report contains 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. these statements relate to our expectations for future events and time periods . all statements other than statements of historical fact are statements that could be deemed to be forward-looking statements , including any statements regarding trends in future revenue or results of operations , gross margin , operating margin , expenses , earnings or losses from operations , cash flow , synergies or other financial items ; any statements of the plans , strategies and objectives of management for future operations ; any statements concerning developments , performance or industry ranking ; any statements regarding future economic conditions or performance ; any statements regarding pending legal proceedings and environmental remediations ; any statements regarding the financial impact of customer bankruptcies ; any statements regarding our expectations for future interest expense ; any statements regarding the timing of closing of future cash outlays for and benefits of acquisitions ; any statements about future redemptions or repurchases of debt and stock ; any statements concerning the adequacy of our current liquidity and the availability of additional sources of liquidity ; any statements of expectation or belief ; and any statements of assumptions underlying any of the foregoing . generally , the words “ anticipate , ” “ believe , ” “ plan , ” “ expect , ” “ future , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” and similar expressions identify forward-looking statements . our forward-looking statements are based on current expectations , forecasts and assumptions and are subject to the risks and uncertainties contained in part i , item 1a of this report . as a result , actual results could vary materially from those suggested by the forward looking statements . we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the securities and exchange commission . overview we are a leading independent global provider of integrated manufacturing solutions , components , products and repair , logistics and after-market services . our revenue is generated from sales of our services primarily to original equipment manufacturers ( oems ) in the following industries : communications networks ; computing and storage ; multimedia ; industrial and semiconductor capital equipment ; defense and aerospace ; medical ; clean technology and automotive . our operations are managed as two businesses : 1 ) integrated manufacturing solutions ( ims ) . ims is a reportable segment consisting of printed circuit board assembly and test , final system assembly and test , and direct-order-fulfillment . 2 ) components , products and services ( cps ) . components include interconnect systems ( printed circuit board fabrication , backplane and cable assemblies ) and mechanical systems ( enclosures , precision machining and plastic injection molding ) ; products include memory and solid state drive products from viking technology , defense and aerospace products from sci technology , storage products from newisys and optical and rf ( radio frequency ) modules ; and services include design , engineering , logistics and repair services . in accordance with the accounting rules for segment reporting , our only reportable segment is ims , which represented 80 % of our total revenue in 2013 . our cps business consists of multiple operating segments which do not meet the quantitative thresholds for being presented as reportable segments . therefore , financial information for these operating segments is presented in a single category entitled “ components , products and services ” . effective in the fourth quarter of 2013 , the optical and rf modules group was moved to cps ( previously included in ims ) . the optical and rf modules group offers customers engineering solutions and product designs , including joint product design services with customers . as a result , this group creates intellectual property that can be used in proprietary designs and products similar to the other product businesses in cps . all references in this section to years refer to our fiscal years ending on the last saturday of each year closest to september 30th . fiscal 2013 , 2012 and 2011 are each 52 weeks . our strategy is to leverage our comprehensive service offering , advanced technologies , and global capabilities to further penetrate diverse end markets that we believe offer significant growth opportunities and have complex products that require higher value-added services . we believe this strategy differentiates us from our competitors and will drive more sustainable revenue growth and provide opportunities for us to ultimately achieve operating margins that exceed industry standards . there are many challenges to successfully executing our strategy . for example , we compete with a number of companies in each of our key end markets . these include companies that are much larger than we are and smaller companies 37 that focus on a particular niche . although we believe we are well-positioned in each of our key end markets and seek to differentiate ourselves from our competitors , competition remains intense and profitably growing our revenues has been challenging as evidenced by declining revenues in each of the last two years . additionally , further growing and leveraging our cps business to improve our operating margins continues to be an integral part of our strategy . although our cps revenue grew 5 % in 2013 and gross margins improved by 200 basis points , we believe this business is capable of delivering much better results . story_separator_special_tag to establish our allowance for doubtful accounts , we evaluate credit risk related to specific customers based on their financial condition and the current economic environment ; however , we are not able to predict the inability of our customers to meet their financial obligations to us . we believe the allowances we have established are adequate under the circumstances ; however , a change in the economic environment or a customer 's financial condition could cause our estimates of allowances , and consequently the provision for doubtful accounts , to change , which could have a significant adverse impact on our financial position and or results of operations . our allowance for product returns and other adjustments is primarily established using historical data . inventories— we state inventories at the lower of cost ( first-in , first-out method ) or market value . cost includes raw materials , labor and manufacturing overhead . we regularly evaluate the carrying value of our inventories and make provisions to reduce excess and obsolete inventories to their estimated net realizable values . the ultimate realization of inventory carrying amounts is affected by changes in customer demand for inventory that customers are not contractually obligated to purchase and inventory held for specific customers who are experiencing financial difficulties . inventory write-downs are recorded based on forecasted demand , past experience with specific customers , the ability to redistribute inventory to other programs or back to our suppliers , and whether customers are contractually obligated and have the ability to pay for the related inventory . certain payments received from customers for inventories that have not been shipped to customers or otherwise disposed of are netted against inventory . we procure inventory based on specific customer orders and forecasts . customers have limited rights of modification ( for example , cancellations ) with respect to these orders . customer modifications of orders affecting inventory previously procured by us and our purchases of inventory beyond customer needs may result in excess and obsolete inventory . although we may be able to use some excess inventory for other products we manufacture , a portion of the cost of this excess inventory may not be returned to the vendors or recovered from customers . write-offs or write-downs of inventory could relate to : changes in customer demand for inventory , such as cancellation of orders , and our purchases of inventory beyond customer needs that result in excess quantities on hand that we are not able to return to the vendor , use to fulfill orders from other customers or charge back to the customer ; inventory held for specific customers who are experiencing financial difficulties ; and declines in the market value of inventory . our practice is to dispose of excess and obsolete inventory as soon as practicable after such inventory has been identified as having no value to us . property , plant and equipment —we review property , plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . an asset or asset 39 group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . an asset group is the unit of accounting which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . for vertically integrated plants , each individual plant , together with the other plants with which it is vertically integrated , is an asset group . for all other plants , each individual plant is an asset group . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows . management applies significant judgment in estimating future cash flows . income taxes— we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimates will impact our income tax provision in the period in which such determination is made . we only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold of being upheld . interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets when we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors .
| results of operations years ended september 28 , 2013 , september 29 , 2012 and october 1 , 2011 . the following table presents our key operating results . replace_table_token_6_th net sales net sales decreased from $ 6.1 billion for 2012 to $ 5.9 billion for 2013 , a decrease of 2.9 % . net sales decreased from $ 6.6 billion for 2011 to $ 6.1 billion for 2012 , a decrease of 7.7 % . sales by end market were as follows : replace_table_token_7_th comparison of 2013 to 2012 sales to customers in our computing and storage and multimedia end markets decreased significantly from 2012 to 2013 primarily as a result of reduced demand from existing customers and the wind-down of certain customer programs . these decreases were partially offset by growth in our services business within the industrial , defense and medical end market . comparison of 2012 to 2011 sales to customers in our communications end market decreased significantly from 2011 to 2012 primarily as a result of reduced demand from existing customers , particularly for wireless communications products . sales in the multimedia market decreased significantly from 2011 to 2012 primarily as a result of reduced demand for set-top boxes . sales in our industrial , defense and medical end market decreased from 2011 to 2012 primarily due to weaker demand for semiconductor capital equipment . the increase from 2011 to 2012 in our computing and storage end market was primarily attributable to increased demand from existing customers , both for established programs and new program wins for new technologies introduced by our customers . gross margin gross margin was 7.2 % , 7.2 % and 7.7 % in 2013 , 2012 and 2011 , respectively .
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story_separator_special_tag company overview american axle & manufacturing holdings , inc. ( holdings ) and its subsidiaries ( collectively , we , our , us or aam ) is a tier i supplier to the automotive industry . we manufacture , engineer , design and validate driveline and drivetrain systems and related components and chassis modules for light trucks , sport utility vehicles ( suvs ) , passenger cars , crossover vehicles and commercial vehicles . driveline and drivetrain systems include components that transfer power from the transmission and deliver it to the drive wheels . our driveline , drivetrain and related products include axles , chassis modules , driveshafts , power transfer units , transfer cases , chassis and steering components , driveheads , transmission parts , electric drive systems and metal-formed products . in addition to locations in the united states ( u.s. ) ( michigan , ohio and indiana ) , we also have offices or facilities in brazil , china , germany , india , japan , luxembourg , mexico , poland , scotland , south korea , sweden and thailand . we are the principal supplier of driveline components to general motors company ( gm ) for its full-size rear-wheel drive ( rwd ) light trucks and suvs manufactured in north america , supplying substantially all of gm 's rear axle and four-wheel drive and all-wheel drive ( 4wd/awd ) axle requirements for these vehicle platforms . sales to gm were approximately 66 % of our consolidated net sales in 2015 , 68 % in 2014 , and 71 % in 2013 . we are the sole-source supplier to gm for certain axles and other driveline products for the life of each gm vehicle program covered by lifetime program contracts and long term program contracts ( collectively , lpcs ) . substantially all of our sales to gm are made pursuant to the lpcs . the lpcs have terms equal to the lives of the relevant vehicle programs or their respective derivatives , which typically run 5 to 7 years , and require us to remain competitive with respect to technology , design , quality and cost . we also supply driveline system products for fca us llc ( fca ) for heavy-duty ram full-size pickup trucks and its derivatives , the awd jeep cherokee , the awd chrysler 200 , and a passenger car driveshaft program . sales to fca were approximately 20 % of our consolidated net sales in 2015 , 18 % in 2014 and 12 % in 2013 . in addition to gm and fca , we supply driveline systems and other related components to volkswagen ag ( volkswagen ) , audi ag ( audi ) , mercedes-benz , jaguar land rover automotive plc ( jlr ) , honda motor co. , ltd. , ford motor company ( ford ) , nissan motor co. , ltd. ( nissan ) , paccar inc. , harley-davidson inc. , daimler truck and other original equipment manufacturers ( oems ) and tier i supplier companies such as jatco ltd. and hino motors ltd. our consolidated net sales to customers other than gm increased 10 % to $ 1,317.1 million in 2015 as compared to $ 1,199.9 million in 2014 and $ 926.7 million in 2013 . industry trends there are a number of significant trends affecting the highly competitive automotive industry . as general economic and industry specific conditions have improved , intense competition , volatility in fuel , steel , metallic and other commodity prices and significant pricing pressures persist within the global automotive industry . at the same time , the industry is intently focused on investing in future products that will incorporate the latest technology , meet changing customer demands and comply with more stringent government regulations . the continued advancement of technology and product innovation , as well as having the capability to source programs on a global basis , are critical to attracting and retaining business in today 's automotive industry . in 2015 , the u.s. seasonally adjusted annual rate of sales ( saar ) increased to 17.4 million units , which compares to 16.4 million units in 2014 and 15.5 million units in 2013 . as a result of a continued reduction in oil prices , improvement in employment rates , increases in customer demands and the availability of low interest credit , we believe that the u.s. domestic oems and their suppliers will continue to be able to capitalize on these trends in the near term . more stringent government regulations for fuel efficiency and emissions reductions with a growing focus on environmental legislation and regulation , there has been an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . the u.s. cafe standards for cars and light-duty trucks requires the equivalent of 54.5 miles per gallon by 2025. as a result , oems and suppliers are competing intensely to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , fuel-efficient diesel engines and efficiency improvements of driveline systems to improve fuel economy and emissions . 22 we are responding to the increases in cafe standards with ongoing research and development ( r & d ) efforts that focus on fuel economy , emission reduction and environmental improvements . these efforts have led to new business awards for products that support awd and rwd passenger cars and crossover vehicles and further position us to compete in the marketplace . we are continuing to invest in the development of advanced products focused on fuel economy , mass reductions , vehicle safety and performance by integrating electronics and technology . approximately 75 % of aam 's new and incremental business backlog launching from 2016 to 2018 , which is an estimated $ 725 million , relates to aam 's newest awd systems for passenger cars and crossover vehicles . story_separator_special_tag these vehicles will radically change our current road systems , requiring an overhaul of driving laws , road signs , traffic management , insurance regulations and liability issues . autonomous vehicles present many possible benefits , such as a reduction in deadly traffic collisions caused by human error and reduced traffic congestion , but there are also foreseeable challenges such as liability for damage , software reliability and the potential for a vehicle 's computer being compromised . aam 's advancements such as aam 's ecotrac ® technology , tracrite ® differential technology and vectrac torque vectoring technology correlate well with the autonomous vehicle developments . we will continue to develop our driveline systems and will pursue new opportunities to participate in these expanding markets . story_separator_special_tag ont > $ 0.6 million in 2013 . investment income includes interest earned on cash and cash equivalents during the period . other income ( expense ) following are the components of other income ( expense ) for 2015 , 2014 and 2013 : debt refinancing and redemption costs in 2015 , we expensed $ 0.8 million of unamortized debt issuance costs related to a voluntary election to prepay all of our outstanding term facility . in 2013 , we expensed $ 36.8 million of unamortized debt issuance costs , discount and prepayment premiums related to the termination of our class c loan facility , the purchase and voluntary redemption of $ 300.0 million of our 7.875 % senior unsecured notes ( 7.875 % notes ) and the voluntary redemption of the remaining $ 340.0 million of our 9.25 % senior secured notes ( 9.25 % notes ) . other , net other , net , which includes the net effect of foreign exchange gains and losses and our proportionate share of earnings from equity in unconsolidated subsidiaries , was income of $ 12.0 million and $ 6.9 million in 2015 and 2014 , respectively , and expense of $ 1.9 million in 2013 . the increase in other , net in 2015 , as compared to 2014 , is primarily due to the remeasurement of u.s. dollar denominated assets in brazil as the reais weakened , as well as higher earnings from equity in our unconsolidated joint venture . the increase in other , net in 2014 , as compared to 2013 , is primarily due to the remeasurement of our peso denominated assets and liabilities , as the peso continued to weaken against the u.s. dollar . 25 income tax expense ( benefit ) income tax expense ( benefit ) was expense of $ 37.1 million and $ 33.7 million in 2015 and 2014 , respectively , as compared to a benefit of $ 8.2 million in 2013 . our effective income tax rate was 13.6 % in 2015 as compared to 19.1 % in 2014 and negative 9.5 % in 2013 . our income tax expense and effective tax rate for 2015 , 2014 and 2013 primarily reflect favorable foreign tax rates , along with our inability to realize a tax benefit for current foreign losses . in the fourth quarter of 2015 , we recorded an $ 11.5 million reduction in tax expense related to uncertain tax positions attributable to transfer pricing as a result of new information from our discussions with mexican tax authorities . in 2014 , we recorded tax expense of $ 23.1 million for changes to prior year uncertain tax positions related to transfer pricing and expense of $ 3.4 million for a change in estimate for u.s. tax on unremitted foreign earnings . we also recorded a net tax benefit of $ 20.1 million in 2014 related to our ability to utilize tax credits in future periods resulting in the recognition of a deferred tax asset . in 2013 , mexican tax reform was enacted that , among other things , increased the tax rate related to maquiladora companies from 17.5 % to 30 % . we recorded a tax benefit of $ 8.5 million as a result of revaluing our deferred tax assets at the newly enacted rate . in 2013 , we recorded tax expense of $ 4.8 million relating to changes in estimates in the u.s. and certain foreign jurisdictions . during 2013 , we also settled various income tax audits resulting in a reduction of our liability for unrecognized income tax benefits of $ 8.4 million and a cash payment of $ 4.7 million . as of december 31 , 2015 and 2014 , we have a valuation allowance of $ 167.3 million and $ 156.9 million , respectively , related to net deferred tax assets in several foreign jurisdictions and u.s. state and local jurisdictions . net income and earnings per share ( eps ) net income was $ 235.6 million in 2015 as compared to $ 143.0 million in 2014 and $ 94.5 million in 2013 . diluted earnings per share was $ 3.02 in 2015 as compared to $ 1.85 per share in 2014 and $ 1.23 per share in 2013 . net income and eps were primarily impacted by the factors discussed in gross profit , sg & a , debt refinancing and redemption costs and income tax expense ( benefit ) . liquidity and capital resources our primary liquidity needs are to fund capital expenditures , debt service obligations and our working capital requirements . we believe that operating cash flow , available cash and cash equivalent balances and available committed borrowing capacity under our revolving credit facility will be sufficient to meet these needs . operating activities net cash provided by operating activities was $ 377.6 million in 2015 as compared to $ 318.4 million in 2014 and $ 223.0 million in 2013 .
| results of operations net sales net sales increased by 6 % to $ 3,903.1 million in 2015 as compared to $ 3,696.0 million in 2014 and $ 3,207.3 million in 2013 . the increase in sales in 2015 , as compared to 2014 , primarily reflects an increase of approximately 5 % in production volumes for the north american light truck and suv programs we currently support for gm and fca , which was partially offset by a reduction in metal market pass throughs to our customers and foreign exchange related to translation adjustments . the increase in sales in 2015 also reflects higher sales supporting a global crossover program for gm and a passenger car driveshaft program for fca , both of which launched in the second half of 2014. the increase in sales in 2014 , as compared to 2013 , primarily reflected an increase of approximately 8 % in production volumes for the north american light truck and suv programs we supported for gm and fca and higher sales in support of fca 's awd jeep cherokee . our content-per-vehicle ( cpv ) ( as measured by the dollar value of our products supporting our customers ' north american light truck and suv programs ) was $ 1,645 in 2015 , as compared to $ 1,667 in 2014 and $ 1,550 in 2013 . the decrease in cpv in 2015 as compared to 2014 , relates primarily to the reduction in metal market pass throughs to our customers . the increase in cpv in 2014 as compared to 2013 , principally reflects additional content on gm and fca 's next generation full-size pickup truck programs . 24 our 4wd/awd penetration rate increased to 70.9 % in 2015 as compared to 68.5 % in 2014 and 66.1 % in 2013 . we define 4wd/awd penetration as the total number of front axles we produce divided by the total number of rear axles we produce for the vehicle programs we support .
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under both agreements , the company generally retains the benefit of the remaining 15 % of the applicable tax savings story_separator_special_tag unless the context requires otherwise , references in this report to the “ company , ” “ we , ” “ us ” and “ our ” refer to planet fitness , inc. and its consolidated subsidiaries . overview we are one of the largest and fastest-growing franchisors and operators of fitness centers in the united states by number of members and locations , with a highly recognized national brand . our mission is to enhance people 's lives by providing a high-quality fitness experience in a welcoming , non-intimidating environment , which we call the judgement free zone , where anyone—and we mean anyone—can feel they belong . our bright , clean stores are typically 20,000 square feet , with a large selection of high-quality , purple and yellow planet fitness-branded cardio , circuit- and weight-training equipment and friendly staff trainers who offer unlimited free fitness instruction to all our members in small groups through our pe @ pf program . we offer this differentiated fitness experience at only $ 10 per month for our standard membership . this exceptional value proposition is designed to appeal to a broad population , including occasional gym users and the approximately 80 % of the u.s. and canadian populations over age 14 who are not gym members , particularly those who find the traditional fitness club setting intimidating and expensive . we and our franchisees fiercely protect planet fitness ' community atmosphere—a place where you do not need to be fit before joining and where progress toward achieving your fitness goals ( big or small ) is supported and applauded by our staff and fellow members . as of december 31 , 2018 , we had approximately 12.5 million members and 1,742 stores in 50 states , the district of columbia , puerto rico , canada , the dominican republic , panama and mexico . of our 1,742 stores , 1,666 are franchised and 76 are corporate-owned . as of december 31 , 2018 , we had commitments to open more than 1,000 new stores under existing adas . composition of revenues , expenses and cash flows revenues we generate revenue from three primary sources : franchise segment revenue : franchise segment revenue relates to services we provide to support our franchisees and includes royalty revenue , franchise fees , placement revenue , other fees and commission income associated with our franchisee-owned stores . franchise segment revenue does not include the sale of tangible products by us to our franchisees . our franchise segment revenue comprised 39 % , 35 % and 31 % of our total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively . corporate-owned store segment revenue : includes monthly membership dues , enrollment fees , annual fees and prepaid fees paid by our members as well as retail sales . this source of revenue comprised 24 % , 26 % , and 28 % of our total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 , 95 % of our members paid their monthly dues by eft , while the remainder prepaid annually in advance . equipment segment revenue : includes equipment revenue for new u.s. franchisee-owned stores as well as replacement equipment for u.s. existing franchisee-owned stores . franchisee-owned stores are required to replace their equipment every five to seven years . this source of revenue comprised 37 % , 39 % and 41 % of our total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively . see item 7 : critical accounting policies and use of estimates for further discussion on our revenue streams and revenue recognition policies . expenses we primarily incur the following expenses : cost of revenue : primarily includes the direct costs associated with equipment sales to new and existing franchisee-owned stores in the u.s. as well as direct costs related to our point-of-sale system . cost of revenue also includes the cost of retail sales at our corporate-owned stores , which is immaterial . our cost of revenue changes primarily based on equipment sales volume . store operations : includes the direct costs associated with our corporate-owned stores , primarily rent , utilities , payroll , marketing , maintenance and supplies . the components of store operations remain relatively stable for each store and change primarily based on the number of corporate-owned stores . our statements of operations do not include , and we are not responsible for , any costs associated with operating franchisee-owned stores . selling , general and administrative expenses : consists of costs associated with administrative and franchisee support functions related to our existing business as well as growth and development activities , including costs to support 41 equipment placement and assembly services . these costs primarily consist of payroll , it-related , marketing , legal and accounting expenses . cash flows we generate a significant portion of our cash flows from monthly membership dues , royalties and various fees and commissions related to transactions involving our franchisee-owned stores . we oversee the membership billing process , as well as the collection of our royalties and certain other fees , through our third-party hosted system-wide point-of-sale system . we collect monthly dues from our corporate-owned store members on or around the 17 th of each month , while annual fees are collected on or around the 1 st day of the second month following the month in which the membership agreement was signed . through our point-of-sale system , we oversee the processing of membership billings for franchisee-owned stores . our royalties and certain other fees are deducted on or around the 17 th of each month from these membership billings by the processor prior to the net billings being remitted to the franchisees . story_separator_special_tag we did not receive any proceeds from the sale of shares of our class a common stock offered in the september secondary offering . on november 22 , 2016 , we completed a secondary offering ( the “ november secondary offering ” ) pursuant to which the direct tsg investors and the participating continuing llc owners sold an aggregate of 15,000,000 shares of class a common stock at a price of $ 23.22 per share . we did not receive any proceeds from the sale of shares of our class a common stock offered in the november secondary offering . on november 10 , 2016 , we declared a special cash dividend of $ 2.78 per share which was paid on december 5 , 2016 to the class a common stock holders of record as of november 22 , 2016. the dividend , which together with other dividend equivalent payments ( including payments of $ 2.78 per unit to continuing llc owners ) , resulted in an aggregate cash payment of $ 271.0 million . on november 10 , 2016 , we executed the second amendment to our senior secured credit agreement to a ) decrease the interest rate spread on our term loan by 25 basis points , b ) increase the aggregate principal amount of the term loans by $ 230.0 million to $ 718.5 million , and c ) increase the aggregate revolving commitments by $ 35.0 million to $ 75.0 million . on september 28 , 2016 , we completed a secondary offering ( the “ september secondary offering ” ) pursuant to which the direct tsg investors and participating continuing llc owners sold an aggregate of 8,000,000 shares of class a common stock at a price of $ 19.62 per share . we did not receive any proceeds from the sale of shares of our class a common stock offered in the september secondary offering . on june 28 , 2016 , we completed a secondary offering ( the “ june secondary offering ” ) pursuant to which the direct tsg investors and participating continuing llc owners sold an aggregate of 11,500,000 shares of class a common stock at a price of $ 16.50 per share . we did not receive any proceeds from the sale of shares of our class a common stock offered in the june secondary offering . seasonality our results are subject to seasonality fluctuations in that member joins are typically higher in january as compared to other months of the year . in addition , our quarterly results may fluctuate significantly because of several factors , including the timing of store openings , timing of price increases for enrollment fees and monthly membership dues and general economic conditions . see note 20 to our consolidated financial statements included elsewhere in this form 10-k for our total revenues , income from operations and net income for each of the quarters during the years ended december 31 , 2018 and 2017 . our segments we operate and manage our business in three business segments : franchise , corporate-owned stores and equipment . our franchise segment includes operations related to our franchising business in the united states , puerto rico , canada , the dominican republic , panama and mexico . our corporate-owned stores segment includes operations with respect to all corporate-owned stores throughout the united states and canada . the equipment segment includes the sale of equipment to franchisee-owned stores in the u.s. we evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest , taxes , depreciation and amortization , referred to as segment ebitda . revenue and segment ebitda for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions . the tables below summarize the financial information for our segments for the years ended december 31 , 2018 , 2017 and 2016 . “ corporate and other , ” as it relates to segment ebitda , primarily includes corporate overhead costs , such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment . 43 replace_table_token_3_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . ( 2 ) in the year ended december 31 , 2017 , includes a gain of $ 316,813 related to the remeasurement of the company 's tax benefit arrangement liabilities pursuant to the 2017 tax act . a reconciliation of income from operations to segment ebitda is set forth below : replace_table_token_4_th ( 1 ) total segment ebitda is equal to ebitda , which is a metric that is not presented in accordance with gaap . refer to “ —non-gaap financial measures ” for a definition of ebitda and a reconciliation to net income , the most directly comparable gaap measure . ( 2 ) includes a gain of $ 316,813 in the corporate and other segment related to the remeasurement of the company 's tax benefit arrangement liabilities pursuant to the 2017 tax act . 44 how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures for determining how our business is performing include total monthly dues and annual fees from members ( which we refer to as system-wide sales ) , the number of new store openings , same store sales for both corporate-owned and franchisee-owned stores , average royalty fee percentages for franchisee-owned stores , monthly pf black card membership penetration percentage , ebitda , adjusted ebitda , segment ebitda , four-wall ebitda , adjusted net income , and adjusted net income per share , diluted .
| segment results franchise franchise segment ebitda was $ 152.6 million in the year ended december 31 , 2018 compared to $ 126.5 million in the year ended december 31 , 2017 , an increase of $ 26.1 million , or 20.6 % . this increase was primarily the result of growth in our franchise segment revenue of $ 74.0 million , including a $ 53.5 million increase in royalty revenue primarily driven by $ 24.6 million due to higher royalty rates on monthly dues and $ 8.4 million due to higher royalties on annual fees , primarily as a result of the rebate to royalty amendment . additionally , $ 10.1 million was attributable to royalties from new stores in 2018 , as well as those that opened in 2017 that were not included in the same store sales base , and $ 10.4 million attributable to a same store sales increase of 10.4 % in franchisee-owned stores . we also had higher web join income of $ 2.2 million as a result of a higher web join acquisition rate and a higher number of franchisee-owned stores in the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . in connection with the adoption of asc 606 , franchise segment revenue also included $ 42.2 million of naf revenue in the year ended december 31 , 2018 compared to zero in the year ended december 31 , 2017 ( see note 10 ) . partially offsetting these revenue increases was a $ 10.4 million decrease in franchise and other fees and an $ 11.5 million decrease in commission income , both primarily driven by the rebate to royalty amendment .
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factors that might cause such a difference include , but are not limited to , those discussed in the section of this report entitled item 1a , `` risk factors . '' readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's opinions only as of the date hereof . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements . readers should also carefully review the risk factors described in other documents which we file from time to time with the sec , including the quarterly reports on form 10-q to be filed by us during 2011. general we are a leading provider of environmental , energy and industrial services throughout north america . we serve over 50,000 customers , including a majority of fortune 500 companies , thousands of smaller private entities and numerous federal , state , provincial and local governmental agencies . we have more than 175 locations , including over 50 waste management facilities , throughout north america in 36 u.s. states , seven canadian provinces , mexico and puerto rico . we also operate international locations in bulgaria , china , singapore , sweden , thailand and the united kingdom . we report the business in four operating segments , consisting of : technical servicesprovides a broad range of hazardous material management services including the packaging , collection , transportation , treatment and disposal of hazardous and non-hazardous waste at company-owned incineration , landfill , wastewater , and other treatment facilities . field servicesprovides a wide variety of environmental cleanup services on customer sites or other locations on a scheduled or emergency response basis including tank cleaning , decontamination , remediation , and spill cleanup . industrial servicesprovides industrial and specialty services , such as high-pressure and chemical cleaning , catalyst handling , decoking , material processing and industrial lodging services to refineries , chemical plants , pulp and paper mills , and other industrial facilities . exploration servicesprovides exploration and directional boring services to the energy sector serving oil and gas exploration , production , and power generation . overview during the year ended december 31 , 2010 , our revenues increased 61 % to $ 1.73 billion , compared with $ 1.07 billion during the year ended december 31 , 2009. this year-over-year revenue growth was primarily due to a full year of operations of eveready inc. ( `` eveready '' ) , which we acquired in july 2009 , our oil spill response efforts in both the gulf of mexico and michigan , and improved performance in our legacy clean harbors business . our revenues were also favorably impacted by $ 11.6 million due to the strengthening of the canadian dollar . our energy and industrial services business , which is primarily made up of the legacy eveready business , benefited from increased activity in the oil sands region in northern alberta , refinery turnaround work and high utilization rates at our camps in our lodging business during the year . 35 our participation in oil spill response efforts in both the gulf of mexico and michigan generated third party revenues during 2010 of $ 253.0 million , which accounted for approximately 15 % of total revenues . our work in the gulf of mexico essentially came through several customers that ranged from private companies to the u.s. coast guard . the work fell into four primary areas : skimming , decontamination , water treatment and onshore clean-up . we also supplied equipment that included boats , containment boom , skimmers , and vacuum trucks . in addition , we had a number of recovery and water treatment systems in place . over the course of the event , our work in the gulf of mexico evolved . at the height of the event in the second quarter , we had more than 3,500 response-related personnel working in the region , consisting of our own employees and a temporary workforce that our subcontractors recruited from the affected areas . by the end of the year , the number of response-related personnel was closer to 300. our oil spill work in michigan began in late july and consisted primarily of our supplying a broad array of equipment and experienced personnel . during the third quarter our spill-related headcount went as high as 450. the containment and clean-up work was completed by the end of the year . our field services revenues accounted for 27 % of our total revenues for the year ended december 31 , 2010 , due primarily to our oil spill response efforts in the gulf of mexico and michigan discussed above . margins in this segment improved due in part to this emergency response work . excluding the effect of the oil spill response work , revenues for field services increased from 2009 , driven primarily by the growth of routine maintenance and remedial work that had been deferred by our customers during the economic recession . our technical services revenues accounted for 41 % of our total revenues for the year ended december 31 , 2010. in our technical services segment , we achieved year-over-year revenue growth of 7 % . incinerator utilization increased to 90 % for the year ended december 31 , 2010 , compared to 86 % in 2009. on a geographic basis , this increase in utilization was driven by our canadian incineration facilities , which achieved 94 % utilization during 2010 and our u.s. locations , which achieved 89 % during 2010. landfill volumes increased 28 % year-over-year . story_separator_special_tag increases in overall sales volumes and the expansion of our customer base in recent years have also increased the volume of additions and deductions to the allowance during the year , as well as increased the amount of the allowance at the end of the year . our revenue allowance is intended to cover the net amount of revenue adjustments that may need to be credited to customers ' accounts in future periods . we determine the appropriate total revenue allowance by evaluating the following factors on a customer-by-customer basis as well as on a consolidated level : historical collection trends , age of outstanding receivables , existing economic 37 conditions and other information as deemed applicable . revenue allowance estimates can differ materially from the actual adjustments , but historically our revenue allowance has been sufficient to cover the net amount of the reserve adjustments issued in subsequent reporting periods . allowance for doubtful accounts . we establish an allowance for doubtful accounts to cover accounts receivable that may not be collectible . in establishing the allowance for doubtful accounts , we analyze the collectability of accounts that are large or past due . in addition , we consider historical bad debts and current economic trends in evaluating the allowance for doubtful accounts . accounts receivable written off in subsequent periods can differ materially from the allowance for doubtful accounts provided , but historically our provision has been adequate . accounting for landfills . we amortize landfill improvements and certain landfill-related permits over their estimated useful lives . the units-of-consumption method is used to amortize land , landfill cell construction , asset retirement costs and remaining landfill cells and sites . we also utilize the units-of-consumption method to record closure and post-closure obligations for landfill cells and sites . under the units-of-consumption method , we include future estimated construction and asset retirement costs , as well as costs incurred to date , in the amortization base of the landfill assets . additionally , where appropriate , as discussed below , we include probable expansion airspace that has yet to be permitted in the calculation of the total remaining useful life of the landfill . landfill assets landfill assets include the costs of landfill site acquisition , permits and cell construction incurred to date . these amounts are amortized under the units-of-consumption method such that the asset is completely amortized when the landfill ceases accepting waste . landfill capacity landfill capacity , which is the basis for the amortization of landfill assets and for the accrual of final closure and post-closure obligations , represents total permitted airspace plus unpermitted airspace that management believes is probable of ultimately being permitted based on established criteria . our management applies the following criteria for evaluating the probability of obtaining a permit for future expansion airspace at existing sites , which provides management a basis to evaluate the likelihood of success of unpermitted expansions : personnel are actively working to obtain the permit or permit modifications ( land use , state and federal ) necessary for expansion of an existing landfill , and progress is being made on the project . management expects to submit the application within the next year and to receive all necessary approvals to accept waste within the next five years . at the time the expansion is included in management 's estimate of the landfill 's useful economic life , it is probable that the required approvals will be received within the normal application and processing time periods for approvals in the jurisdiction in which the landfill is located . the company or other owner of the landfill has a legal right to use or obtain the right to use the land associated with the expansion plan . there are no significant known political , technical , legal or business restrictions or other issues that could impair the success of such expansion . a financial feasibility analysis has been completed and the results demonstrate that the expansion will have a positive financial and operational impact such that management is committed to pursuing the expansion . additional airspace and related additional costs , including permitting , final closure and post-closure costs , have been estimated based on the conceptual design of the proposed expansion . 38 exceptions to the criteria set forth above are approved through a landfill-specific approval process that includes approval from our chief financial officer and review by the audit committee of our board of directors . as of december 31 , 2010 , there were four unpermitted expansions at three locations included in management 's landfill calculation , which represented 35.4 % of our remaining airspace at that date . as of december 31 , 2010 , none of these unpermitted expansions were considered exceptions to management 's established criteria described above . if actual expansion airspace is significantly different from management 's estimate of expansion airspace , the amortization rates used for the units-of-consumption method would change , therefore impacting our profitability . if we determine that there is less actual expansion airspace at a landfill , this would increase amortization expense recorded and decrease profitability , while if we determine a landfill has more actual expansion airspace , amortization expense would decrease and profitability would increase . landfill final closure and post-closure liabilities the balance of landfill final closure and post-closure liabilities at december 31 , 2010 and 2009 was $ 29.8 million and $ 28.1 million , respectively . we have material financial commitments for the costs associated with requirements of the epa and the comparable regulatory agency in canada for landfill final closure and post-closure activities . in the united states , the landfill final closure and post-closure requirements are established under the standards of the epa , and are implemented and applied on a state-by-state basis .
| highlights : collections received from the two oil spill projects in the gulf of mexico and michigan of $ 231.1 million offset by vendor payments of approximately $ 149.9 million ; and divestitures in april 2010 of the pembina area landfill for $ 11.7 million and the mobile industrial health business for $ 2.4 million ( discussed further in note 10 , `` held for sale , '' to our financial statements included in item 8 of this report ) , offset partially by : redemption on september 28 , 2010 of $ 30.0 million of our then outstanding $ 300.0 million senior secured notes ; purchase of sturgeon & son transportation , inc. in april 2010 for cash of $ 13.9 million ( discussed further in note 3 , `` business combinations , '' to our financial statements included in item 8 of this report ) ; purchase of investment securities for $ 10.5 million ; tax payments of $ 56.0 million ; interest payments on our senior secured notes of $ 23.2 million ; and payment in march 2010 of bonuses and commissions earned throughout 2009. we intend to use our remaining existing cash and cash equivalents , marketable securities and cash flow from operations to provide for our working capital needs and to fund capital expenditures . we anticipate that our cash flow provided by operating activities will provide the necessary funds on both a short- and long-term basis to meet operating cash requirements .
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trilogy metals contributed all its assets associated with the ukmp and south32 paid story_separator_special_tag trilogy metals inc. management 's discussion & analysis for the fourth quarter and year ended november 30 , 2019 ( expressed in us dollars ) 61 table of contents replace_table_token_7_th 62 trilogy metals inc. management 's discussion and analysis ( expressed in us dollars ) general this management 's discussion and analysis ( “ md & a ” ) of trilogy metals inc. ( “ trilogy ” , “ the company ” , “ us ” or “ we ” ) is dated february 12 , 2020 and provides an analysis of our audited financial results for the year ended november 30 , 2019 compared to the years ended november 30 , 2018 and november 30 , 2017. the following information should be read in conjunction with our november 30 , 2019 audited consolidated financial statements and related notes which were prepared in accordance with united states generally accepted accounting principles ( “ u.s . gaap ” ) . a summary of the u.s. gaap accounting policies is outlined in note 2 of the audited consolidated financial statements . all amounts are in united states dollars unless otherwise stated . references to “ canadian dollars ” and “ c $ ” and “ cdn $ ” are to the currency of canada and references to “ u.s . dollars ” , “ $ ” or “ us $ ” are to the currency of the united states . andrew west , certified professional geologist , an employee and exploration manager for trilogy , is a qualified person under national instrument 43-101 - standards of disclosure for mineral projects ( “ ni 43-101 ” ) , and has approved the scientific and technical information in this md & a . trilogy 's shares are listed on the toronto stock exchange ( “ tsx ” ) and the nyse american under the symbol “ tmq ” . additional information related to trilogy , including our annual report on form 10-k , is available on sedar at www.sedar.com and on edgar at www.sec.gov . description of business we are a base metals exploration company focused on exploring and developing our mineral holdings in the ambler mining district located in alaska , u.s.a. we conduct our operations through a wholly-owned subsidiary , novacopper us inc. which is doing business as trilogy metals us ( “ trilogy metals us ” ) . our upper kobuk mineral projects , ( “ ukmp ” or “ ukmp projects ” ) , consist of : i ) the 100 % owned ambler lands which host the arctic copper-zinc-lead-gold-silver project ( the “ arctic project ” ) ; and ii ) the bornite lands being explored under a collaborative long-term agreement with nana regional corporation , inc. ( “ nana ” ) , a regional alaska native corporation , which host the bornite carbonate-hosted copper project ( the “ bornite project ” ) . subsequent to november 30 , 2019 , the company 's upper kobuk mineral projects were transferred to the joint venture ( as defined below ) , a newly incorporated limited liability company incorporated under the laws of delaware . each of trilogy and south32 hold a 50 % interest in the joint venture . property review our principal assets , the ukmp projects , are located in the ambler mining district in northwest alaska . our ukmp projects comprise approximately 426,690 acres ( 172,675 hectares ) consisting of the ambler and bornite lands . arctic project the ambler lands , which host a number of deposits , including the high-grade copper-zinc-lead-gold-silver arctic project , and other mineralized occurrences within a 100-kilometer-long volcanogenic massive sulfide ( “ vms ” ) belt , are owned by trilogy metals us . the ambler lands are located in northwestern alaska and consist of 185,805 acres ( 75,192 hectares ) of federal patented mining claims and state of alaska mining claims , within which vms mineralization has been found . we have recorded the ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies . bornite project on october 19 , 2011 , trilogy metals us and nana signed a collaborative agreement to explore and develop the ambler mining district . under the exploration agreement and option to lease ( as amended , the “ nana agreement ” ) , we acquired , in exchange for , among other things , a $ 4.0 million cash payment to nana , the exclusive right to explore the bornite property and lands deeded to nana through the alaska native claims settlement act ( “ ancsa ” ) , located adjacent to the arctic project , and the non-exclusive right to access and entry onto nana 's lands . the nana agreement establishes a framework for any future development of either the bornite project or the arctic project . both projects are included as part of a larger area of interest set forth in the nana agreement . the agreement with nana created a total land package incorporating our ambler lands with the adjacent bornite and ancsa lands with a total area of approximately 426,690 acres ( 172,675 hectares ) . 63 upon the decision to proceed with development of a mine within the area of interest , nana maintains the right to purchase an ownership interest in the mine equal to between 16 % -25 % or retain a 15 % net proceeds royalty which is payable after we have recovered certain historical costs , including capital and cost of capital . should nana elect to purchase an ownership interest in the mine , consideration will be payable based on the elected percentage purchased and all the costs incurred on the properties less $ 40.0 million , not to be less than zero . the parties would form a joint venture and be responsible for all future costs incurred in connection with the mine , including capital costs of the mine , based on each party 's pro-rata share . story_separator_special_tag the funds , which represent the third and final tranche , maintained the option agreement in good standing , and were fully received during the quarter ended february 28 , 2019. subscription funding phase south32 has now elected to subscribe for a 50 % interest in a newly formed llc which will take transfer of , and hold , trilogy metals us ' alaskan assets . as part of the subscription price , south32 will contribute the subscription price of $ 145 million . trilogy currently estimates that the subscription price would fund the ukmp through feasibility and the permitting of the first mine to be developed in the ambler mining district . once the full amount of the subscription price payment of $ 145 million is expended , the parties will contribute funding pro rata , as contemplated by the operating agreement which will govern the llc ( the “ llc agreement ” ) . the llc agreement anticipates a president , vice president finance and vice president operations to be appointed by the llc 's board , which will have equal representation from trilogy and south32 . as the initial option payments were credited against the future subscription price upon exercise , we have accounted for the payment received as deferred consideration . in the first quarter of fiscal 2020 , when the option was exercised , the initial payments received to that date will be recognized as part of the consideration received for our contribution of the alaska assets , including the ukmp , into the llc . bornite project in partnership with south32 we completed a 2019 exploration program directed by the joint trilogy-south32 technical committee at the bornite project with a total budget of $ 9.2 million , fully funded by south32 . exploration activities commenced at the beginning of june 2019. the primary objective for the 2019 bornite drill program was to extend the known deposit by drilling approximately 8,000 meters with 12 holes , including both infill and expansion drilling . a total of 7,610 meters ( 10 holes ) of exploration drilling was achieved at the bornite project through a combination of infill and expansion drill holes in and around the known deposit . on september 10 , 2019 , the company announced initial assay results from the first four drill holes , rc19-0257 , rc19-0258 , rc19-0259 and rc19-0261 , from the bornite project with results consistent with what the company has released in the past . subsequently , on october 28 , 2019 , the company announced assay results for the remaining six drill holes . rc19-0260 , rc19-0264 , rc19-0265 all showed significant mineralization . assay results for the remaining three holes , rc19-0262 , rc19-0263 and rc19-0266 did not encounter any significant mineralization . our actual costs at the bornite project were consistent with the budget of $ 9.2 million . in fiscal 2019 , we expended $ 9.2 million on the bornite project , consisting of $ 4.1 million in drilling and geochemistry , $ 4.6 million in project support expenses , $ 0.2 million in engineering studies , $ 0.2 million in geophysical programs and $ 0.1 million in environmental studies . arctic project work at the arctic deposit commenced in late june 2019 with a view of completing feasibility level geotechnical and hydrology work . the main goal of this year 's work program was to complete engineering and environmental studies to prepare a national instrument 43-101 compliant feasibility study which results are anticipated to be released in the first half of 2020. specifically , the company continued with its hydrological and geotechnical work at the site along with water management , tailings facility and waste rock containment analysis and design . additional metallurgical test work to verify ore hardness and grinding characteristics was performed during the field season . work is also being done to prepare the arctic project for permitting , which we expect to commence after the completion of the feasibility study . the permitting preparation work being carried out will support federal , state and borough permitting requirements . 65 the year 's program drilled ten holes comprising 2,422 meters of geotechnical and hydrological drilling completed during the 2019 summer field season . e ight holes were sampled and sent off for assay analysis . hole ar19-165 was lost due to technical drilling issues and hole ar19-0168 did not intersect base metal mineralization . in a press release dated january 16 , 2020 , the company announced assay results for drill holes ar19-0164 , ar19-165a , ar19-166 , ar19-167 , ar19-169 to ar19-172 . the company continues to progress our arctic feasibility study which is being prepared by ausenco engineering canada inc. and john wood group plc based on drill results and studies completed prior to formation of the llc . the company expects to release the arctic feasibility study by the end of first half of 2020. our actual costs were above our budget of $ 7 million mostly due to additional engineering costs surrounding feasibility infrastructure and project support costs . in fiscal 2019 , we expended $ 8.6 million on the arctic project , consisting of $ 2.1 million in engineering expenses , $ 1.5 million in drilling , geochemistry and geophysical programs , $ 3.2 million in project support expenses , $ 0.7 million in land maintenance and permit expenses , $ 0.6 million in community engagement and $ 0.5 million in environmental studies . regional exploration during fiscal 2019 , a $ 2.0 million exploration budget was approved for regional exploration , focusing on identifying and testing new drill targets within the ambler vms belt . the company and south32 agreed to equally fund the $ 2 million 2019 program . district-wide versatile time domain electromagnetic ( “ vtem ” ) and z – axis tipper electromagnetic ( “ ztem ” ) helicopter airborne geophysical surveys were completed this spring along the entire 100-kilometer long belt of the favorable stratigraphy hosting known polymetallic vms deposits , as well as the areas around the bornite deposit and the surrounding cosmos hills area .
| summary of results in thousands of dollars , except for per share amounts replace_table_token_8_th for the year ended november 30 , 2019 , we reported a net loss of $ 27.9 million ( or $ 0.21 basic and diluted loss per common share ) compared to a net loss for the corresponding period in 2018 of $ 21.8 million ( or $ 0.18 basic and diluted loss per common share ) and a net loss of $ 21.1million for the corresponding period in 2017 ( or $ 0.20 basic and diluted loss per common share ) . the 2019 movement in net loss was primarily due to the increased size and magnitude of the field programs undertaken at our mineral properties . adding to this variance in 2019 were incremental increases in general and administrative expenses , professional fees and stock-based compensation offset by a slight decrease in salaries . additionally , there were losses recognized on both the sale of investments as well as investments designated as held for trading in both respective prior years that did not exist in the fiscal 2019 year . the increase in the net loss pertaining to 2019 relates to the size of the program undertaken at the ukmp . we executed a $ 18.2 million program at the ukmp in 2019 , with $ 9.2 million on the bornite project funded by south32 under the option agreement , $ 2 million on a new regional exploration program funded 50/50 by trilogy and south 32 and $ 7 million on the arctic project funded entirely by trilogy . the 2019 field program consisted of 7,610 meters of exploration drilling at the bornite project . at the arctic project , we completed 10 holes for 2,422 meters of geotechnical drilling .
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on september 27 , 2019 , we acquired the hotel commercial unit of the hyde beach house resort & residences , a 342-unit condominium-hotel located in the hollywood , florida market . during 2020 , we experienced a substantial number of corporate group-related cancellations and observed a sharp decline in transient business travel due to concerns about covid-19 . these cancellations and reduced bookings were part of an industry-wide trend that is likely to persist until travel and business restrictions are eased , travel orders are lifted , consumer confidence is restored , and there is a substantial recovery in the economy . we expect these developments to have a significant negative impact on our financial results through 2021. as of december 31 , 2020 , our hotel portfolio consisted of twelve full-service , primarily upscale and upper-upscale hotels with an aggregate total of 3,156 rooms , as well as interests in two condominium hotels and their associated rental programs . nine of our hotels operate under well-known brands such as doubletree , hyatt and sheraton , and three are independent hotels . as of december 31 , 2020 , our portfolio consisted of the following hotel properties : replace_table_token_12_th ( 1 ) operated as an independent hotel . ( 2 ) we own the hotel commercial unit and operate a rental program . reflects only those condominium units that were participating in the rental program as of december 31 , 2020. at any given time , some portion of the units participating in our rental program may be occupied by the unit owner ( s ) and unavailable for rental to hotel guests . we sometimes refer to each participating condominium unit as a “ room ” . we conduct substantially all our business through the operating partnership , sotherly hotels lp . the company is the sole general partner of the operating partnership and currently owns an approximate 92.8 % interest in the operating partnership , with the remaining interest being held by limited partners who were contributors of our initial hotel properties and related assets . 49 to qualify as a reit , neither the company nor the operating partnership can operate our hotels . therefore , our wholly-owned hotel properties are leased to our trs lessees that are wholly-owned subsidiaries of the operating partnership , which then engage hotel management companies to operate the hotels under a management agreement . our trs lessees have engaged our town to manage our hotels . our trs lessees , and their parent , mhi holding ( mhi hospitality trs holding , inc. ) , are consolidated into each of our financial statements for accounting purposes . the earnings of mhi holding are taxable as regular c corporations and are subject to federal , state , local , and , if applicable , foreign taxation on its taxable income . effects of covid-19 pandemic on our business in march 2020 , the world health organization declared covid-19 to be a global pandemic and the virus has continued to spread throughout the united states and the world . as a result of this pandemic and subsequent government mandates and health official recommendations , hotel demand has been significantly reduced . following the government mandates and health official recommendations , we significantly reduced operations at all our hotels , temporarily suspended operations of our hotel condominium rental programs and dramatically reduced staffing and expenses . all our hotels have remained open on a limited basis in order to serve the needs of the community – with the exception of the rental programs at our condominium hotels , which were temporarily closed for april and may . the company expects that maintaining the current limited operations will allow us to increase capacity at individual hotels as demand returns and the cdc and state guidelines allow for an easing of travel and other business restrictions , provided we can be confident that occupancy levels and reduced social distancing will not unduly jeopardize the health and safety of our guests , employees and communities . covid-19 has had a significant negative impact on our operations and financial results both during the second quarter and in the period following , including a substantial decline in our revenues , profitability and cash flows from operations . while the duration and full extent of the reduction in hotel demand caused by the pandemic , the contraction of operations at our hotels and other effects are highly uncertain and can not be reasonably estimated at this time , we expect significant negative impacts on our operations and financial results to continue until travel and business restrictions are eased , travel orders are lifted , consumer confidence is restored and there is a substantial recovery in the economy . at a minimum , we expect the covid-19 pandemic to continue to have a significant negative impact on our results of operations , financial position and cash flow through 2021. in response to the impact of covid-19 on our operations , we have taken the following health and safety and cost-reduction measures at the property and corporate levels : in coordination with our management company partners , we implemented aggressive cost control measures at the property level , including significantly reduced operating expenses and curtailed food & beverage operations . we suspended most planned capital expenditure projects other than replacement of vital building systems approaching the end of their useful life . we reduced expenses at the corporate level , including immediate reductions in compensation and benefits of all corporate staff as well as anticipated bonuses and the voluntary waiver by the company 's board of directors of its director fees for one quarter . suspending our regular quarterly cash common stock dividends in order to preserve liquidity . entered into various forbearance and loan modification agreements regarding payments of principal and interest required under our loan agreements . refer to note 1 , note 5 and note 14 to the accompanying consolidated financial statements for more information on the forbearance agreements with our lenders and current negotiations . story_separator_special_tag gaap ” ) requires that when preparing financial statements for each annual and interim reporting period , management has the responsibility to evaluate whether there are conditions or events , considered in the aggregate , that raise substantial doubt regarding the company 's ability to continue as a going concern within one year after the date the financial statements are issued . due to the uncertainties described above related to the financial covenants and maturities under our mortgage loans , and the company 's ability to meet its contractual obligation to repay those loans , if accelerated or when due , the company determined that there is substantial doubt about our ability to continue as a going concern . secured note financing on december 31 , 2020 , we entered into the following agreements with kw , as collateral agent and an investor , and mig , as an investor : ( i ) a note purchase agreement with kw and mig ; ( ii ) a secured note with kw in the amount of $ 10.0 million and a secured note with mig in the amount of $ 10.0 million ; ( iii ) a pledge and security agreement with kw ; ( iv ) a board observer agreement with kw ; and ( v ) other ancillary agreements . these agreements constitute a transaction whereby the investors purchased $ 20.0 million in secured notes from the operating partnership with an option to require the investors to purchase an additional $ 10.0 million in secured notes on the terms and subject to the conditions described below and in the transaction documents . note purchase agreement on december 31 , 2020 , the operating partnership and the company entered into the note purchase agreement with kw and mig , pursuant to which : ( i ) we agreed to issue and sell , and the investors agreed to purchase , the secured notes with an aggregate face amount of us $ 20 million and on the terms described below ; ( ii ) kw and mig granted us an option , subject to certain conditions and exercisable by us on or before the first anniversary of the first closing date , pursuant to which we may issue and sell a second note to each of the investors with an aggregate face amount of $ 10.0 million on substantially the same terms as the initial secured notes ; ( iii ) the company agreed to fully and unconditionally guaranty the obligations of the operating partnership ; ( iv ) we entered into the pledge agreement and board observer agreement as described below ; ( v ) we 51 agreed to provide certain representations and warranties to the investors ; and ( vi ) we agreed to use the net proceeds to support the continued operation of the business conducted by the operating partnership . we are required to pay a 1 % origination fee on the amount of the initial secured notes in connection with the first closing and a 1 % commitment fee on the committed amount of the second secured notes . secured notes on december 31 , 2020 , the operating partnership issued and sold initial secured notes to the investors in the amount of $ 20.0 million . the secured notes : ( i ) have a maturity date of december 30 , 2023 , with a one-year extension option , subject to a fee in the amount of 1 % of the outstanding principal amount under the secured notes as of such maturity date ; ( ii ) accrue interest at a rate of 6.00 % during the initial term and then at a rate of 10 % following any extension ; ( ii ) require quarterly interest payments , which shall initially be in the amount of $ 0.30 million ; ( iii ) require principal repayment equal to 1.47 times the face amount of the secured notes if repaid on or prior to december 30 , 2023 and 1.65 times the face amount of the secured notes if repaid after december 30 , 2023 ; ( iv ) may be prepaid without penalty , but subject to make-whole amounts for interest and the repayment multiplier ; and ( v ) rank pari passu with other notes issued under the note purchase agreement and senior to all other indebtedness of the operating partnership . the secured notes requires us to maintain certain cash management standards and include a broad range of covenants restricting our ability to incur additional debt , make dividend payments , transfer or acquire assets , or exceed our 2019 employee compensation levels . they also require us to maintain certain financial thresholds , including limitations on our accounts payable and capital expenditures . upon an event of default or liquidity event described in the secured notes , the holders of the secured notes have the right to require and approve our selection of one or more of our hotel properties for disposition or refinancing in order to cure an event of default or liquidity event based on a process set forth in the secured notes . in addition , the secured notes are redeemable by the holder in full upon an event of default or a change of control transaction . pledge agreement on december 31 , 2020 , certain subsidiaries of the operating partnership entered into the pledge agreement with kw , pursuant to which we agreed to pledge and grant to kw a first priority security interest in the equity interests , including certain voting rights , of our affiliates that own the desoto hotel , hotel ballast wilmington , and the doubletree by hilton philadelphia airport hotel . upon an uncured monetary event of default under the secured notes , kw , as collateral agent , has a right to sell , lease or otherwise dispose of or realize upon the pledged collateral in order to satisfy any amounts outstanding under the secured notes .
| resulted from decreases in administrative and general , management and franchise fees , sales and marketing , repairs and maintenance , energy and utilities , information and communications and insurance , and other indirect expenses for all our properties . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2020 decreased approximately $ 1.7 million , or 8.0 % , to approximately $ 19.9 million compared to depreciation and amortization expense of approximately $ 21.6 million for the year ended december 31 , 2019. the decrease in depreciation was mainly related to our properties in philadelphia , pennsylvania , laurel , maryland , tampa , florida and atlanta georgia from prior year changes in estimated useful lives and disposals , with a decrease of approximately $ 1.8 million . there was also an aggregate increase in depreciation and amortization of approximately $ 0.1 million from our remaining properties . loss on disposal of assets . during the year ended december 31 , 2020 , we recorded a net loss on disposal of assets of approximately $ 0.1 million , compared to a net loss on disposal of assets of approximately $ 0.1 million for the year ended december 31 , 2019. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2020 decreased approximately $ 0.3 million , or 4.9 % , to approximately $ 6.5 million compared to corporate general and administrative expenses of approximately $ 6.8 million for the year ended december 31 , 2019. the decrease in corporate general and administrative expenses was mainly due to decreased salaries , professional and legal fees . interest expense .
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the portfolio was 93.2 % leased and 91.5 % occupied at december 31 , 2019. the company , organized as a maryland corporation , has established an umbrella partnership structure through the contribution of substantially all of its assets to the operating partnership , organized as a limited partnership under the laws of delaware . the company conducts substantially all of its business through the operating partnership . at december 31 , 2019 , the company owned a 99.4 % general and limited partnership interest in , and was the sole general partner of , the operating partnership . the limited partners ' interest in the operating partnership ( 0.6 % at december 31 , 2019 ) is represented by operating partnership units ( “ op units ” ) . the carrying amount of such interest is adjusted at the end of each reporting period to an amount equal to the limited partners ' ownership percentage of the operating partnership 's net equity . the 537,000 op units outstanding at december 31 , 2019 are economically equivalent to shares of the company 's common stock . the holders of op units have the right to exchange their op units for the same number of shares of the company 's common stock or , at the company 's option , for cash . the company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases . the company 's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases . the company focuses its investment activities on grocery-anchored shopping centers . the company believes that , because of the need of consumers to purchase food and other staple goods and services generally available at such centers , its type of “ necessities-based ” properties should provide relatively stable revenue flows even during difficult economic times . 2019 significant transactions acquisition on june 19 , 2019 , the company purchased girard plaza , a shopping center adjacent to its south philadelphia property , located in philadelphia , pennsylvania . the purchase price for the property was $ 8.5 million , which has been allocated to real estate assets and liabilities . dispositions on february 15 , 2019 , the company sold maxatawny marketplace , located in maxatawny , pennsylvania . the sales price for the property was $ 10.3 million , which resulted in a gain on sale of $ 0.1 million , which has been included in continuing operations in the accompanying consolidated statement of operations . on june 26 , 2019 , the company sold fort washington center , located in fort washington , pennsylvania . the sales price for the property was $ 9.0 million , which resulted in a gain on sale of $ 2.8 million , which has been included in continuing operations in the accompanying consolidated statement of operations . real estate held for sale as of december 31 , 2019 , carll 's corner , located in bridgeton , new jersey , suffolk plaza , located in suffolk , virginia and the commons , located in dubois , pennsylvania , have been classified as “ real estate held for sale ” on the accompanying consolidated balance sheet . during 2019 , an impairment charge of $ 8.9 million has been recorded in connection with a property held for sale , which has been included in continuing operations in the accompanying consolidated statements of operations . equity on december 18 , 2018 , the company 's board of directors approved a stock repurchase program , which authorized the company to purchase up to $ 30.0 million of the company 's common stock in the open market or through private transactions , subject to market conditions . the stock repurchase program expired on december 18 , 2019. during 2019 , the company repurchased 27 approximately 2,050,000 shares at a weighted average price per share of $ 3.34. since approval of the plan on december 18 , 2018 , the company has repurchased a total of 2,823,000 shares at a weighted average price per share of $ 3.25 . 2018 significant transactions land parcel acquisition on august 8 , 2018 , the company purchased a land parcel adjacent to its riverview plaza property , located in philadelphia , pennsylvania . the purchase price for the land parcel was $ 1.0 million , which was comprised of $ 25,000 in cash and approximately 208,000 op units ( based on the market price of the company 's common stock ) . shopping center acquisition on august 21 , 2018 , the company entered into a deed of lease for senator square , a shopping center located in washington , d.c. the deed of lease conveys fee title in the buildings to the company and contains future options to acquire fee title in the land at its then fair-value . this lease was originally presented in the company 's financial statements as two separate components as follows : ( 1 ) a $ 5.7 million capital lease obligation for the fee interest in the buildings , and ( 2 ) an operating lease for the land . the capital lease obligation was computed through the date of the company 's first purchase option , as discussed below , and reflects an interest rate of 5.3 % . effective january 1 , 2019 , based upon the adoption of the new lease accounting standard , the component of the lease that was originally recorded as a capital lease obligation is now classified as a finance lease obligation . the lease initially requires monthly payments of $ 75,000 through maturity in august 2117 unless the company exercises one of its options to acquire the land . the first such option will be available between the 25th and 33rd anniversaries of the lease , depending on certain property benchmarks , with additional purchase options every 10 years thereafter during the lease term . story_separator_special_tag these estimates have a direct impact on net income , because a higher bad debt allowance would result in lower net income , whereas a lower bad debt allowance would result in higher net income . real estate investments real estate investments are carried at cost less accumulated depreciation . the provision for depreciation is calculated using the straight-line method based on estimated useful lives . expenditures for maintenance , repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred . expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized . real estate investments include costs of development and redevelopment activities , and construction in progress . capitalized costs , including interest and other carrying costs during the construction and or renovation periods , are included in the cost of the related asset and charged to operations through depreciation over the asset 's estimated useful life . the company is required to make 29 subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis . these assessments hav e a direct impact on net income . a shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income , whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income . a variety of costs are incurred in the acquisition , development and leasing of a property , such as pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs , and other costs incurred during the period of development . after a determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . the company ceases capitalization on the portions substantially completed and occupied , or held available for occupancy , and capitalizes only those costs associated with the portions under construction . the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but not later than one year from cessation of major development activity . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income , whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income . the company allocates the fair value of real estate acquired to land , buildings and improvements . in addition , the fair value of in-place leases is allocated to intangible lease assets and liabilities . the fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant , which value is then allocated to land , buildings and improvements based on management 's determination of the fair values of such assets . in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable .
| results of operations comparison of 2019 to 2018 replace_table_token_11_th revenues were lower primarily as a result of ( 1 ) $ 5.4 million relating to a dark anchor tenant terminating its lease prior to the contractual expiration in 2018 at west bridgewater plaza , ( 2 ) a decrease of $ 3.4 million in rental revenues and expense recoveries attributable to properties that were sold or held for sale in 2019 and 2018 , ( 3 ) a decrease of $ 0.8 million in rental revenues and expense recoveries attributable to same-center properties which was driven by the adoption of the new lease accounting standard ( see note 2 – “ recently-adopted accounting pronouncements ” ) , and ( 4 ) a decrease of $ 0.1 million in rental revenues and expense recoveries attributable to redevelopment properties , partially offset by ( 1 ) an increase of $ 1.7 million in rental revenues and expense recoveries attributable to properties acquired in 2019 and 2018 , and ( 2 ) an increase of other income of $ 0.4 million . property operating expenses were higher primarily as a result of ( 1 ) an increase of $ 1.1 million in property operating expenses attributable to properties acquired in 2019 and 2018 , and ( 2 ) an increase of $ 0.6 million in property operating expenses attributable to the company 's redevelopment properties , partially offset by ( 1 ) a decrease of $ 0.8 million in property operating expenses attributable to properties that were sold or held for sale in 2019 and 2018 , and ( 2 ) a decrease of $ 0.7 million in property operating expenses attributable to same-center properties which was driven by the adoption of the new lease accounting standard ( see note 2 – “ recently-adopted accounting pronouncements ” ) .
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our approximately 1,900 sales employees work directly with our clients to provide multiple local marketing solutions that drive customer leads to our clients and help our clients connect with their customers . our local marketing solutions are primarily sold under various “ dex ” and “ super ” brands , including print yellow page directories , online local search engine websites , mobile local search applications , and placement of our client 's information and advertisements on major search engine websites , with which we are affiliated . our local marketing solutions also include website development , search engine optimization , market analysis , video development and promotion , reputation management , social media marketing , and tracking/reporting of customer leads . our print yellow page directories are co-branded with various local telephone service providers ; including verizon communications inc. ( `` verizon '' ) , at & t corp. , centurylink , inc. , fairpoint communications , inc. , and frontier communications corporation . we operate as the authorized publisher of print yellow page directories in some of the markets where they provide telephone service , and we hold multiple agreements governing our relationship with each company , including publishing agreements , branding agreements , and non-competition agreements . 29 in 2014 , we published more than 1,700 distinct directory titles in 42 states and distributed approximately 100 million directories to businesses and residences in the united states . in 2014 , our top ten directories , as measured by revenue , accounted for approximately 5 % of our revenue and no single directory or local client accounted for more than 1 % of our revenue . dex media was created as a result of the merger between dex one and supermedia on april 30 , 2013. dex one was the acquiring company . dex one became the successor registrant to r.h. donnelley corporation ( `` rhdc '' ) upon emergence from chapter 11 proceedings on january 29 , 2010. rhdc was formed on february 6 , 1973 as a delaware corporation . in november 1996 , rhdc , then known as the dun & bradstreet corporation , separated through a spin-off into three separate public companies : the dun and bradstreet corporation , acnielsen corporation , and cognizant corporation . in june 1998 , the dun & bradstreet corporation separated through a spin-off into two separate public companies : rhdc ( formerly the dun & bradstreet corporation ) and a new company that changed its name to the dun & bradstreet corporation . in january 2003 , rhdc acquired the directory business of sprint corporation ( formerly known as sprint nextel corporation ) . in september 2004 , rhdc completed the acquisition of the directory publishing business of at & t , inc. ( formerly known as sbc communications , inc. ) in illinois and northwest indiana , including at & t 's interest in the dontech ii partnership ( `` dontech '' ) , a 50/50 general partnership between rhdc and at & t . in january 2006 , rhdc acquired the exclusive publisher of the directories for qwest communications international inc. ( `` qwest '' ) where qwest was the primary local telephone service provider . supermedia became the successor company to idearc , inc. upon emergence from chapter 11 bankruptcy proceedings on december 31 , 2009. idearc inc. was created in november 2006 when verizon spun-off its domestic directory business . merger and related bankruptcy filing of dex one and supermedia on december 5 , 2012 , dex one entered into an amended and restated agreement and plan of merger ( the `` merger agreement '' ) with supermedia , newdex inc. ( `` newdex '' ) , and spruce acquisition sub , inc. , a direct wholly owned subsidiary of newdex ( `` merger sub '' ) . the merger agreement provided that , upon the terms and subject to the conditions set forth therein , ( i ) dex one would merge with and into newdex , with newdex as the surviving entity and ( ii ) immediately thereafter , merger sub would merge with and into supermedia , with supermedia as the surviving entity , and become a direct wholly owned subsidiary of newdex ( the `` merger '' ) . as a result of the merger , newdex , as successor to dex one , would be renamed dex media , inc. and become a newly listed company . the merger agreement further provided that if either dex one or supermedia were unable to obtain the requisite consents to the merger from their respective stockholders and to the contemplated amendments to their respective financing agreements from their senior secured lenders to consummate the transactions on an out-of-court basis , the merger could be effected through voluntary pre-packaged plans of reorganization under chapter 11 of title 11 of the united states code ( `` chapter 11 '' or the `` bankruptcy code '' ) . because neither dex one nor supermedia were able to obtain the requisite consents to complete the merger out of court , each of dex one and supermedia and all of their domestic subsidiaries voluntarily filed pre-packaged bankruptcy petitions under chapter 11 on march 18 , 2013 , in the united states bankruptcy court for the district of delaware ( the `` bankruptcy court '' ) and requested confirmation of their respective joint pre-packaged chapter 11 plans ( the `` prepackaged plans '' ) , seeking to effect the merger and related transactions contemplated by the merger agreement . on april 29 , 2013 , the bankruptcy court held a hearing and entered separate orders confirming each of the prepackaged plans . on april 30 , 2013 , dex one and supermedia consummated the merger and other transactions contemplated by the merger agreement and emerged from chapter 11 protection . story_separator_special_tag acquisition accounting on april 30 , 2013 , the merger of dex one and supermedia was consummated , with 100 % of the equity of supermedia being exchanged for 6.9 million dex media common shares that were issued to former supermedia shareholders at the converted $ 11.90 per share price , which equated to a fair value of common stock issued of $ 82 million . we accounted for the merger using the acquisition method of accounting in accordance with asc 805 , with dex one identified as the acquiring entity for accounting purposes . dex one was considered the acquiring entity for accounting purposes based on certain criteria including , but not limited to , the fact that ( 1 ) upon consummation of the merger , dex one shareholders held approximately 60 % of the common stock of dex media as compared to approximately 40 % held by supermedia shareholders and ( 2 ) dex one 's chairman of the board of directors continued as the chairman of the board of directors of dex media . we prepared the appraisals necessary to assess the fair values of the supermedia tangible and intangible assets acquired and liabilities assumed , and goodwill , which represented the excess of the purchase price over the fair value of the net tangible and intangible assets acquired , recognized as of the acquisition date . the income approach was utilized in determining the fair value of the intangible assets , which consist of directory services agreements with certain local telephone service providers , client relationships , trademarks and domain names , and patented technologies . the market approach was utilized to determine the fair value of supermedia 's debt obligations . as of march 31 , 2014 , the measurement period for the acquisition was finalized . purchase price allocation replace_table_token_5_th 32 common stock the merger agreement provided that each issued and outstanding share of supermedia common stock be converted into the right to receive 0.4386 shares of dex media common stock . as of april 30 , 2013 , 15.6 million shares of supermedia common stock were issued and outstanding , which resulted in the issuance of 6.9 million shares of dex media common stock . dex one shareholders received 0.2 shares of dex media common stock for each share of dex one common stock that they owned , which reflects a 1-for-5 reverse stock split of dex one common stock . the closing trading price of dex one common stock on april 30 , 2013 of $ 2.38 , when adjusted for the 1-for-5 reverse stock split equated to a dex media common stock value of $ 11.90 per share . the 6.9 million dex media shares issued to former supermedia shareholders at the converted $ 11.90 per share price equated to a fair value of common stock issued of $ 82 million . long-term debt including current maturities as a result of acquisition accounting , supermedia 's outstanding debt was adjusted to a fair value of $ 1,082 million , from its face value of $ 1,442 million , resulting in a discount of $ 360 million being recognized . the discount will be amortized to interest expense over the remaining term of the supermedia senior secured credit facilities using the effective interest method . for additional information on debt , see note 8 to our consolidated financial statements included in this report . goodwill and intangible assets the goodwill of $ 389 million that was recorded as part of the acquisition represents the expected synergies and residual benefits that dex media believes will result from the combined operations . the company has determined that the $ 389 million of acquired goodwill is not deductible for tax purposes . subsequent to the merger , as disclosed in our 2013 annual report on form 10-k , the company recorded a $ 74 million goodwill impairment charge . for additional information on goodwill and intangible assets , see note 3 to our consolidated financial statements included in this report . the fair value of intangible assets acquired of $ 635 million was determined using valuation techniques consistent with the income approach to measure fair value . the directory services agreements with certain local telephone service providers and client relationships were valued utilizing the excess earnings approach . the excess earnings attributable to the directory services agreements and client relationships were discounted utilizing a weighted average cost of capital of 21 % . the trademark and domain names and patented technologies were valued utilizing the relief from royalty approach . the estimated remaining useful lives were estimated based on the future economic benefit to be received from the assets . the intangible assets are being amortized utilizing the income forecast method , which is an accelerated amortization method that assumes the value derived from these intangible assets is greater in the earlier years and steadily declines over time based on expected future cash flows . the following table sets forth the components of the intangible assets acquired . replace_table_token_6_th deferred revenue , deferred directory costs , and unbilled accounts receivable prior to the merger with dex one , supermedia had $ 386 million of deferred revenue and $ 122 million of deferred directory costs on its consolidated balance sheet . as a result of acquisition accounting , the fair value of deferred revenue at april 30 , 2013 for supermedia was determined to have no value , equating to $ 386 million of revenue that would have been amortized by supermedia from may 2013 through april 2014 , that was not recognized by dex media . supermedia had minimal , if any , remaining performance obligations related to its clients who have previously contracted for advertising , thus , no value was assigned to its deferred revenue . the fair value of deferred directory costs as of april 30 , 2013 for supermedia was determined to have no value , other than paper held in inventory and prepayments associated with future publications .
| results of operations prior to the merger with dex one on april 30 , 2013 , supermedia had $ 386 million of deferred revenue and $ 122 million of deferred directory costs on its consolidated balance sheet . as a result of acquisition accounting , the fair value of deferred revenue at april 30 , 2013 for supermedia was determined to have no value , equating to $ 386 million of revenue that would have been amortized by supermedia from may 2013 through april 2014 , that was not recognized by dex media . supermedia had minimal , if any , remaining performance obligations related to its clients who have previously contracted for advertising , thus , no value was assigned to its deferred revenue . the fair value of deferred directory costs as of april 30 , 2013 for supermedia was determined to have no value , other than paper held in inventory and prepayments associated with future publications . these costs do not have any future value since supermedia has already incurred the costs to produce the clients ' advertising and does not anticipate to incur any significant additional costs associated with those published directories . this equated to $ 93 million of cost that would have been amortized by supermedia from may 2013 through april 2014 , that was not recognized by dex media . 36 year ended december 31 , 2014 compared to year ended december 31 , 2013 the following table sets forth our consolidated operating results for the years ended december 31 , 2014 and 2013 . replace_table_token_8_th operating revenue operating revenue of $ 1,815 million for the year ended december 31 , 2014 increased $ 371 million , or 25.7 % , compared to $ 1,444 million for the year ended december 31 , 2013 .
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the nature and timing of the transformation of the current healthcare system to coordinated care delivery and payment models is uncertain , as the development and implementation of new care delivery and payment systems will require significant time and resources . furthermore , many of the alternative approaches being explored may not work as intended . however , as outlined in item 1 , business , “ competitive strengths ” , our goal is to position the company in a prudent manner to be responsive to industry shifts . we have invested in our core business and created an infrastructure that enables us to provide high-quality care on a cost-effective basis . we have been disciplined in creating a capital structure that is flexible with no significant debt maturities prior to 2022. we continue to have a strong , well-capitalized balance sheet , including a substantial portfolio of owned real estate . we have significant availability under our revolving credit facility , and we continue to generate strong cash flows from operations . strong and consistent free cash flow generated by our company , together with our relatively low financial leverage and the unfunded commitment of our revolving credit facility , provides substantial capacity to pursue growth opportunities in both of our business segments while continuing to invest in our operational initiatives and capital structure strategy . for these and other reasons , we believe we will be able to adapt to changes in reimbursement , sustain our business model , and grow through acquisition and consolidation opportunities as they arise . key challenges healthcare is a highly-regulated industry facing many well-publicized regulatory and reimbursement challenges . the industry also is facing uncertainty associated with the efforts to identify and implement workable coordinated care and integrated delivery payment models as well as post-acute site neutrality in medicare reimbursement . the medicare reimbursement systems for both inpatient rehabilitation and home health are subject to potentially significant changes in the next two years . the future of many aspects of healthcare regulation remains uncertain . successful healthcare providers are those able to adapt to changes in the regulatory and operating environments , build strategic relationships across the healthcare continuum , and consistently provide high-quality , cost-effective care . we believe we have the necessary capabilities — change agility , strategic relationships , quality of patient outcomes , cost effectiveness , and ability to capitalize on growth opportunities — to adapt to and succeed in a dynamic , highly regulated industry , and we have a proven track record of doing so . 47 as we continue to execute our business plan , the following are some of the challenges we face . operating in a highly regulated industry . we are required to comply with extensive and complex laws and regulations at the federal , state , and local government levels . these rules and regulations have affected , or could in the future affect , our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance , mandating new documentation standards , requiring additional licensure or certification , regulating our relationships with physicians and other referral sources , regulating the use of our properties , and limiting our ability to enter new markets or add new capacity to existing hospitals and agencies . ensuring continuous compliance with extensive laws and regulations is an operating requirement for all healthcare providers . we have invested , and will continue to invest , substantial time , effort , and expense in implementing and maintaining training programs as well as internal controls and procedures designed to ensure regulatory compliance , and we are committed to continued adherence to these guidelines . more specifically , because medicare comprises a significant portion of our net operating revenues , failure to comply with the laws and regulations governing the medicare program and related matters , including anti-kickback and anti-fraud requirements , could materially and adversely affect us . the federal government 's reliance on sub-regulatory guidance , such as handbooks , faqs , internal memoranda , and press releases , presents a unique challenge to compliance efforts . such sub-regulatory guidance purports to explain validly promulgated regulations but often expands or supplements existing regulations without constitutionally and statutorily required notice and comment and other procedural protections . without procedural protections , sub-regulatory guidance poses a risk above and beyond reasonable efforts to follow validly promulgated regulations , particularly when the agency or medicare administrative contractor ( “ mac ” ) seeking to enforce such sub-regulatory guidance is not the agency or mac issuing the guidance . if we were unable to remain compliant with these regulations , our financial position , results of operations , and cash flows could be materially , adversely impacted . concerns held by federal policymakers about the federal deficit and national debt levels , as well as other healthcare policy priorities , could result in enactment of legislation affecting portions of the medicare program , including post-acute care services we provide . it is not clear what , if any , medicare-related changes may ultimately be enacted and signed into law or otherwise implemented or caused by the trump administration through regulatory procedures , but it is possible that any reductions in medicare spending will have a material impact on reimbursements for healthcare providers generally and post-acute providers specifically . we can not predict what , if any , changes in medicare spending or modifications to the healthcare laws and regulations will result from future budget or other legislative or regulatory initiatives . story_separator_special_tag see also item 1 , business , “ sources of revenues ” and “ regulation , ” and item 1a , risk factors , to this report and note 17 , contingencies and other commitments , “ governmental inquiries and investigations , ” to the accompanying consolidated financial statements . changes to our operating environment resulting from healthcare reform . many provisions within the 2010 healthcare reform laws have impacted , or could in the future impact , our business . most notable for us are medicare reimbursement reductions , such as reductions to annual market basket updates to providers and reimbursement rate rebasing adjustments , and promotion of alternative payment models , such as accountable care organizations ( “ acos ” ) and bundled payment initiatives such as the bundled payment for care improvement initiative ( “ bpci ” ) , the comprehensive care for joint replacement ( “ cjr ” ) program , and the bpci-advanced program . our challenges related to healthcare reform are discussed in item 1 , business , “ sources of revenues , ” and item 1a , risk factors . while the change in administration has added to regulatory uncertainty , the healthcare industry in general has been facing uncertainty associated with the efforts to identify and implement workable coordinated care and integrated delivery payment models . in these models , hospitals , physicians , and other care providers work together to provide coordinated healthcare on a more efficient , patient-centered basis . these providers are then paid based on the efficiency and overall value and quality of the services they provide to a patient . while this is consistent with our goal and proven track record of being a high-quality , cost-effective provider , broad-based implementation of a new care delivery and payment model would represent a significant transformation for the healthcare industry . as the industry and its regulators explore this transformation , we are attempting to position the company in preparation for whatever changes are ultimately made to the delivery system . as discussed in item 1 , business , the future of the 2010 healthcare reform laws as well as the nature and substance of any replacement reform legislation enacted remain uncertain , nor can we predict whether other legislation affecting medicare and post-acute care providers will be enacted , or what actions the trump administration may take or cause through the regulatory process that may result in modifications to the 2010 healthcare laws or the medicare program . therefore , the ultimate nature and timing of the transformation of the healthcare delivery system is uncertain , and will likely remain so for some time . we will continue to evaluate these laws and regulations and position the company for this industry shift . based on our track record , we believe 49 we can adapt to these regulatory and industry changes . further , we have engaged , and will continue to engage , actively in discussions with key legislators and regulators to attempt to ensure any healthcare laws or regulations adopted or amended promote our goal of high-quality , cost-effective care . additionally , in october 2014 , president obama signed into law the impact act . the impact act was developed on a bi-partisan basis by the house ways and means and senate finance committees and incorporated feedback from healthcare providers and provider organizations that responded to the committees ' solicitation of post-acute payment reform ideas and proposals . it directs the united states department of health and human services ( “ hhs ” ) , in consultation with healthcare stakeholders , to implement standardized data collection processes for post-acute quality and outcome measures . although the impact act does not specifically call for the development of a new post-acute payment system , we believe this act will lay the foundation for possible future post-acute payment policies that would be based on patients ' medical conditions and other clinical factors rather than the setting where the care is provided , also referred to as “ site neutral ” reimbursement . for additional details on the impact act and efforts to implement a unified post-acute care payment system , see item 1a , risk factors . maintaining strong volume growth . various factors , including competition and increasing regulatory and administrative burdens , may impact our ability to maintain and grow our hospital , home health , and hospice volumes . in any particular market , we may encounter competition from local or national entities with longer operating histories or other competitive advantages , such as acute care hospitals who provide post-acute services similar to ours or other post-acute providers with relationships with referring acute care hospitals or physicians . aggressive payment review practices by medicare contractors , aggressive enforcement of regulatory policies by government agencies , and restrictive or burdensome rules , regulations or statutes governing admissions practices may lead us to not accept patients who would be appropriate for and would benefit from the services we provide . in addition , from time to time , we must get regulatory approval to expand our services and locations in states with certificate of need laws . this approval may be withheld or take longer than expected . in the case of new-store volume growth , the addition of hospitals , home health agencies , and hospice agencies to our portfolio also may be difficult and take longer than expected . recruiting and retaining high-quality personnel . see item 1a , risk factors , for a discussion of competition for staffing , shortages of qualified personnel , and other factors that may increase our labor costs . recruiting and retaining qualified personnel , including management , for our inpatient hospitals and home health and hospice agencies remain a high priority for us . we attempt to maintain a comprehensive compensation and benefits package that allows us to remain competitive in this challenging staffing environment while remaining consistent
| summary of significant accounting policies , “ revision of previously issued financial statements , ” to the accompanying consolidated financial statements . executive overview our business we are a leading provider of integrated healthcare services , offering both facility-based and home-based patient care through our network of inpatient rehabilitation hospitals , home health agencies , and hospice agencies . as of december 31 , 2018 , our national footprint spans 36 states and puerto rico . as discussed in this item , “ segment results of operations , ” we manage our operations in two operating segments which are also our reportable segments : ( 1 ) inpatient rehabilitation and ( 2 ) home health and hospice . for additional information about our business , see item 1 , business . in 2018 , we undertook a rebranding to reinforce our strategy and position as an integrated provider of facility-based and home-based patient care . as part of the rebranding , we changed our corporate name from healthsouth corporation to encompass health corporation and the nyse ticker symbol for our common stock from “ hls ” to “ ehc. ” inpatient rehabilitation we are the nation 's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged , revenues , and number of hospitals . we provide specialized rehabilitative treatment on both an inpatient and outpatient basis . we operate hospitals in 32 states and puerto rico , with concentrations in the eastern half of the united states and texas . as of december 31 , 2018 , we operate 130 inpatient rehabilitation hospitals , including one hospital that operates as a joint venture that we account for using the equity method of accounting . in addition to our hospitals , we manage five inpatient rehabilitation units through management contracts . our inpatient rehabilitation segment represented approximately 78 % of our net operating revenues for the year ended december 31 , 2018 .
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fpl energy , fpl group 's competitive energy subsidiary , produces electricity primarily utilizing natural gas , wind and nuclear resources . together , fpl 's and fpl energy 's generating assets represented approximately 32,800 mw of capacity at december 31 , 2005. fpl fibernet provides fiber-optic services to fpl , telecommunications companies and other customers throughout florida . in december 2005 , fpl group entered into an agreement and plan of merger with constellation energy . the combined company is expected to be the nation 's largest competitive energy supplier based on generation and have the second largest electric utility portfolio based on the number of customers served . completion of the merger and the actual closing date depend upon the satisfaction of a number of conditions , including shareholder approvals and the receipt of required regulatory approvals . the parties believe that the proposed merger will offer both strategic and financial advantages in serving the energy marketplace , as well as generate significant cost savings and synergies , the majority of which are expected to come from the competitive energy businesses . these synergies are expected to result from consolidation of competitive energy business unit operations , sharing of best practices , improved procurement strategies and consolidation of systems and support activities . see note 2. fpl obtains its operating revenues primarily from the retail sale of electricity . in august 2005 , fpl and all of the interveners in its 2005 rate case filing signed a stipulation and settlement agreement regarding fpl 's retail base rates , which was subsequently approved by the fpsc . the 2005 rate agreement will be in effect through december 31 , 2009 , and thereafter shall remain in effect until terminated on the date new retail base rates become effective pursuant to an fpsc order . see note 1 - revenues and rates . over the last 10 years , fpl 's average annual customer growth has been 2.2 % while underlying usage growth has been 0.6 % . fpl is meeting the increased demands of its customers by adding to its generation capacity and electric transmission and distribution infrastructure . fpl plans to add approximately 1,150 mw of combined-cycle generating capacity by 2007 at a total investment of approximately $ 580 million . fpl 's o & m expenses increased in 2005 reflecting continued upward trends in nuclear maintenance and employee-related costs , as well as increased maintenance costs for fossil generation plants due to a number of fpl 's older units going through major overhauls . these same factors , along with costs associated with enhancing fpl 's transmission and distribution system and uncollectible accounts , are expected to increase o & m expenses in 2006. fpl 's business strategy is to meet the increased demands of customer growth and focus on improving operating performance . fpl energy is in the competitive energy business with the majority of its operating revenues derived from wholesale electricity sales . its market is diversified by region as well as by fuel source . as of december 31 , 2005 , approximately 86 % of fpl energy 's expected 2006 capacity was hedged against commodity price volatility . if fpl energy 's plants do not perform as expected , this high degree of hedging could result in fpl energy being required to purchase power , including transportation , in the market at potentially higher prices to meet its contractual obligations . fpl energy 's energy marketing and trading business is focused on reducing risk and extracting maximum value from its assets . fpl energy , through its subsidiaries , is one of the largest producers of wind energy in the world , and with the extension of the production tax credit program through december 2007 , plans to continue expanding its wind portfolio in 2006 and 2007 through construction of new facilities and selective acquisitions . fpl energy 's business strategy is to maximize the value of its current portfolio , expand its u.s. market-leading wind position and build its portfolio through asset acquisitions . story_separator_special_tag during the term of the 2005 rate agreement , fpl may petition the fpsc to amend its base rates . the 2002 rate agreement provided for a $ 250 million annual reduction in retail base revenues allocated to all customers by reducing customers ' base rates and service charges by approximately 7 % , as well as a revenue sharing mechanism based on stated thresholds . during the term of the 2002 rate agreement , fpl did not have an authorized regulatory roe range for the purpose of addressing earnings levels and fpl reduced depreciation on its plant in service by $ 125 million each year . fpl 's operating revenues consisted of the following : replace_table_token_6_th the increase in retail base revenues for the year ended december 31 , 2005 was primarily due to an increase in the average number of customer accounts as well as an increase in usage per retail customer . a 2.3 % increase in the average number of customer accounts during 2005 increased revenue from retail base operations by approximately $ 82 million while the balance of the increase , or $ 28 million , was primarily due to a 0.5 % increase in usage per retail customer . the majority of the growth in usage was due to the effects of overall improved weather conditions which was partially offset by increased hurricane activity in 2005 that caused customer service interruptions throughout fpl 's service territory . the 2005 hurricanes resulted in lost revenues of approximately $ 52 million . the decrease in retail base revenues in 2004 was primarily due to a decrease in usage per retail customer , partially offset by a 2.6 % increase in the average number of customer accounts . a 2.7 % decrease in usage per retail customer resulted in a decrease in revenues from retail base operations of approximately $ 100 million , primarily due to milder weather and customer service interruptions during the three hurricanes that struck fpl 's service territory . story_separator_special_tag as flaws are identified in individual tubes , they are plugged in order to prevent the tubes from leaking during plant operations . to date , 18.9 % of these tubes have been plugged . in january 2005 , fpl received permission from the nrc to plug up to 30 % of st. lucie unit no . 2 's steam generator tubes . current projections indicate that the 30 % tube plugging limit could be exceeded during st. lucie unit no . 2 's next scheduled refueling outage in the spring of 2006. fpl is planning to repair any tubes exceeding the 30 % tube plugging limit by inserting metal sleeves inside the degraded tubes ( sleeving ) and has requested nrc approval to sleeve degraded tubes as an alternative to plugging . sleeving degraded tubes is expected to increase the cost and length of the outage . costs accrued in 2005 associated with sleeving are reflected in the nuclear maintenance costs discussed above . fpl intends to replace the steam generators along with the reactor vessel head at st. lucie unit no . 2 during its fall 2007 scheduled refueling outage . the remaining cost to replace st. lucie unit no . 2 's steam generators , including afudc , is approximately $ 200 million and is included in fpl 's estimated capital expenditures . see note 16 - commitments . in conjunction with a 2004 nrc bulletin , fpl must perform inspections of all alloy 600 and weld materials in pressurizer locations and connected steam space piping . due to the amount of time and cost associated with correcting potential leaks , fpl replaced st. lucie unit no . 1 's pressurizer during its fall 2005 outage and plans to repair st. lucie unit no . 2 's pressurizer heater sleeves and other penetrations during its scheduled refueling and steam generator and reactor vessel head replacement outage in the fall of 2007. the estimated cost is included in fpl 's estimated capital expenditures . see note 16 - commitments . since the 2004 nrc bulletin was issued , no leaks have been identified based on inspections at st. lucie unit no . 2. all pressurizer penetrations and welds at turkey point units nos . 3 and 4 utilize a different material . in 2004 , o & m expenses decreased $ 22 million primarily reflecting the receipt of approximately $ 21 million associated with the settlement of the shareholder litigation . the settlement was offset by higher nuclear maintenance costs of approximately $ 10 million , higher insurance costs of approximately $ 8 million and an increase in the provision for uncollectible accounts receivable of approximately $ 8 million in connection with the hurricanes . the remainder of the fluctuation in the 2004 o & m expenses was primarily due to the absence of certain legal expenses recorded in 2003. for the year ended december 31 , 2005 , depreciation and amortization expense increased by $ 36 million of which approximately $ 23 million related to the addition of two new generating units at fpl 's existing martin and manatee power plant sites , which became operational on june 30 , 2005. the remainder of the increase is primarily due to fpl 's continued investment in transmission and distribution expansion to support customer growth and demand . fpl expects to place an additional approximately 1,150 mw generating unit into service at its turkey point site by mid-2007 . the increase in depreciation and amortization expense was partially offset by the suspension , in september 2005 , of fpl 's nuclear decommissioning accrual which totaled approximately $ 79 million annually . in addition , beginning in 2006 , depreciation and amortization expense will also benefit from lower depreciation and decommissioning rates approved as part of the 2005 rate agreement reflecting mainly the 20-year license extensions received for turkey point units nos . 3 and 4 and st. lucie units nos . 1 and 2. depreciation and amortization expense in 2004 increased by $ 17 million , reflecting continued growth of electric utility plant in service to help meet increasing customer demand . interest charges for 2005 and 2004 increased primarily due to an increase of approximately 30 basis points and 40 basis points , respectively , in average interest rates and higher average debt balances used to fund increased investment in generation , transmission and distribution expansion and to pay for storm restoration costs . interest income , included in other - net in fpl 's consolidated statements of income , increased in 2005 by approximately $ 14 million primarily due to interest accrued on the unrecovered balance of the storm reserve deficiency and on deferred costs associated with nuclear security as approved by the fpsc . fpl currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups , primarily industrial customers . in 2005 , operating revenues from wholesale and industrial customers combined represented approximately 4 % of fpl 's total operating revenues . various states , other than florida , have enacted legislation or have state commissions that have issued orders designed to allow retail customers to choose their electricity supplier . such a regulatory restructuring , if enacted in florida , would most likely result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers . although the legislation and initiatives in other states vary substantially , common areas of focus include when market-based pricing will be available for wholesale and retail customers , what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission , distribution and other assets . it is generally believed that transmission and distribution activities would remain regulated . within the last few years , these state restructuring efforts have diminished , and several states have delayed the implementation or reversed previously approved restructuring legislation and rules .
| results of operations summary - fpl group 's net income for the years ended december 31 , 2005 , 2004 and 2003 was $ 885 million , $ 887 million and $ 890 million , respectively . see note 17 for segment information . fpl group 's net income for the year ended december 31 , 2005 reflects slightly reduced earnings at fpl and higher interest expense at corporate and other , partially offset by improved results at fpl energy . fpl 's 2005 results reflect strong customer growth and increased usage per retail customer despite the impact of increased hurricane activity in 2005 versus 2004 , which were more than offset by higher o & m expenses , depreciation and amortization and interest charges . fpl energy 's 2005 results improved primarily due to improved market conditions in the ercot and nepool regions and the favorable effects of contract restructuring activities and asset sales , as well as the addition of new wind projects partially offset by higher interest expense . in addition , fpl group 's and fpl energy 's net income for 2005 reflect unrealized losses from non-qualifying hedges of $ 112 million while 2004 net income reflects unrealized losses of $ 3 million . the increase in unrealized mark-to-market losses associated with non-qualifying hedge activity for 2005 is primarily attributable to increased forward power and natural gas prices , as well as the reversal of previously recognized unrealized mark-to-market gains as the underlying transactions were realized during this period . as a general rule , a loss in the non-qualifying hedge category is offset by increases in the fair value of physical asset positions in the portfolio , which are not marked to market under generally accepted accounting principles . that is , the same factors that affected the decline in value of the hedges in general also increase the future value of nearly all of fpl energy 's merchant assets .
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this discussion contains forward-looking statements that involve risks and uncertainties . actual results may differ materially from those included in such forward-looking statements . factors that could cause actual results to differ materially include those set forth under risk factors , as well as those otherwise discussed in this section and elsewhere in this annual report . see forward-looking statements and industry data. business overview 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 our consolidated financial statements and notes thereto for the year ended december 31 , 2013 , both appearing elsewhere in this annual report . ceva is the world 's leading licensor of dsp cores and platform solutions . our technologies are widely licensed and power many of the world 's leading semiconductor and original equipment manufacturer ( oem ) companies . in 2013 , our licensees shipped more than one billion ceva-powered chipsets targeted for a wide range of diverse end markets . to date , more than 5 billion ceva-powered devices have shipped , illustrating the strong market deployment of our technology . our dsps power nearly every leading handset oem in the world today , including htc , huawei , lenovo , lg electronics , motorola , nokia , samsung , sony and zte , as well as hundreds of local handset manufacturers in china and india . based on internal data and strategy analytics ' provisional worldwide shipment data , ceva 's worldwide market share of cellular baseband chips that incorporate our technologies was approximately 40 % of the worldwide shipment volume in 2013. royalty revenues derived from the handset and mobile broadband markets accounted for approximately 84 % of our total royalty revenues in 2013. we believe the adoption of our dsp cores and technologies in the handset , mobile broadband and base station markets continues to progress . specifically , we believe the emergence of low cost smartphone platforms integrating 3g and edge cellular connectivity from companies such as broadcom , intel and spreadtrum , all of whom are our customers , is a strong positive driver for our market share expansion . we believe that the majority of this growth will come from the increased adoption of low cost smartphones in developing countries , especially china , the broader adoption of 4g lte-based advanced smartphones further down the road , as well as the introduction of feature set enhancements in audio , computational photography and embedded vision in smart devices . in addition , we are well positioned to capitalize on our success in handsets to expand into heterogeneous cellular base station networks composed of small cells and macrocells . beyond products enabled by our technologies for cellular baseband , we continue to strategically target growth in non-baseband applications , such as broadband communications , audio , voice , computational photography , embedded vision and connectivity . as a testament to this , during the fourth quarter , we signed 11 new license agreements , the highest number of deals signed in a single quarter in the last seven years . three of the agreements were in baseband , three in imaging , two in audio , two in connectivity and one foundry customer . we believe the following key elements represent significant growth drivers for the company : ceva is firmly established in the largest space in the semiconductor industrybaseband for mobile handsetas well as the other evolving cellular markets , such as mobile computing and machine to machine . our competitive edge in software-defined radio technology for the next generations of lte and wi-fi in base stations and broadband satellite communications , and the inherent low cost and power performance balance of our technologies , puts us in a strong position to simultaneously capitalize on mass market adoption and address all of the growth sectors of the space . 28 our proven track record in baseband technologies , in particular our pioneering position in software-defined radio , allows us to expand into the base station market , both in small cells and macrocells . the market potential for advanced audio and voice processing across mobile , automotive and consumer devices offers a new growth segment for the company . our ceva-teaklite-4 dsp was specifically designed to address the increasingly complex processing and stringent low-power requirements of advanced voice pre-processing and audio post-processing algorithms , including always-on voice activation , voice trigger , noise elimination and audio rendering . many companies are looking to replace their older in-house dsps due to the power and performance requirements outlined above . furthermore , the programmable nature of our audio/voice dsp combined with a large ecosystem of audio partners developing software enable our customers to significantly differentiate their products and feature sets . our proven track record in audio/voice , with more than 3 billion audio chips shipped to date , puts us in a strong position to power audio roadmaps across this new range of addressable end markets . the market potential for computational photography and vision analytics in cameras offers a new growth segment for the company . our ceva-mm3101 platform is the only one in the industry today that offers a unified computational photography and vision platform that can support these future developments . as a testament to this , we have eight customers to date addressing this new growth segment with our ceva-mm3101 platform , including three mobile oems . per abi research , one billion cameras were shipped in 2012 , and this number is predicted to grow to 2.7 billion in 2017 . 80 % of this volume is attributable to smartphones , where we already have a strong foothold through our other technologies . mobile oems are looking for new dslr features such as smarter autofocus , best picture using super resolution algorithms , and better image capture in low-light environments . story_separator_special_tag 985-605 , software revenue recognition. revenues are recognized when persuasive evidence of an arrangement exists and no further obligation exists , delivery has occurred , the license fee is fixed or determinable , and collection is reasonably assured . a license may be perpetual or time limited in its application . revenue earned on licensing arrangements involving multiple elements are allocated to each element based on the residual method when vendor specific 30 objective evidence ( vsoe ) of fair value exists for all undelivered elements and vsoe does not exist for one of the delivered elements . vsoe of fair value of the undelivered elements is determined based on the substantive renewal rate as stated in the agreement . extended payment terms in a licensing arrangement may indicate that the license fees are not deemed to be fixed or determinable . if the fee is not fixed or determinable , revenue is recognized as payments become due from the customer unless collection is not considered reasonably assured , then revenue is recognized as payments are collected from the customer , provided all other revenue recognition criteria have been met . revenues from license fees that involve significant customization of our ip to customer-specific specifications are recognized in accordance with the principles set out in fasb asc no . 605-35-25 , construction-type and production-type contracts recognition , using contract accounting on a percentage of completion method . the amount of revenue recognized is based on the total license fees under the agreement and the percentage of completion achieved . the percentage of completion is measured by the actual time incurred to date on the project compared to the total estimated project requirements , which correspond to the costs related to earned revenues . provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined , in the amount of the estimated loss on the entire contract . revenues that are derived from the sale of a licensee 's products that incorporate our ip are classified as royalty revenues . royalty revenues are recognized during the quarter in which we receive a report from the licensee detailing the shipment of products that incorporate our ip , which receipt is in the quarter following the licensee 's sale of such products to its customers . royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating our ip or on a per unit basis , as specified in the agreements with the licensees . non-refundable payments on account of future royalties ( prepaid royalties ) are included within our licensing and related revenue line on the consolidated statements of income . we may engage a third party to perform royalty audits of our licensees , and if these audits indicate any over- or under-reported royalties , we account for the results when the audits are resolved . in addition to license fees , contracts with customers generally contain an agreement to provide for post contract support and training , which consists of telephone or e-mail support , correction of errors ( bug fixing ) and unspecified updates and upgrades . fees for post contract support , which takes place after delivery to the customer , are specified in the contract and are generally mandatory for the first year . after the mandatory period , the customer may extend the support agreement on similar terms on an annual basis . we recognize revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the licensee , typically 12 months . revenues from training are recognized as the training is performed . revenues from the sale of development systems are recognized when title to the product passes to the customer and all other revenue recognition criteria have been met . we usually do not provide rights of return . when rights of return are included in the license agreements , revenue is deferred until rights of return expire . income taxes we are subject to income taxes mainly in israel , the u.s. and ireland . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . we recognize income taxes under the liability method . tax benefits are recognized from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . although we believe we have adequately reserved for our uncertain tax positions , no assurance can be given that the final tax outcome of these matters will not be different . we adjust these reserves when facts and circumstances change , such as the closing of a tax audit , the refinement of an 31 estimate or changes in tax laws . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will impact the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the effects of any reserves that are considered appropriate , as well as the related net interest and penalties . we recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under gaap and their respective tax bases , and for net operating loss carryforwards and tax credit carryforwards . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized . to make this judgment , we must make predictions of the amount and category of taxable income from various sources and weigh all available positive and negative evidence about these possible sources of taxable income .
| results of operations the following table presents line items from our consolidated statements of income as percentages of our total revenues for the periods indicated : replace_table_token_8_th 33 discussion and analysis below we provide information on the significant line items in our consolidated statements of income for each of the past three fiscal years , including the percentage changes year-on-year , as well as an analysis of the principal drivers of change in these line items from year-to-year . revenues total revenues replace_table_token_9_th the decrease in total revenues from 2012 to 2013 reflected principally lower royalty revenues , offset by slightly higher licensing and related revenue . the decrease in total revenues from 2011 to 2012 reflected lower royalty revenues and lower licensing and related revenue . we generate royalty revenues mainly from our customers which ship units of chipsets incorporating our technologies . the royalties are invoiced and recognized on a quarterly basis in arrears as we receive quarterly shipment reports from our licensees . the royalty rate is based either on a certain percent of the chipset price or a fixed amount per chipset based on volume discounts . we derive a significant amount of revenues from a limited number of customers . two customers separately accounted for 28 % and 11 % of our total revenues for 2013. one customer accounted for 28 % , 24 % and 17 % of our total revenues for 2013 , 2012 and 2011 , respectively , and the other customer accounted for 11 % , 13 % and 16 % of our total revenues for 2013 , 2012 and 2011 , respectively . with respect to our royalty revenues , four royalty paying customers each represented 10 % or more of our total royalty revenues for 2013 , 2012 and 2011 , and collectively represented 81 % , 74 % and 66 % of our total royalty revenues for 2013 , 2012 and 2011 , respectively .
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the residual net pension expense , which is comprised of the expected return on plan assets , interest costs on the projected benefit obligations of the plans , and story_separator_special_tag background and general our discussions below in this item 7 should be read in conjunction with our consolidated financial statements , including the notes thereto , included in this annual report on form 10-k. we are engaged in the manufacturing , fabrication , and distribution of specialty metals . we primarily process basic raw materials such as nickel , cobalt , titanium , manganese , chromium , molybdenum , iron scrap and other metal alloying elements through various melting , hot forming and cold working facilities to produce finished products in the form of billet , bar , rod , wire and narrow strip in many sizes and finishes . we also produce certain metal powders . our sales are distributed directly from our production plants and distribution network as well as through independent distributors . unlike many other specialty steel producers , we operate our own worldwide network of service/distribution centers . these service centers , located in the united states , canada , mexico , europe and asia allow us to work more closely with customers and to offer various just-in-time stocking programs . in june 2011 we entered into a definitive merger agreement with latrobe specialty metals , inc. ( latrobe ) whereby we will acquire latrobe in a transaction valued at the time at approximately $ 558 million . in the transaction , 8.1 million shares of carpenter stock , subject to certain adjustments , will be issued to the current owners . we will also pay $ 170 million in cash to eliminate latrobe debt at closing and reimburse certain transaction costs . the transaction is subject to customary closing conditions and regulatory approvals . closing is expected to occur during the first half of fiscal year 2012. in december 2010 , we acquired amega west services llc ( amega west ) for $ 54 million , including assumed debt of $ 12 million . amega west offers precision machined down-hole drilling tools and services that include nonmag drill collars , stabilizers , mwd and lwd housings , subs , tool rentals , and welding and repair . in june 2011 , we acquired oilfield alloys pte . ltd. ( oilfield alloys ) for $ 5 million , which will become part of the amega west operations . based in singapore , oilfield alloys manufactures and distributes directional drilling equipment in the asia-pacific region . on august 24 , 2011 , we announced that we plan to construct a new 400,000 square foot state-of-the-art manufacturing facility in response to strong customer demand for premium products primarily in the fast-growing aerospace and energy industries . we expect that the new facility will ultimately be capable of producing approximately 27,000 tons per year of additional premium product and be operational in approximately 30 months . the facility is expected to be built on one of several greenfield sites currently under consideration at a total cost of approximately $ 500 million . the new facility will include forge , remelting and associated finishing and testing capabilities and will play a key role in further developing our capabilities in the production of our premium products . as part of our overall business strategy , we have sought out and considered opportunities related to strategic acquisitions and joint collaborations aimed at broadening our offering to the marketplace . we have participated with other companies to explore potential terms and structure of such opportunities and we expect that we will continue to evaluate these opportunities . 18 business trends selected financial results for the past three fiscal years are summarized below : replace_table_token_5_th ( 1 ) see the section non-gaap financial measures below for further discussion of these financial measures . ( 2 ) includes specialty and titanium alloys , stainless steel and powder materials our sales are across a diversified list of end-use markets . the table below summarizes our estimated sales by market over the past three fiscal years . replace_table_token_6_th the table below shows our net sales by major product class for the past three fiscal years : 19 replace_table_token_7_th impact of raw material prices and product mix we value most of our inventory utilizing the last-in , first-out ( lifo ) inventory costing methodology . under the lifo inventory costing method , changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers . in a period of rising raw material costs , the lifo inventory valuation normally results in higher costs of sales . conversely , in a period of decreasing raw material costs , the lifo inventory valuation normally results in lower costs of sales . the volatility of the costs of raw materials has impacted our operations over the past several years . we , and others in our industry , generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs . generally , the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases . however , a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order , which creates a lag between surcharge revenue and corresponding raw material costs recognized in costs of sales . the surcharge mechanism protects our net income on such sales except for the lag effect discussed above . story_separator_special_tag in order to make the discussion of net sales by end-use market meaningful , we have reclassified the fiscal year 2010 sales by end-use market balances to conform to the fiscal year 2011 presentation . although we are not organized to report other than sales by end-use market , the following table includes comparative information for our estimated net sales by principal end-use markets which we believe is helpful supplemental information in analyzing the performance of the business from period to period : replace_table_token_10_th the following table includes comparative information for our estimated net sales by the same principal end-use markets , but excluding surcharge revenues : replace_table_token_11_th 22 sales to the aerospace market increased 30 percent from fiscal year 2010 to $ 685.8 million . excluding surcharge revenue , such sales increased 24 percent on 23 percent higher shipment volume . aerospace results reflect continuing strong demand for engine components driven by high build rates . industrial market sales increased 45 percent from fiscal year 2010 to $ 380.6 million . adjusted for surcharge revenue , such sales increased approximately 33 percent while volumes increased 25 percent . the results reflect the impact of mix management and pricing actions as well as demand growth for higher value materials for fittings . in addition , powder metal sales used for tool steel products were up significantly . sales to the energy market of $ 196.0 million reflected a 146 percent increase from the fiscal year 2010. excluding surcharge revenue , such sales increased 144 percent on 94 percent higher shipment volume . the results reflect a significant increase in the oil and gas segment due in part to increases in directional drilling activity , the amega west acquisition and higher pricing . in addition , increased demand for materials used in industrial gas turbines contributed to the growth . sales to the consumer market increased 29 percent to $ 151.4 million from a year ago . adjusted for surcharge revenue , such sales increased 23 percent with shipment volume higher by 15 percent . revenue grew faster than volume as the growing global demand for higher value materials used in sporting goods applications outpaced sales of lower value materials used in housing . mix management efforts and pricing actions are having a considerable positive impact on the consumer market sales . automotive market sales increased 36 percent from the fiscal year 2010 to $ 138.8 million . excluding surcharge revenue , such sales increased 22 percent on 17 percent higher shipment volume . the revenue growth is attributable to mix management efforts that caused increased participation in higher value turbo charger and fuel system components , with a corresponding reduction in lower value products . these efforts are expected to better position us to participate in the trend toward premium stainless and high-temp alloys used in the next generation technologies that support higher fuel economy . sales to the medical market increased 14 percent to $ 122.5 million from a year ago . adjusted for surcharge revenue , such sales increased 17 percent , on 8 percent higher volume . the results reflect increased demand particularly in our high-end stainless products . sales by product class the following table includes comparative information for our net sales by major product class : replace_table_token_12_th 23 the following table includes comparative information for our net sales by the same major product class , but excluding surcharge revenues : replace_table_token_13_th sales of special alloys products increased 32 percent in fiscal year 2011 as compared with a year ago to $ 841.8 million . excluding surcharge revenue , sales increased 22 percent on a 17 percent increase in shipment volume . the sales results principally reflect the increase in demand from the higher value aerospace and energy market products . sales of stainless steels increased 53 percent as compared with a year ago . excluding surcharge revenues , such sales increased by 50 percent on a 28 percent higher shipment volume . the results reflect increased demand in materials used in the automotive , industrial and consumer markets as well as the impacts of pricing and mix management actions . sales of titanium products increased 25 percent as compared with a year ago on 24 percent higher shipment volume . the results reflect the impact of increased demand for titanium products used in the aerospace and medical end-use markets . gross profit gross profit in fiscal year 2011 increased to $ 249.0 million , or 14.9 percent of net sales ( 20.2 percent of net sales excluding surcharges ) , from $ 144.8 million , or 12.1 percent of net sales ( 15.7 percent of net sales excluding surcharges ) , a year ago . the results primarily reflect the higher volumes in fiscal year 2011 , an improved product mix , price increases and better operating performance . our surcharge mechanism is structured to recover increases in raw material costs , although generally with a lag effect . while the surcharge generally protects the absolute gross profit dollars , it does have a dilutive effect on gross margin as a percent of sales . the following represents a summary of the dilutive impact of the surcharges on gross margin for fiscal years 2011 and 2010. see the section non-gaap financial measures below for further discussion of these financial metrics . replace_table_token_14_th 24 selling , general and administrative expenses selling , general and administrative expenses in fiscal year 2011 were $ 149.5 million , or 8.9 percent of net sales ( 12.1 percent of net sales excluding surcharges ) , compared to $ 133.1 million , or 11.1 percent of net sales ( 14.4 percent of net sales excluding surcharges ) , in fiscal year 2010. the increase in fiscal year 2011 is principally related to higher compensation costs associated with increased headcount and the addition of amega west overhead costs . acquisition related costs during fiscal year 2011 , we incurred $ 3.1 million of acquisition related costs associated with the latrobe and amega west acquisitions .
| business segment results summary information about our operating results on a segment basis is set forth below . for more detailed segment information , see note 20 to the consolidated financial statements included in item 8 . - financial statements and supplementary data. the following tables include selected information by business segment : replace_table_token_16_th 26 replace_table_token_17_th advanced metals operations segment net sales in fiscal year 2011 for the amo segment were $ 1,141.1 million , as compared with $ 853.0 million in fiscal year 2010. excluding surcharge revenues , sales increased 27 percent on a 21 percent increase in volume from a year ago . the results reflect increased shipment volumes due to higher demand combined with the impacts of pricing actions . operating income for the amo segment in fiscal year 2011 was $ 62.3 million , or 5.5 percent of net sales ( 7.3 percent of net sales excluding surcharge revenues ) , compared to $ 11.8 million , or 1.4 percent of net sales ( 1.7 percent of net sales excluding surcharge revenues ) , a year ago . the increase in operating income reflects the impacts of higher volumes , pricing actions and a favorable shift in product mix . premium alloys operations segment net sales for fiscal year 2011 for the pao segment increased 53 percent to $ 533.0 million as compared with $ 348.3 million for fiscal year 2010. excluding surcharge revenues , net sales increased 49 percent on 54 percent higher shipment volumes . both the sales and shipment volume increases were due to increased demand , particularly in our energy and aerospace end use markets .
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10.6 * form of encore wire 2010 stock option plan stock award agreement ( filed as exhibit 10.3 to the company 's quarterly report on form 10-q filed with the sec on august 2 , 2017 and incorporated herein by reference ) . 10.7 * form of encore wire corporation restricted stock award agreement 10.8 * form of encore wire corporation stock award agreement under the 2020 long term incentive plan ( filed as exhibit 10.2 to the company 's current report on form 8-k , filed with the sec on may 6 , 2020 , and incorporated herein by reference ) . 10.9 * form of encore wire corporation time-based restricted stock unit award agreement under the 2020 long term incentive plan . 10.10 credit agreement dated september 27 , 2012 by and among the company , bank of america , n.a . , as administrative agent and letter of credit issuer , wells fargo bank , national association , as syndication agent and the other lender parties thereto ( filed as exhibit 10.1 to the company 's quarterly report on form 10-q filed with the sec on november 2 , 2012 and incorporated herein by reference ) . 40 10.11 first amendment to credit agreement , dated as story_separator_special_tag introduction the following management 's discussion and analysis is intended to provide a better understanding of key factors , drivers and risks regarding the company and the building wire industry . the duration and severity of the covid-19 pandemic outbreak and its long-term impact on our business are uncertain at this time . developments surrounding the covid-19 global pandemic are continuing to change daily , and we have limited visibility into the extent to which market demand for our products as well as sector manufacturing and distribution capacity will be impacted . executive overview encore wire sells a commodity product in a highly competitive market . management believes that the historical strength of the company 's growth and earnings is in large part attributable to the following main factors : industry-leading order fill rates and responsive customer service product innovations and product line expansions based on listening to and understanding customer needs and market trends low cost manufacturing operations , resulting from a state-of-the-art manufacturing complex low distribution and freight costs due in large part to the “ one campus ” business model a focused management team leading a skilled work force low general and administrative overhead costs , and a team of experienced independent manufacturers ' representatives with strong customer relationships across the united states . these factors , and others , have allowed encore wire to grow from a startup in 1989 to what management believes is one of the largest electric building wire companies in the united states of america . encore has built a loyal following of customers throughout the united states . these customers have developed a brand preference for encore wire in a commodity product line due to the reasons noted above , among others . the company prides itself on striving to grow sales by expanding its product offerings where profit margins are acceptable . senior management monitors gross margins daily , frequently extending down to the individual order level . management strongly believes that this “ hands-on ” focused approach to the building wire business has been an important factor in the company 's success , and will lead to continued success . the construction and remodeling industries drive demand for building wire . in 2020 , unit sales were down 5.4 % in copper wire versus 2019. in 2019 , unit sales increased 4.1 % in copper wire versus 2018. in 2018 , unit sales of copper wire sold increased 4.5 % versus 2017. general the company 's operating results are driven by several key factors , including the volume of product produced and shipped , the cost of copper and other raw materials , the competitive pricing environment in the wire industry and the resulting influence on gross margins and the efficiency with which the company 's plants operate during the period , among others . price competition for electrical wire and cable is significant , and the company sells its products in accordance with prevailing market prices . copper , a commodity product , is the principal raw material used by the company in manufacturing its products . the price of copper fluctuates , depending on general economic conditions and in relation to supply and demand and other factors , which causes monthly variations in the cost of copper purchased by the company . additionally , the sec allows shares of physically backed copper exchange traded funds ( “ etfs ” ) to be listed and publicly traded . such funds and other copper etfs like it hold copper cathode as collateral against their shares . the acquisition of copper cathode by copper etfs may materially decrease or interrupt the availability of copper for immediate delivery in the united states , which could materially increase the company 's cost of copper . in addition to rising copper prices and potential supply shortages , we believe that etfs and similar copper-backed derivative products could lead to increased price volatility for copper . the company can not predict copper prices in the future or the effect of fluctuations in the cost of copper on the company 's future operating results . wire prices can , and frequently do change on a daily basis . this competitive pricing market for wire does not always mirror changes in copper prices , making margins highly volatile . historically , the cost of aluminum has been much lower and less volatile than copper . the tables below highlight the range of closing prices of copper on the comex exchange for the periods shown . story_separator_special_tag the company 's board of directors has authorized several increases and annual extensions of this stock repurchase program , and , as of december 31 , 2020 , 1,000,000 shares remained authorized for repurchase through march 31 , 2021. subsequently , the authorization for repurchase was extended through march 31 , 2022. the company repurchased 441,250 shares of its stock in 2020 , and did not repurchase any shares of its stock in 2019 or 2018. the company also has a broker agreement to repurchase stock in the open market at certain trigger points pursuant to a rule 10b5-1 plan announced on november 28 , 2007 . 17 net cash provided by operations decreased $ 48.6 million to $ 57.5 million in 2020 compared to $ 106.1 million in 2019 and $ 81.6 million in 2018. the decrease in cash provided by operations of $ 48.6 million in 2020 versus 2019 was due to several factors . net income increased to $ 76.1 million in 2020 from $ 58.1 million in 2019. accounts receivable increased in 2020 , resulting in cash used of $ 53.4 million versus cash provided of $ 12.3 million in 2019 , a decrease in operating cash flow of $ 65.7 million . accounts receivable was impacted by the $ 78.5 million increase in net sales in the fourth quarter of 2020 versus the fourth quarter of 2019 , brought on by a 21.1 % increase in the average selling price per pound of copper wire sold , and a 4.3 % increase in copper volume shipped . changes in inventory resulted in cash used of $ 2.6 million in 2020 versus cash provided of $ 12.7 million in 2019 , a $ 15.3 million decrease in cash provided . changes in trade accounts payable and accrued liabilities resulted in cash provided of $ 7.6 million in 2020 versus cash provided of $ 2.0 million in 2019 , a positive swing of $ 5.6 million . these changes in cash flow were the primary drivers of the $ 48.6 million decrease in net cash flow provided by operations in 2020 versus 2019. net cash provided by operations increased $ 24.5 million to $ 106.1 million in 2019 compared to $ 81.6 million in 2018. the increase in cash provided by operations of $ 24.5 million in 2019 versus 2018 was due to several factors . net income decreased to $ 58.1 million in 2019 from $ 78.2 million in 2018. accounts receivable decreased in 2019 , resulting in cash provided of $ 12.3 million versus cash used of $ 6.5 million in 2018 , an increase in operating cash flow of $ 18.8 million . accounts receivable generally fluctuates in proportion to dollar sales and , to a lesser extent , are affected by the timing of when sales occur during a given quarter . additionally , accounts receivable can fluctuate based upon the payment timing patterns of certain large customers , although increases in accounts receivable at the end of quarterly reporting periods for this reason have not historically raised collectability issues . changes in inventory resulted in cash provided of $ 12.7 million in 2019 versus cash used of $ 10.0 million in 2018 , a $ 22.7 million increase in cash provided . changes in trade accounts payable and accrued liabilities resulted in cash provided of $ 2.0 million in 2019 versus cash provided of $ 0.2 million in 2018 , a positive swing of $ 1.8 million . these changes in cash flow were the primary drivers of the $ 24.5 million increase in net cash flow provided by operations in 2019 versus 2018. net cash used in investing activities was $ 86.0 million in 2020 versus $ 52.5 million in 2019 and $ 26.1 million in 2018. in 2020 , capital expenditures were used primarily for the construction of our new service center , the acceleration of spending for our repurposed distribution center , and the purchase and installation of machinery and equipment throughout the company . in 2019 and 2018 , capital expenditures were used primarily for the purchase and installation of machinery and equipment throughout the company . the net cash used by financing activities of $ 19.3 million in 2020 consisted primarily of $ 20.7 million used to purchase company stock and dividend payments of $ 1.7 million , partially offset by $ 3.0 million proceeds from issuance of company stock related to employees exercising stock options . the net cash used by financing activities of $ 1.1 million in 2019 consisted primarily of $ 1.7 million in dividend payments offset by $ 0.6 million proceeds from issuance of company stock related to employees exercising stock options . the net cash used by financing activities of $ 0.5 million in 2018 consisted primarily of $ 1.7 million in dividend payments , offset by $ 1.2 million proceeds from issuance of company stock related to employees exercising stock options . our two-phased expansion plans announced earlier this year continue in earnest and remain on schedule . the construction of the new service center is progressing well with a planned opening in the second quarter of 2021. phase two of our expansion plans will focus on repurposing our existing distribution center to expand manufacturing capacity and extend our market reach . spending on phase two has already commenced as we have accelerated the timing of orders with manufacturers due to increased lead times required for certain machinery and equipment in the current environment . phase two completion is anticipated in early 2022. total capital expenditures were $ 86 million in 2020. we expect total capital expenditures to range from $ 100 - $ 120 million in 2021 , $ 50 - $ 70 million in 2022 , and $ 40 - $ 60 million in 2023. our strong balance sheet and ability to consistently generate high levels of operating cash flow should provide ample allowance to fund planned capital expenditures .
| results of operations the following table presents certain items of income and expense as a percentage of net sales for the periods indicated . replace_table_token_8_th the following discussion and analysis relate to factors that have affected the operating results of the company for the years ended december 31 , 2020 , 2019 and 2018. reference should also be made to the financial statements and the related notes included under “ item 8. financial statements and supplementary data ” of this annual report . additional information about results for year end 2018 and certain year-on-year comparisons between 2019 and 2018 can be found in “ management 's discussion and analysis of financial condition and results of operations ” in the company 's annual report on form 10-k for the year ended december 31 , 2019. net sales for the twelve months ended december 31 , 2020 were $ 1.277 billion compared to $ 1.275 billion during the same period in 2019 and $ 1.289 billion during the same period in 2018. copper unit volume , measured in pounds of copper contained in the wire sold , decreased 5.4 % in the twelve months ended december 31 , 2020 versus the twelve months ended december 31 , 2019. the 1.1 % decrease in net sales dollars in 2019 versus 2018 is primarily the result of a 2.0 % decrease in copper wire sales . sales dollars were driven lower primarily by a 5.8 % decrease in average selling price of copper wire , partially offset by a 4.1 % increase in copper wire pounds shipped . average selling prices for wire sold were primarily driven lower by falling copper commodity prices .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those described in part i , item 1a , `` risk factors '' and elsewhere in this annual report on form 10-k. overview of our business and services syneos health , inc. ( the “ company , ” “ we , ” “ us , ” and “ our ” ) is a leading global biopharmaceutical services organization comprised of an end-to-end clinical contract research organization ( “ cro ” ) and contract commercial organization ( “ cco ” ) . we offer both standalone and integrated biopharmaceutical development and commercialization services ranging from phase i to phase iv clinical trial services to services associated with the commercialization of biopharmaceutical products . our customers include small , mid-sized , and large companies in the pharmaceutical , biotechnology , and medical device industries , and our revenue is derived through a broad suite of services designed to enhance our customers ' ability to successfully develop , launch , and market their products . we consistently and predictably deliver our services in a complex environment and offer a proprietary , operational approach to the delivery of our projects through our trusted process ® methodology . on august 1 , 2017 , we completed a merger ( the “ merger ” ) with double eagle parent , inc. ( “ inventiv ” ) , the parent company of inventiv health , inc. under the terms of the merger agreement , dated may 10 , 2017 ( the “ merger agreement ” ) . upon closing , inventiv was merged with and into the company , and the separate corporate existence of inventiv ceased . in conjunction with the merger , we entered into the 2017 credit agreement to : ( i ) repay the company 's and inventiv 's pre-merger term loans ; ( ii ) partially redeem inventiv 's senior unsecured notes ; and ( iii ) pay fees and expenses related to the merger . see further discussion in `` note 3 - business combinations `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' in this annual report on form 10-k for additional details on the merger . following the merger , we realigned our operating segments to reflect the current structure under which we evaluate our performance , make strategic decisions and allocate resources . as a result of this realignment , effective august 1 , 2017 , we began managing our business through two reportable segments : clinical solutions and commercial solutions . our clinical solutions segment offers a variety of services spanning phase i to phase iv of clinical development , including full-service global studies , as well as individual service offerings such as clinical monitoring , investigator recruitment , patient recruitment , data management , and study startup to assist customers with their drug development process . our commercial solutions segment provides the pharmaceutical , biotechnology , and healthcare industries commercialization services , which include outsourced selling solutions , communication solutions ( public relations and advertising ) , and consulting services . our management reviews segment performance and allocates resources based upon segment revenue and segment operating income . historical segment reporting has been revised to reflect these changes to our segment structure . prior to the merger , our commercial solutions segment consisted solely of a consulting offering . see further discussion in `` note 14 - segment information `` to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' in this annual report on form 10-k. for financial information regarding revenue and long-lived assets by geographic areas , see `` note 15 - operations by geographic location '' to our consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' in this annual report on form 10-k. 65 new business awards and backlog in connection with the merger , we re-evaluated our existing backlog policy for our clinical solutions segment . as a result of this evaluation , effective during the third quarter of 2017 , we changed our policy for calculating and reporting the amounts of our net new business awards and backlog . under the new backlog policy for our clinical solutions segment , we add new business awards to backlog when we enter into a contract or when we receive a written commitment from the customer selecting us as a service provider , provided that : the customer has received appropriate internal funding approval and collection of the award value is probable ; the project or projects are not contingent upon completion of another trial or event ; the project or projects are expected to commence within the next six months ; the customer has entered or intends to enter into a comprehensive contract as soon as practicable ; and for awards related to our fsp offering , only a maximum of twelve months of services are included . in addition , we continually evaluate our backlog to determine if any of the previously awarded work is no longer expected to be performed , regardless of whether we have received formal cancellation notice from the customer . if we determine that any previously awarded work is no longer probable of being performed , we remove the value from our backlog based on risk . we recognize revenue from these awards as services are performed , provided we have entered into a contractual commitment with the customer . we recorded the backlog assumed in the merger consistent with our new backlog policy . we do not currently report new business awards or backlog data for our commercial solutions segment . accordingly , all disclosures related to net new service awards and backlog pertain solely to our clinical solutions segment . story_separator_special_tag for the year ended december 31 , 2017 , our net service revenue attributable to the commercial solutions segment increased compared to the same period in 2016 primarily due to the merger with inventiv in august 2017 , which resulted in an increase in commercial solutions net service revenue of $ 382.2 million . while our commercial solutions net service revenue increased on a comparative basis due to the merger , net service revenue associated with this segment declined compared to the amounts reported by inventiv in periods prior to the merger as a result of project cancellations , particularly within our selling solutions and communications service offerings , lower year-over-year business awards , and lower new drug approval activity during 2016. for the years ended december 31 , 2016 and 2015 , our net service revenue attributable to the commercial solutions segment was not material and related to our legacy global consulting business . direct costs our direct costs consist principally of compensation expense and benefits associated with our employees and other employee-related costs . while we have some ability to manage the majority of these costs relative to the amount of contracted services we have during any given period , direct costs as a percentage of net service revenue can vary from period to period . such fluctuations are due to a variety of factors , including , among others : ( i ) the level of staff utilization created by our ability to effectively manage our workforce ; ( ii ) adjustments to the timing of work on specific customer contracts ; ( iii ) the experience mix of personnel assigned to projects ; and ( iv ) the service mix and pricing of our contracts . in addition , as global projects wind down or as delays and cancellations occur , staffing levels in certain countries or functional areas can become misaligned with the current business volume . direct costs increased by $ 605.4 million , or 96.6 % , to $ 1,232.0 million for the year ended december 31 , 2017 from $ 626.6 million for the year ended december 31 , 2016 . these increases were driven by the merger with inventiv , which increased our worldwide employee base by approximately 15,000 employees in august 2017 and resulted in an increase of $ 596.0 million in direct costs for the year . in addition to the increase in direct costs associated with the merger , we incurred higher organic compensation and benefits related expense as a result of increased personnel resulting from : ( i ) new business awarded in the first half of 2017 ; ( ii ) our investment in additional personnel to support the bidding process for new business opportunities ; and ( iii ) an increase in underutilized personnel that we retained in anticipation of work that was delayed or canceled . these increases were partially offset by a reduction in direct costs from lower incentive based compensation and a $ 1.5 million reduction related to foreign currency exchange rate fluctuations during the year ended december 31 , 2017 compared to the prior year . direct costs increased by $ 84.2 million , or 15.5 % , to $ 626.6 million for the year ended december 31 , 2016 from $ 542.4 million for the year ended december 31 , 2015. these increases were primarily driven by : ( i ) the growth in our revenues and the resulting need for additional resources ; ( ii ) our need to utilize a higher percentage of third party contractors during 2016 compared to 2015 as the result of our commitment to a customer to accelerate work originally planned for 2017 into 2016 ; and ( iii ) one-time benefits received in 2015 related to a favorable resolution of several vat and other tax items , a change in employee incentive compensation , and favorable resolutions to disputed pass-through costs . the increases were partially offset by a reduction in direct costs of $ 15.5 million related to fluctuations in foreign currency exchange rates during the year ended december 31 , 2016 compared to 2015 . 70 direct costs for each of our segments , excluding share-based compensation expense , were comprised of the following ( in thousands , except percentages ) : replace_table_token_9_th clinical solutions for the years ended december 31 , 2017 , 2016 and 2015 , direct costs related to our clinical solutions segment were $ 930.2 million , $ 612.2 million and $ 533.3 million , respectively , representing approximately 76.2 % , 98.7 % and 98.7 % , respectively , of our total direct costs for the period . clinical solutions direct costs as a percentage of related net service revenue for the years ended december 31 , 2017 , 2016 and 2015 , were 63.7 % , 60.0 % and 58.8 % , respectively . the increase in direct costs associated with our clinical solutions segment in 2017 compared to 2016 was primarily due to increased personnel costs for the reasons discussed above , particularly increases resulting from the merger and retention of underutilized staff . the increase in direct costs associated with our clinical solutions segment in 2016 compared to 2015 was primarily due to increased growth in our revenues resulting in the need for additional resources , including third party contractors , and one-time benefits received in 2015 , as discussed previously . gross margin for the clinical solutions segment was 36.3 % , 40.0 % and 41.2 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively .
| results of operations year ended december 31 , 2017 compared to the years ended december 31 , 2016 and 2015 the following table sets forth amounts from our consolidated financial statements along with the percentage change for years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_7_th net service revenue net service revenue increased by $ 822.5 million , or 79.8 % , to $ 1,852.8 million for the year ended december 31 , 2017 from $ 1,030.3 million for the year ended december 31 , 2016 . the increase in our total net service revenue during 2017 was due solely to the merger with inventiv in august 2017 , which resulted in an increase in total net service revenue of $ 839.0 million . this increase was partially offset by a year-over-year decline in organic revenues resulting from significant customer , regulatory , and other delays impacting our awarded projects during 2017 , and higher than normal levels of cancellations of previously awarded projects . our net service revenue for the year ended december 31 , 2017 was negatively impacted by fluctuations in foreign exchange rates and contractual currency adjustment provisions of $ 4.8 million , as the u.s. dollar has strengthened compared to the prior year . net service revenue increased $ 115.6 million , or 12.6 % , to $ 1,030.3 million for the year ended december 31 , 2016 from $ 914.7 million for the year ended december 31 , 2015. in 2016 , our revenue grew across all therapeutic areas and has been particularly strong in the central nervous system , oncology and other complex therapeutic areas . the growth in revenue during 2016 was primarily due to our strong backlog at the beginning of the year , the acceleration of a group of projects with one of our sponsors , revenue mix , and the growth of our functional service provider business .
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the management 's discussion and analysis is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to the consolidated financial statements . overview business overview we are a pioneer and leader in conversational and cognitive artificial intelligence ( `` ai '' ) innovations that bring intelligence to everyday work and life . our solutions and technologies can understand , analyze and respond to human language to increase productivity and amplify human intelligence . our solutions are used by businesses in the healthcare , automotive , financial services , telecommunication and travel industries , among others . we see several trends in our markets , including ( i ) the growing adoption of cloud-based , connected services and highly interactive mobile applications , ( ii ) deeper integration of virtual assistant capabilities and services , and ( iii ) the continued expansion of our core technology portfolio including asr , natural nlu , semantic processing , domain-specific reasoning , dialog management capabilities , ai , and voice biometric speaker authentication . we report our business in five segments , healthcare , enterprise , automotive , imaging and other . trends in our businesses healthcare . customers in our healthcare segment are broadly implementing ehr systems and are working to improve clinical documentation , improve quality of care , minimize physician burnout integrate quality measures and aid reimbursement . these trends are driving a shift towards more integrated solutions that combine both dragon medical and transcription services , and increasingly use only dragon medical . recently , higher demand for more integrated solutions have offset declines in legacy , hosted transcription services . additionally , we have been able to capitalize on healthcare providers ' shift towards hosted , or cloud-based solutions , and away from perpetual licenses , by adding new innovations to our dragon medical cloud solutions including new clinical language understanding and ai capabilities designed to increase productivity and improve clinical documentation at the point of care and within existing electronic medical work flow . enterprise . consumer demand for 24/7 , multi-channel access to customer service from the businesses they interact with is driving demand for our ai-powered omni-channel engagement solutions . we continue to enhance our technology capabilities with intelligent self-service and ai for customer service , and to extend the market for our on-demand omni-channel enterprise solutions into international markets , expand our sales and solutions for biometrics , and expand our core products and services portfolio . automotive . demand for our embedded and cloud-based automotive solutions is being driven by the growth in personalized , automotive virtual assistants and connected services for cars and by auto manufacturers ' desire to create a branded and personalized experience , capable of intelligently integrating users ' smart phone and home device preferences and technologies . on november 19 , 2018 , we announced our intent to spin off our automotive business into an independent publicly-traded company through a pro rata distribution to our common stock holders . completion of the proposed spin-off is subject to certain conditions , including final approval by our board of directors . we are targeting to compete the separation of the business by the end of fiscal year 2019. imaging . the imaging market is evolving to include more networked solutions to mfp devices , as well as more mobile access to those networked solutions , and away from packaged software . we are investing to merge the scan and print technology platforms to improve mobile access to our solutions and technologies , expand our distribution channels and embedded relationships , and expand our language coverage for ocr in order to drive a more comprehensive and compelling offering to our partners . on november 11 , 2018 , we entered into a definitive stock purchase agreement , pursuant to which we agreed to sell our imaging business and associated assets for a total cash consideration of approximately $ 400 million . the transaction , which is subject to regulatory review and other customary closing conditions , is expected to close by the end of the second quarter of fiscal year 2019 . 22 other . our other segment includes our subscriber revenue services ( `` srs '' ) and devices businesses . our srs business provides value-added services to mobile operators in india and brazil ( “ mobile operator services ” ) and voicemail transcription services to mobile operators in the rest of the world ( “ voicemail-to-text ” ) . our devices business provides speech recognition solutions and predictive text technologies for handset devices . our mobile operator services has experienced dramatic market disruptions during fiscal year 2018. our devices revenue has been declining due to the ongoing consolidation of our handset manufacturer customer base and continued erosion of our penetration of the remaining market . during the fourth quarter of fiscal 2018 , in connection with our comprehensive portfolio and business review efforts , we commenced a wind-down of our devices and mobile operator services businesses . cybersecurity & data privacy matters on june 27 , 2017 , nuance was a victim of the global notpetya malware incident ( the “ 2017 malware incident ” ) , which primarily impacted our medical transcription services . for fiscal year 2017 , we estimated that our healthcare segment lost approximately $ 65.0 million in revenues , primarily due to the service disruption and the reserves we established for customer refund credits related to the incident . additionally , we incurred incremental costs of approximately $ 24.0 million for fiscal year 2017 as a result of our remediation and restoration efforts , as well as incremental amortization expenses . also , in december 2017 , an unauthorized third party illegally accessed certain reports hosted on a nuance transcription platform . this incident was limited in scope to records of approximately 45,000 individuals and was isolated to a single transcription platform that was promptly shutdown . story_separator_special_tag 26 costs and expenses cost of professional services and hosting revenue cost of professional services and hosting revenue primarily consists of compensation for services personnel , outside consultants and overhead , as well as the hardware , infrastructure and communications fees that support our hosting solutions . the following table shows the cost of professional services and hosting revenue , in dollars and as a percentage of professional services and hosting revenue ( dollars in millions ) : replace_table_token_9_th fiscal year 2018 compared with fiscal year 2017 the increase in cost of professional services and hosting revenue was primarily due to higher professional services costs in our healthcare segment related to ehr implementation and optimization services and higher hosting costs related to the growth of our automotive connected car services , offset in part by lower costs of medical transcription services . gross margins increase d by 2.7 percentage points as our healthcare segment recovered from the 2017 malware incident throughout the year . also contributing to the margin improvement was a favorable shift in revenue mix towards higher margin dragon medical cloud-based offerings , offset in part by margin compression in our medical transcription services and the increase in ehr implementation and optimization services which carried lower margins . fiscal year 2017 compared with fiscal year 2016 the increase in cost of professional services and hosting revenue was primarily driven by higher employee and infrastructure-related costs due to higher revenues in our enterprise segment . gross margins decreased by 2.1 percentage points primarily due to the negative impact of the 2017 malware incident , the continued erosion of our medical transcription services in healthcare , and lower margins in enterprise due to recent acquisitions . partially offsetting the margin declines was the favorable shift in revenue mix to higher margin professional services in imagining . cost of product and licensing revenue cost of product and licensing revenue primarily consists of material and fulfillment costs , manufacturing and operations costs and third-party royalty expenses . the following table shows the cost of product and licensing revenue , in dollars and as a percentage of product and licensing revenue ( dollars in millions ) : replace_table_token_10_th fiscal year 2018 compared with fiscal year 2017 the increase in cost of product and licensing revenue was due to higher costs related to our clinical documentation and diagnostic solutions . gross margins increase d by 0.3 percentage points , or essentially flat year-over-year . fiscal year 2017 compared to fiscal year 2016 the decrease in cost of product and licensing revenue was driven by lower costs related to dragon medical and dragon consumer perpetual licenses , as well as our mfp solutions . gross margins increased by 1.3 percentage points , due to a favorable shift in revenue mix towards higher margin products healthcare and imaging . 27 cost of maintenance and support revenue cost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead . the following table shows cost of maintenance and support revenue , in dollars and as a percentage of maintenance and support revenue ( dollars in millions ) : replace_table_token_11_th fiscal year 2018 compared with fiscal year 2017 cost of maintenance and support revenue increase d by $ 4.0 million , or 7.4 % , primarily driven by higher compensation costs in imaging . gross margins decrease d by 1.8 percentage points primarily due to lower margin on dragon medical software maintenance and support services in healthcare . fiscal year 2017 compared with fiscal year 2016 cost and the gross margin of maintenance and support revenue remained essentially flat during fiscal year 2017. research and development expenses research and development ( `` r & d '' ) expenses primarily consist of salaries , benefits , and overhead relating to engineering staff as well as third party engineering costs . the following table shows research and development expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_12_th fiscal year 2018 compared with fiscal year 2017 r & d expense increase d by $ 39.2 million , primarily due to higher compensation expenses as we continue to invest in product innovation and new technologies to support our long-term growth . fiscal year 2017 compared with fiscal year 2016 r & d expense decreased by $ 5.0 million , primarily due to our continued cost-savings initiatives to reduce headcount and move r & d activities to lower-cost locations , offset in part by higher compensation expenses in our enterprise segment due to acquisitions . sales and marketing expenses sales and marketing expenses include salaries and benefits , commissions , advertising , direct mail , public relations , tradeshow costs and other costs of marketing programs , travel expenses associated with our sales organization and overhead . the following table shows sales and marketing expense , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_13_th fiscal year 2018 compared with fiscal year 2017 the decrease in sales and marketing expense was primarily driven by lower commission expenses due to recent changes in our commission plans . 28 fiscal year 2017 compared with fiscal year 2016 the increase in sales and marketing expense was primarily due to higher compensation and commission expenses on increased headcount in our enterprise segment , offset in part by lower marketing spend in our healthcare segment . general and administrative expenses general and administrative expenses primarily consist of personnel costs for administration , finance , human resources , general management , fees for external professional advisers including accountants and attorneys , and provisions for doubtful accounts .
| results of operations total revenues the following tables show total revenues by product type and revenue by geographic location , based on the location of our customers , in dollars and percentage change ( dollars in millions ) : replace_table_token_5_th fiscal year 2018 compared with fiscal year 2017 the geographic split for fiscal year 2018 was 72 % of total revenue in the united states and 28 % internationally , as compared to 70 % of total revenue in the united states and 30 % internationally for the prior fiscal year . fiscal year 2017 compared with fiscal year 2016 the geographic split for fiscal years 2017 was 70 % of total revenue in the united states and 30 % internationally , as compared to 71 % of total revenue in the united states and 29 % internationally for the prior fiscal year . 24 professional services and hosting revenue professional services revenue primarily consists of consulting , implementation and training services for customers . hosting revenue primarily relates to delivering on-demand hosted services , such as medical transcription , automated customer care applications , mobile operator services , and mobile infotainment and search and transcription , over a specified term . the following table shows professional services and hosting revenue , in dollars and as a percentage of total revenues ( dollars in millions ) : replace_table_token_6_th fiscal year 2018 compared with fiscal year 2017 professional services revenue increase d by $ 35.3 million , or 14.5 % , primarily driven by a $ 49.4 million increase in healthcare , offset in part by a $ 6.5 million decrease in imaging and a $ 4.2 million decrease in automotive . healthcare professional services revenue increased primarily due to higher revenue from ehr implementation and optimization services . imaging professional services decreased primarily due to certain nonrecurring implementation services that occurred in fiscal year 2017. automotive professional services revenue decreased primarily due to a shift towards connected services .
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on october 30 , 2015 , we entered into an amendment to our revolving credit facility to , among other things , ( 1 ) extend the maturity date of the revolving credit facility to october 30 , 2020 from november 30 , 2017 and ( 2 ) revise the applicable margins and leverage ratios that determine the commitment fees story_separator_special_tag the following discussion should be read in conjunction with item 6 . “ selected financial data ” and our consolidated financial statements and the related notes to those statements included in item 8 . “ financial statements and supplementary data. ” the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading item 1a . “ risk factors ” and elsewhere in this report . although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations , we can not guarantee future results , levels of activity , performance or achievements . we assume no obligation to provide revisions to any forward-looking statements should circumstances change , except as may be required by law . the following discussion summarizes the significant factors affecting the consolidated operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . overview we are a growing , full-service restaurant concept offering a distinct menu of authentic , freshly-prepared mexican and tex-mex inspired food . we were founded in austin , texas in 1982 by mike young and john zapp , and as of december 29 , 2019 , we operated 100 chuy 's restaurants across 19 states . we are committed to providing value to our customers through offering generous portions of made-from-scratch , flavorful mexican and tex-mex inspired dishes . we also offer a full-service bar in all of our restaurants providing our customers a wide variety of beverage offerings . we believe the chuy 's culture is one of our most valuable assets , and we are committed to preserving and continually investing in our culture and our customers ' restaurant experience . our restaurants have a common décor , but we believe each location is unique in format , offering an “ unchained ” look and feel , as expressed by our motto “ if you 've seen one chuy 's , you 've seen one chuy 's ! ” we believe our restaurants have an upbeat , funky , eclectic , somewhat irreverent atmosphere while still maintaining a family-friendly environment . our growth strategies and outlook our growth is based primarily on the following strategies : pursue new restaurant development in major markets ; backfill smaller existing markets to build brand awareness ; deliver consistent same store sales by providing high-quality food and service at a considerable value ; and leverage our infrastructure . we opened six restaurants in fiscal 2019 . during fiscal 2020 , we plan to open a total of five to seven restaurants . we have an established presence in texas , the southeast and the midwest , with restaurants in multiple large markets in these regions . our growth plan over the next five years focuses on developing additional locations in our existing core markets and major new markets while continuing to `` backfill '' our smaller existing markets in order to build our brand awareness . for additional discussion of our growth strategies and outlook , see item 1 . “ business—our business strategies. ” newly opened restaurants typically experience normal inefficiencies in the form of higher cost of sales , labor and direct operating and occupancy costs for several months after their opening in both percentage and dollar terms when compared with our more mature , established restaurants . accordingly , the number and timing of newly opened restaurants has had , and is expected to continue to have , an impact on restaurant opening expenses , cost of sales , labor and occupancy and operating expenses . additionally , initial restaurant openings in new markets may experience even greater inefficiencies for several months , if not longer , due to lower initial sales volumes , which results from initially low consumer awareness levels , and a lack of operating cost leverage until additional restaurants can be opened in these markets and build the overall consumer awareness in the market . 31 performance indicators we use the following performance indicators in evaluating our performance : number of restaurant openings . number of restaurant openings reflects the number of restaurants opened during a particular fiscal period . for restaurant openings we incur pre-opening costs , which are defined below , before the restaurant opens . typically new restaurants open with an initial start-up period of higher than normalized sales volumes , which decrease to a steady level approximately six to twelve months after opening . however , operating costs during this initial six to twelve month period are also higher than normal , resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately nine to twelve months after opening . comparable restaurant sales . we consider a restaurant to be comparable in the first full quarter following the eighteenth month of operations . changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time . changes in comparable sales reflect changes in customer count trends as well as changes in average check . our comparable restaurant base consisted of 88 , 81 and 70 restaurants at december 29 , 2019 , december 30 , 2018 and december 31 , 2017 , respectively . average check . average check is calculated by dividing revenue by total entrées sold for a given time period . story_separator_special_tag due to the inclusion of a 53rd week in fiscal year 2017 , there is a one-week calendar shift in the comparison of fiscal year 2018 to fiscal year 2017. after adjusting for the timing of the 53rd week , comparable restaurant sales , on a calendar basis , increased 0.5 % for the 52-weeks ended december 30 , 2018 compared to the 52-weeks ended december 31 , 2017. the increase in comparable restaurant sales was primarily driven by a 2.0 % increase in average weekly check , partially offset by a 1.5 % decrease in weekly average customers . the company estimates that unfavorable weather conditions during fiscal year 2018 more than offset the favorable impact from lapping hurricanes harvey and irma in 2017 by approximately 60 bps . our total revenue mix attributed to bar sales was 18.4 % during the years ended december 30 , 2018 and december 31 , 2017. on a fiscal basis , which does not adjust for the one-week calendar shift , as previously noted , sales for the same restaurants in the comparable restaurant base for the 52-weeks ended december 30 , 2018 increased 0.2 % compared to the 52-weeks ended december 31 , 2017. cost of sales . cost of sales as a percentage of revenue decreased to 25.6 % during the year ended december 30 , 2018 , from 26.0 % during the comparable period in 2017 , primarily as a result of a decrease in the cost of produce of approximately 20 bps , dairy and cheese of approximately 20 bps , and chicken of approximately 10 bps , partially offset by an increase in the cost of grocery of approximately 10 bps . labor costs . labor costs as a percentage of revenue increased to 36.2 % during the year ended december 30 , 2018 , from 34.9 % during the comparable period in 2017 , primarily due to new store labor inefficiencies , hourly labor rate inflation on comparable stores of approximately 3.3 % and higher hourly rates in new markets , partially offset by lower training expense for our new managers . 36 operating costs . operating costs as a percentage of revenue increased to 14.4 % during the year ended december 30 , 2018 , from 13.9 % during the comparable period in 2017. this increase is mainly driven by higher insurance costs of approximately 30 bps , higher maintenance costs of approximately 10 bps , higher credit card fees and delivery service charges of approximately 10 bps , and an increase of 10 bps as a result of deleverage due to the loss of an extra week as compared to fiscal year 2017. this overall increase was partially offset by lower liquor taxes of approximately 10 bps , as we continue to expand outside of texas . occupancy costs . occupancy costs as a percentage of revenue increased to 7.5 % during the year ended december 30 , 2018 from 6.9 % during the comparable period in 2017 , primarily as a result of higher rental expense at certain newly opened restaurants as we continue our expansion into new markets , an increase in rent on extended lease terms at some existing restaurants and an increase of 10 bps as a result of deleverage due to the loss of an extra week as compared to fiscal year 2017. general and administrative expenses . general and administrative expenses increased $ 2.1 million , or 11.1 % , to $ 20.7 million for the year ended december 30 , 2018 , as compared to $ 18.7 million during the comparable period in 2017. this increase was primarily driven by higher management compensation of $ 1.7 million in part due to additional headcount to support our growth , $ 0.3 million in additional legal and professional fees as well as $ 0.1 million in higher information and technology costs . marketing costs . marketing costs as a percentage of revenue increased to 1.0 % during the year ended december 30 , 2018 from 0.7 % during the comparable period in 2017. this increase was a result of our new national-level marketing initiatives . restaurant pre-opening costs . restaurant pre-opening costs decreased by $ 1.8 million , or 29.7 % , to $ 4.4 million for the year ended december 30 , 2018 , as compared to $ 6.2 million during the comparable period in 2017. this decrease is primarily driven by a decrease in the number of new restaurants under development in fiscal 2018 , as compared to fiscal 2017 as well as timing of our openings . during the year ended december 30 , 2018 , we incurred pre-opening costs for nine new restaurants opened during 2018 as well as four restaurants which will be opened during fiscal year 2019. during the year ended december 31 , 2017 , we incurred pre-opening costs for eleven new restaurants and eight restaurants which opened in fiscal year 2018. impairment and closed restaurant costs . as a result of our impairment analysis of under-performing restaurants the company identified six restaurants as impaired during the third quarter of 2018 and recognized a non-cash loss of $ 12.3 million ( $ 9.4 million , net of tax or $ 0.55 per diluted share ) . gain on insurance settlements . during the third quarter of 2017 , parts of texas and the southeast were struck by hurricanes harvey and irma . as a result of the hurricanes , the company incurred operating losses as well as property damage . the property damage was mainly related to a restaurant in the houston region which was closed through the middle of the fourth quarter of 2017 and required a complete reconstruction . most operating losses were offset by the recovery proceeds from our insurance in the same period they were incurred . the insurance settlements related to the property losses resulted in a gain of $ 1.4 million recorded in the fourth quarter of 2017. depreciation and amortization .
| results of operations year ended december 29 , 2019 compared to the year ended december 30 , 2018 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_3_th revenue . revenue increased 7.1 % to $ 426.4 million for the year ended december 29 , 2019 , as compared to $ 398.2 million for the year ended december 30 , 2018 . the increase in revenue was primarily driven by $ 28.5 million in incremental revenue from an additional 359 operating weeks provided by new restaurants opened during and subsequent to the year ended december 30 , 2018 as well as an increase in our comparable restaurant sales . these increases were partially offset by $ 2.9 million decrease in revenue as a result of the loss of 80 operating weeks as compared to fiscal year 2018 due to the store closures in 2019 and a decrease in revenue from our non-comparable restaurants that are not included in the incremental revenue discussed above . revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon ' period that follows a restaurant 's initial opening . comparable restaurant sales increased 2.6 % for the year ended december 29 , 2019 compared to the same period in 2018. the increase was primarily driven by a 3.7 % increase in average weekly check , partially offset by a 1.1 % decrease in weekly average customers . our total revenue mix attributed to bar sales was 18.1 % and 18.4 % during the years ended december 29 , 2019 and december 31 , 2018 , respectively . cost of sales .
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f-19 in may of 2004 , the board and stockholders approved the 2004 stock incentive plan ( the “ 2004 plan ” ) . the maximum number of shares of the common stock available for issuance under the 2004 plan was 2,133,333 shares . as of the date of stockholder approval , may 12 , 2004 , options to purchase 238,250 shares had been granted pursuant to the 2000 plan , 2001 plan and 2003 plan . under the terms and conditions of the 2004 plan , the option exercise price is equal to the fair market value of the common stock at the date of grant . options expired no later than 10 years from the grant date and generally vested within five years . the board approved the 2007 stock option plan , as amended ( the “ 2007 plan ” ) , and it became effective on may 16 , 2007 upon receipt of stockholder approval . on may 16 , 2007 , options to purchase 963,382 shares of common stock had been granted pursuant to the 2000 plan , 2001 plan , 2003 plan and 2004 plan . under the 2007 plan , the administrator could grant options to purchase 1,490,000 shares of common stock . the options granted pursuant to the 2004 plan continue to be governed by the terms and conditions of the 2004 plan , except to the extent the administrator elected to extend one or more features of the 2007 plan to the outstanding stock options granted pursuant to the 2004 plan . under the 2007 plan , the option exercise price was equal to the fair market value of the common stock at the date of grant . options expired no later than 10 years from the grant date and generally vested within three years . on march 17 , 2011 , the board approved the 2011 stock incentive plan ( the “ 2011 plan ” ) , and it became effective on may 12 , 2011 . the 2011 plan authorizes the issuance of no more than 1,990,000 shares of our common stock and it provides for the granting of stock options , stock appreciation rights and restricted stock to our employees , members of the board and service providers . as of december 31 , 2016 , there were 398,071 shares available for issuance under the 2011 plan . additional information with respect to these plans ' stock option activity is as follows : replace_table_token_18_th the following table summarizes information about stock options outstanding and exercisable at december 31 , 2016 : replace_table_token_19_th f-20 unamortized compensation expense associated with unvested options approximates $ 222,688 as of december 31 , 2016. the weighted average period over which these costs are expected to be recognized is approximately 1.5 years . ( 9 ) restricted stock in july 2014 , in connection with our acquisition of the common stock of delphiis , inc. , we issued to a key employee 133,333 shares of restricted stock as part of his employment agreement . the shares vest as follows : vesting date shares july 1 , 2016 33,333 july 1 , 2017 33,333 july 1 , 2018 33,333 july 1 , 2019 33,334 in august 2015 , the key employee 's employment agreement was revised such that the first 33,333 shares became fully vested and the remaining shares were cancelled on january 1 , 2016. the stock-based compensation expense recognized for these shares totaled $ 101,881 for the year ended december 31 , 2015 . ( 10 ) income taxes for the story_separator_special_tag . the following discussion presents information about our consolidated results of operations , financial condition , liquidity and capital resources and should be read in conjunction with our consolidated financial statements and the notes thereto beginning on page f-1 of this annual report . overview we are engaged in the business of providing fully-outsourced managed document services , workflow solutions and it security consulting services primarily to the healthcare industry , and provide services to financial institutions , gaming and other industries when the request arises . our business is operated throughout the united states . our document solutions group provides workflow solutions , and is a risk-free program with guaranteed savings . we assume all costs related to print environments through customized streamlined and seamless integration of services at predictable fixed rates . our on-site staff creates manageable , dependable print management programs by managing the back-office processes of our hospital clients . the process is initiated through a detailed proprietary assessment . the assessment is a strategic , operational and financial analysis that is performed at the customer 's premises using a combination of proprietary processes and innovative technology for data collection and report generation . after the assessment and upon engagement , we charge the customer on a per print basis . this charge covers the entire print management process and includes placement of a highly trained on-site resident team . 14 our it security consulting group serves the most common security needs : technical risk and penetration testing , process and procedure development and risk management utilizing our proprietary delphiis it risk manager saas solution . through our proven and prescriptive methodology we help build the foundation needed to ensure the confidentiality , integrity and security of patient health information ( phi ) . and our software application suite streamlines how covered entities perform annual and on-going risk assessments on their business associates , clinics , projects and hospitals . application of critical accounting policies the sec defines critical accounting policies as those that are , in management 's view , most important to the portrayal of our financial condition and results of operations and most demanding of our judgment . story_separator_special_tag accounts receivable valuation and related reserves we estimate the losses that may result from that portion of our accounts receivable that may not be collectible as a result of the inability of our customers to make required payments . management specifically analyzes customer concentration , customer credit-worthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts . we review past due accounts on a monthly basis and record an allowance for doubtful accounts where we deem appropriate . new customer implementation costs we ordinarily incur additional costs to implement our services for new customers . these costs are comprised primarily of additional labor and support . these costs are expensed as incurred , and have a negative impact on our statements of income and cash flows during the implementation phase . 16 impairment review of goodwill and intangible assets we periodically evaluate our intangible assets and goodwill relating to acquisitions for impairment . goodwill is not amortized , but is evaluated annually at year end for any impairment in the carrying value . we review our intangible assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . factors we consider important which could trigger an impairment review include , but are not limited to , the following : significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and a significant negative industry or economic trend for a sustained period . goodwill and intangible asset impairment assessments are generally determined based on fair value techniques , including determining the estimated future discounted and undiscounted cash flows over the remaining useful life of the asset . those models require estimates of future revenue , profits , capital expenditures and working capital for each reporting unit . we estimate these amounts by evaluating historical trends , the current state of the company 's industries and the economy , current budgets , and operating plans . determining the fair value of reporting units and goodwill includes significant judgment by management and different judgments could yield different results . any resulting impairment loss could have a material impact on our financial condition and results of operations . stock-based compensation under the fair value recognition provisions of the authoritative guidance , stock-based compensation cost granted to employees is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or performance period , which is the vesting period . stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant , whichever can be more clearly determined . we currently use the black-scholes option pricing model to determine the fair value of stock options . the determination of the fair value of stock-based payment awards 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 our expected stock price volatility over the term of the awards , the expected term of the award , the risk-free interest rate and any expected dividends . compensation cost associated with grants of restricted stock units are also measured at fair value . we evaluate the assumptions used to value restricted stock units on a quarterly basis . when factors change , including the market price of the stock , stock-based compensation expense may differ significantly from what has been recorded in the past . if there are any modifications or cancellations of the underlying unvested securities , we may be required to accelerate , increase or cancel any remaining unearned stock-based compensation expense . income taxes deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting requirements and those imposed under federal and state tax laws . deferred taxes are provided for timing differences in the recognition of revenue and expenses for income tax and financial reporting purposes and are measured using enacted 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 that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and liabilities . realization of the deferred tax asset is dependent on generating sufficient taxable income in future years . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all the deferred tax assets will not be realized . use of our net operating loss deferred assets may be limited by changes in our ownership . 17 the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . please see our audited financial statements and notes thereto which begin on page f-1 of this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap and please refer to the disclosures in note 1 of our financial statements for a summary of our significant accounting policies . story_separator_special_tag
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 net revenue revenues consist of document solution services revenue , equipment revenue , revenue software subscription services and cyber security professional services . net revenue decreased by $ 1,053,470 to $ 60,200,383 for the year ended december 31 , 2016 , as compared to the same period in 2015. this decrease comes from a net reduction of approximately $ 5,100,000 from existing customers , where there was a reduction in unit price and sales volume , and non-renewing contracts offset by the expansion of services at certain clients . equipment sales for 2016 were approximately $ 4,200,000 less in 2016 , totaling $ 3,600,000 as compared to approximately $ 7,800,000 in 2015. equipment sales in 2016 were primarily from copier fleet refresh activities at two customers compared to five in 2015. these fleet refreshes are typically done every five years at any one customer facility and vary widely in total revenue value . partially offsetting these decreases , we added approximately $ 8,300,000 as a result of the addition of new service revenue contracts in 2016. we anticipate overall revenue growth as a result of the expansion of our customer base . cost of revenues cost of revenues consists of document imaging equipment , parts , supplies and salaries expense for field services personnel . cost of revenues was $ 47,888,296 for the year ended december 31 , 2016 , as compared to $ 50,664,713 for the same period in 2016. equipment costs decreased by approximately $ 3,900,000 in 2016 , primarily because of the decrease in equipment revenues from the copier fleet refresh activities .
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these forward-looking statements reflect our current views with respect to , among other things , future events and our financial performance . these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ will likely result , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would ” and “ outlook , ” or the negative version of those words or other comparable of a future or forward-looking nature . these forward-looking statements are not historical facts , and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks , assumptions and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward-looking statements . there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements , including , but not limited to , the following : deterioration of our asset quality ; our ability to prudently manage our growth and execute our strategy ; changes in the value of collateral securing our loans ; business and economic conditions generally and in the financial services industry , nationally and within our local market area ; changes in management personnel ; our ability to maintain important deposit customer relationships , our reputation and otherwise avoid liquidity risks ; operational risks associated with our business ; volatility and direction of market interest rates ; increased competition in the financial services industry , particularly from regional and national institutions ; changes in the laws , rules , regulations , interpretations or policies relating to financial institution , accounting , tax , trade , monetary and fiscal matters ; further government intervention in the u.s. financial system ; natural disasters and adverse weather , acts of terrorism , an outbreak of hostilities or other international or domestic calamities , and other matters beyond our control ; and other factors that are discussed in the section entitled “ risk factors , ” in part i - item 1a . the foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this document . if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . any forward-looking statement speaks only as of the date on which it is made , and we do not undertake any obligation to publicly update or review any forward-looking statement , whether as a result of new information , future developments or otherwise . new factors emerge from time to time , and it is not possible for us to predict which will arise . in addition , we can not assess the impact of each factor on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . general the following discussion and analysis presents our financial condition and results of operations on a consolidated basis . however , because we conduct all of our material business operations through tristate capital bank , the discussion and analysis relates to activities primarily conducted at tristate capital bank . 45 as a bank holding company that operates through one segment , we generate most of our revenue from interest on loans and investments , loan related fees and deposit-related fees . our primary source of funding for our loans is deposits . our largest expenses are interest on these deposits and salaries and related employee benefits . we measure our performance primarily through our pre-tax , pre-provision net revenue ; net interest margin ; efficiency ratio ; ratio of provision for loan losses to average total loans ; return on average assets and return on average equity , among other metrics , while maintaining appropriate regulatory leverage and risk-based capital ratios . executive overview tristate capital holdings , inc. is a bank holding company headquartered in pittsburgh , pennsylvania . through our wholly owned bank subsidiary , tristate capital bank , we serve middle market businesses in our primary markets throughout the states of pennsylvania , ohio , new jersey and new york . we also serve high net worth individuals on a national basis through our private banking channel . we market and distribute our products and services through a scalable branchless banking model , which creates significant operating leverage throughout our business as we continue to grow . story_separator_special_tag the allowance for loan losses to total loans decreased to 1.02 % as of december 31 , 2013 , from 1.09 % as of december 31 , 2012 , primarily as a result of the overall increase in the loan portfolio of 13.3 % driven largely by the lower risk private banking-personal loan portfolio which has an overall high asset quality . the allowance for loan losses to non-performing loans increased to 93.61 % as of december 31 , 2013 , from 79.50 % as of december 31 , 2012 . the increase in this ratio is a result of the sale of one non-performing loan and an increase in specific reserves . the provision for loan losses remained unchanged at $ 8.2 million for the years ended december 31 , 2013 and 2012 . our book value per common share , assuming preferred shares were converted to common shares , increased $ 0.50 or 5.1 % , to $ 10.25 as of december 31 , 2013 , from $ 9.75 as of december 31 , 2012 . our tangible equity to tangible assets ratio increased to 12.83 % as of december 31 , 2013 , from 10.50 % as of december 31 , 2012 . both trends are primarily the result of the capital raised in connection with our initial public offering and growth in our retained earnings . 2012 compared to 2011 o perating performance for the year ended december , 31 , 2012 , our net income increased $ 3.5 million , or 47.9 % , to $ 10.7 million , from $ 7.2 million for 2011. pre-tax , pre-provision net revenue of $ 24.6 million for the year ended december 31 , 2012 , increased $ 8.6 million , or 53.9 % , from $ 16.0 million for 2011. the increase in earnings was primarily attributable to 16.2 % growth in our average loans outstanding for the year ended december 31 , 2012 , as compared to 2011 , in conjunction with a 28 basis point widening of our net interest margin and further enhanced by our active management of expenses . our loan growth during 2012 was primarily funded by growth in our deposits . as a result , diluted earnings per share increased $ 0.14 , or 42.4 % , to $ 0.47 for the year ended december 31 , 2012 , compared to $ 0.33 for 2011. for the year ended december 31 , 2012 , our efficiency ratio improved to 60.64 % , as compared to 68.03 % for 2011. pre-tax , pre-provision net revenue per average full-time equivalent employee improved to $ 222,000 for the year ended december 31 , 2012 , from $ 162,000 for 2011. our total revenue , comprised of net interest income plus non-interest income , excluding gains on sale of investments , grew at a faster pace than non-interest expenses . our total revenue grew 25.0 % for the year ended december 31 , 2012 , as compared to 2011 , while our non-interest expense grew 11.4 % for the year ended december 31 , 2012 , as compared to 2011. our return on average assets was 0.55 % for the year ended december 31 , 2012 , as compared to 0.41 % for 2011. our return on average equity was 5.24 % for the year ended december 31 , 2012 , as compared to 3.97 % for 2011. net interest margin expanded 28 basis points , to 3.00 % for the year ended december 31 , 2012 , as compared to 2.72 % for 2011. this expansion was driven primarily by a decrease of 37 basis points in the rate paid on our average interest-bearing liabilities , partially offset by a four basis point decline in our yield on average earning assets due primarily to competitive pressure on our loans . our total loans outstanding as of december 31 , 2012 , were $ 1.6 billion , which represented an increase of $ 234.6 million , or 16.7 % , from $ 1.4 billion , as of december 31 , 2011. the loan growth we achieved in 2012 kept pace with our historical growth and we believe was primarily attributable to our focus on attracting and retaining middle market business customers , as well as growth from our private banking channel that cultivates relationships with financial intermediaries . deposits , the largest component of our liabilities , increased $ 186.3 million , or 11.4 % , to $ 1.8 billion as of december 31 , 2012 , from $ 1.6 billion as of december 31 , 2011. the largest component of our deposit growth was in money market and non-brokered time deposits , including through the attraction and retention of deposits from our private banking customers as a result of our relationships with financial intermediaries . net charge-offs as a percentage of average loans for the year ended december 31 , 2012 , improved to 0.43 % , as compared to 0.46 % for 2011. our ratio of non-performing assets as a percentage of total assets increased to 1.10 % as of december 31 , 2012 , as compared to 0.90 % as of december 31 , 2011. finally , our allowance for loan losses as a percentage of non-performing loans decreased to 79.50 % as of december 31 , 2012 , as compared to 99.53 % as of december 31 , 2011. we believe our emphasis on risk management and our credit culture is reflected in our ratio of non-performing assets to total assets of 1.10 % as of december 31 , 2012 , which is significantly lower than the weighted average ratio of 2.67 % for u.s. banks with $ 1.0 billion to $ 3.0 billion in assets as of december 31 , 2012 , as reported by snl financial . in addition , our ratio of net charge-offs to average loans of 0.43 % for the year ended december 31 , 2012 , was significantly lower than the 0.74 % weighted average , according to snl financial , for the same peer group .
| results of operations net interest income net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities . net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields earned and rates paid . maintaining consistent spreads between earning assets and interest-bearing liabilities is significant to our financial performance because net interest income comprised 92.5 % , 91.9 % and 94.8 % of total revenue for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the table below reflects an analysis of net interest income , on a fully taxable equivalent basis , for the periods indicated . the adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax exempt income by one minus the statutory federal income tax rate of 35.0 % . replace_table_token_13_th ( 1 ) net interest margin is calculated on a fully taxable equivalent basis . the following table provides information regarding the average balances and yields earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities for the years ended december 31 , 2013 , 2012 and 2011 . non-accrual loans are included in the calculation of the average loan balances , while interest collected on non-accrual loans is recorded as a reduction to principal . where applicable , interest income and yield are reflected on a tax equivalent basis , and have been adjusted based on the statutory federal income tax rate of 35.0 % . 48 replace_table_token_14_th ( 1 ) net interest income and net interest margin are calculated on a fully taxable equivalent basis . net interest income for the years ended december 31 , 2013 and 2012 . net interest income , calculated on a fully taxable equivalent basis , increased $ 4.5 million or 7.9 % , to $ 62.0
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we believe that of our significant accounting policies , the following may involve a higher degree of judgement and complexity . loans : loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding , net of previous charge-offs and an allowance for loan losses , and for purchased loans , net of unamortized purchase premiums and discounts . interest income is accrued on the unpaid principal balance . purchased credit impaired loans : as a part of previous acquisitions , we acquired certain loans for which there was , at acquisition , evidence of deterioration of credit quality since origination . these purchased credit impaired loans were recorded at the acquisition date fair value , such that there is no carryover of the seller 's allowance for loan losses . after acquisition , losses are recognized by an increase in the allowance for loan losses . such purchased credit impaired loans are accounted for individually . we estimate the amount and timing of expected cash flows for each loan , and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the loan ( accretable yield ) . the excess of the loan 's contractual principal and interest over expected cash flows is not recorded ( non-accretable difference ) . over the life of the loan , expected cash flows continue to be estimated . if the present value of the expected cash flows is less than the carrying amount , a loss is recorded . if the present value of the expected cash flows is greater than the carrying amount , it is recognized as part of future interest income . nonaccrual loans : generally , loans are designated as nonaccrual when either principal or interest payments are 90 days or more past due based on contractual terms unless the loan is well secured and in the process of collection . consumer loans are typically charged off no later than 180 days past due . in all cases , loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful . when a loan is placed on nonaccrual status , unpaid interest credited to income is reversed against income . future interest income may be recorded on a cash basis after recovery of principal is reasonably assured . nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured . 57 impaired loans : a loan is considered impaired when , based on current information and events , it is probable that we will be unable to collect all contractual principal and interest due according to the terms of the loan agreement . all loans are individually evaluated for impairment . impaired loans are measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate or on the value of the underlying collateral if the loan is collateral dependent . we evaluate the collectability of both principal and interest when assessing the need for a loss accrual . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . troubled debt restructurings : in cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms , the loan is classified as a troubled debt restructured loan and classified as impaired . generally , a nonaccrual loan that is a troubled debt restructuring remains on nonaccrual until such time that repayment of the remaining principal and interest is not in doubt , and the borrower has a period of satisfactory repayment performance . allowance for loan losses : the allowance for loan losses is a valuation allowance for probable incurred credit losses . loan losses are charged against the allowance when management believes the collectability of a loan balance is unlikely . subsequent recoveries , if any , are credited to the allowance . management estimates the allowance balance required using past loan loss experience , the nature and volume of the portfolio , information about specific borrower situations and estimated collateral values , economic conditions , and other factors . a loan review process , independent of the loan approval process , is utilized by management to verify loans are being made and administered in accordance with company policy , to review loan risk grades and potential losses , to verify that potential problem loans are receiving adequate and timely corrective measures to avoid or reduce losses , and to assist in the verification of the adequacy of the loan loss reserve . allocations of the allowance may be made for specific loans , but the entire allowance is available for any loan that , in management 's judgment , should be charged off . the allowance consists of specific and general components . the specific component relates to loans that are individually classified as impaired . if a loan is impaired , a portion of the allowance is allocated so that the loan is reported net at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral . story_separator_special_tag during the year ended december 31 , 2017 , increases in net interest income of $ 33.4 million and non-interest income of $ 5.0 million were partially offset by $ 20.4 million in higher non-interest expenses and an increase of $ 834 thousand in the provision for loan loss when compared to the year ended december 31 , 2016. the changes in the components of net income are discussed in more detail in the following sections of “ results of operations. ” net interest income and net interest margin analysis net interest income is the difference between interest income on interest-earning assets , including loans and securities , and interest expense incurred on interest-bearing liabilities , including deposits and other borrowed funds . to evaluate net interest income , management measures and monitors ( 1 ) yields on loans and other interest-earning assets , ( 2 ) the costs of deposits and other funding sources , ( 3 ) the net interest spread and ( 4 ) net interest margin . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . net interest margin is calculated as net interest income divided by average interest-earning assets . because non-interest-bearing sources of funds , such as non-interest-bearing deposits and stockholders ' equity also fund interest-earning assets , net interest margin includes the benefit of these non-interest-bearing sources of funds . net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as a “ volume change , ” and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as a “ yield/rate change. ” 59 the following table shows the average balance of each principal category of assets , liabilities , and stockholders ' equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended december 31 , 2018 , 2017 and 2016. the yields and rates are calculated by dividing income or expense by the average daily balances of the associated assets or liabilities . average balance sheets and net interest analysis replace_table_token_7_th ( 1 ) average loan balances include nonaccrual loans , hedge fair value adjustments and merger fair value adjustments . ( 2 ) net interest margin is calculated by dividing net interest income by average interest-earning assets for the period . ( 3 ) tax exempt income is not included in the above table on a tax equivalent basis . ( 4 ) actual unrounded values are used to calculate the reported yield or rate disclosed . accordingly , recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts . 60 increases and decreases in interest income and interest expense result from changes in average balances ( volume ) of interest-earning assets and interest-bearing liabilities , as well as changes in average interest yields/rates . the following table analyzes the change in volume variances and yield/rate variances for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 , and the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. analysis of changes in net interest income replace_table_token_8_th ( 1 ) the effect of changes in volume is determined by multiplying the change in volume by the previous year 's average rate . similarly , the effect of rate changes is calculated by multiplying the change in average rate by the prior year 's volume . the changes attributable to both volume and rate , which can not be segregated , have been allocated to the volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in each . year ended december 31 , 2018 compared with year ended december 31 , 2017 the increase in net interest income before the provision for loan losses is primarily due to the increase in the volume of interest-earnings assets and to a lesser extent an increase in yields on interest-earning assets . the increase in average volume of interest-earning assets was primarily due to increases in loans and investment securities . the increase in interest expense was primarily due to an increase in the average rates and volume of interest bearing liabilities incurred to fund the increased volume of interest-earning assets . the increase in loan interest income was driven by the increase in average loan volume and a 31 basis point increase in yield on the loan portfolio from 5.43 % for the year ended december 31 , 2017 to 5.74 % for the year ended december 31 , 2018. the impact to net interest income from loan fees for the year ended december 31 , 2018 , was $ 6.5 million compared to $ 3.5 million for the year ended december 31 , 2017. average balances of borrowings from the fhlb increased by $ 171.5 million from an average balance of $ 259.0 million for the year ended december 31 , 2017 to an average balance of $ 430.5 million for the year ended december 31 , 2018 , resulting in an increase in interest expense of $ 6.1 million . interest expense on our bank stock loan for the year ended december 31 , 2018 was $ 731 thousand compared to $ 16 thousand for the year ended december 31 , 2017. total cost of interest-bearing liabilities increased 46 basis points to 1.34 % for the year ended december 31 , 2018 from 0.88 % for the year ended december 31 , 2017. the decrease in net interest margin is largely due to the cost of interest-bearing liabilities rising at a faster rate than interest-earning assets . the increase in cost of funds is primarily from the increase in cost of both retail and public fund deposits .
| financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included 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 . see “ cautionary statement regarding forward-looking statements. ” also , see the risk factors and other cautionary statements described under the heading “ item 1a – risk factors ” included in item 1a of this annual report on form 10-k. we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . this discussion and analysis of our financial condition and results of operation includes the following sections : overview critical accounting policies – a discussion of accounting policies that require critical estimates and assumptions ; results of operations – an analysis of our operating results , including disclosures about the sustainability of our earnings ; financial condition – an analysis of our financial position ; liquidity and capital resources – an analysis of our cash flows and capital position ; and non-gaap financial measures – reconciliation of non-gaap measures . overview we are a bank holding company headquartered in wichita , kansas .
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as of december 31 , 2016 , we maintain a full valuation allowance in all jurisdictions against the net deferred tax assets as we believe that it is story_separator_special_tag financial condition and results of operations the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the exchange act . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ should , ” “ estimate , ” or “ continue , ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section titled “ risk factors , ” set forth in part i , item 1a of this annual report on form 10-k and elsewhere in this report . the forward-looking statements in this annual report on form 10-k represent our views as of the date of this annual report on form 10-k. we anticipate that subsequent events and developments will cause our views to change . however , while we may elect to update these forward-looking statements at some point in the future , we have no current intention of doing so except to the extent required by applicable law . you should , therefore , not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this annual report on form 10-k. business overview we discover , develop and sell proteins that deliver value to our clients in a growing set of industries . we view proteins as a vast untapped source of value-creating materials , and we are using our proven technologies , which have been continuously improved over our fifteen year history , to commercialize an increasing number of novel proteins , both as proprietary codexis products and in partnership with our customers . many companies have historically used naturally occurring proteins to produce or enhance goods used in everyday life . despite the growing number of commercial applications of naturally occurring proteins across many industries , the inherent limitations of naturally-occurring proteins frequently restrict their commercial use . through the application of our proprietary codeevolver ® protein engineering technology platform , we are able to engineer novel proteins to overcome these restrictions , thereby adding value or opening up new prospects for our potential clients ' products , processes or businesses . we have developed new proteins that are significantly more stable and or active in our commercial applications than proteins derived from nature . we are a pioneer in the harnessing of computational technologies to drive biology advancements . over the last fifteen years , we have made substantial investments in the development of our codeevolver ® protein engineering technology platform , the primary source of our competitive advantage . our technology platform is powered by proprietary , artificial intelligence-based , computational algorithms that rapidly mine our large and continuously growing library of protein variants ' performance attributes . these computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered , enabling delivery of targeted performance enhancements in a time-efficient manner . in addition to its computational prowess , our codeevolver ® protein engineering technology platform integrates additional modular competencies , including robotic high-throughput screening and genomic sequencing , organic chemistry and process development which are all coordinated to create our novel protein innovations . we use our codeevolver ® protein engineering technology platform to engineer custom enzymes . most of our custom enzymes are intended for use as biocatalysts or protein catalysts . in simple terms , our protein catalysts can accelerate and or improve yields of chemical reactions . we use our codeevolver ® protein engineering technology platform to develop novel enzymes that enable industrial biocatalytic reactions and fermentations . our technology platform has enabled commercially viable products and processes for the manufacture of pharmaceutical intermediates and active ingredients and fine chemicals . our approach to develop commercially viable biocatalytic manufacturing processes begins by conceptually designing the most cost-effective and practical process for a targeted product . we then develop optimized protein catalysts to enable that process design , using our codeevolver ® protein engineering platform technology . engineered protein catalyst candidates - many thousands for each protein engineering project - are then rapidly screened and validated in high throughput under relevant manufacturing operating conditions . this approach results in an optimized protein catalyst enabling cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment . this also allows for the efficient technical transfer of our process to our manufacturing partners . the successful embodiment of our codeevolver ® protein engineering technology platform in commercial manufacturing processes requires well-integrated expertise in a number of technical disciplines . in addition to those directly involved in practicing our codeevolver ® protein engineering platform technology , such as molecular biology , enzymology , microbiology , 36 cellular engineering , metabolic engineering , bioinformatics , biochemistry and high throughput analytical chemistry , our process development projects also involve integrated expertise in organic chemistry , chemical process development , chemical engineering , fermentation process development and fermentation engineering . our integrated , multi-disciplinary approach to biocatalyst and process development is a critical success factor for our company . we initially commercialized our codeevolver ® protein engineering technology platform and products in the pharmaceuticals market , which remains our primary business focus . story_separator_special_tag we expect that revenue sharing arrangement may continue to decline in future periods . 2015 compared to 2014 total revenue increased $ 6.5 million in 2015 to $ 41.8 million , as compared to 2014 . the increase was driven by an increase in research and development revenues , partially offset by decreases in product sales and revenue sharing arrangement with exela . product sales decreased $ 1.7 million in 2015 to $ 11.4 million , as compared to 2014 . the decreases were primarily due to the timing of customer demand which is dependent upon the timing of their clinical trials and inventory level in 2015 as compared to 2014. research and development revenues increased $ 10.7 million in 2015 to $ 25.6 million , as compared to 2014 . the increase was primarily due to the achievement of a $ 5.0 million milestone under the merck codeevolver ® agreement , $ 1.5 million increase in milestone related revenue recognized under the gsk codeevolver ® agreement , $ 3.1 million final settlement of a royalty related arrangement by a customer , and $ 1.5 million in research and development revenues relating to the project we initiated with the leading biopharmaceutical company in 2015. revenue sharing arrangement decreased $ 2.5 million in 2015 to $ 4.8 million , as compared to 2014 . the decrease was the result of the expiration of the formulation patent for argatroban in june 2014 , allowing for generic competition in the subsequent quarters . cost and operating expenses replace_table_token_8_th cost of product sales cost of product sales comprises both internal and third-party fixed and variable costs , including amortization of purchased technology , materials and supplies , labor , facilities and other overhead costs associated with our product sales . 40 2016 compared to 2015 cost of product sales increased $ 3.2 million in 2016 to $ 9.8 million , as compared to 2015 . the increase was primarily due to higher product sales . product gross margin decreased to 36 % in 2016 compared to 42 % in 2015 due to an increase in lower margin sales of enzymes to merck for sitagliptin manufacturing and a decrease in higher margin sales to a customer in the fine chemicals market . 2015 compared to 2014 cost of product sales decreased $ 3.1 million in 2015 to $ 6.6 million , as compared to 2014 . the decrease was primarily due to a favorable product sales mix resulting in a product gross margin improvement from 26 % in 2014 to 42 % in 2015. research and development expenses research and development expenses consist of costs incurred for internal projects as well as partner-funded collaborative research and development activities . these costs primarily consist of ( i ) employee-related costs , which include salaries and other personnel-related expenses ( including stock-based compensation ) , ( ii ) various allocable expenses , which include occupancy-related costs , supplies , depreciation of facilities and laboratory equipment and amortization of acquired technologies , and ( iii ) external costs . research and development expenses are expensed when incurred . 2016 compared to 2015 research and development expenses increased $ 1.6 million in 2016 to $ 22.2 million , as compared to 2015 . the increase was primarily due to higher consulting fees related to the evaluation of potential new drug development targets , higher outside services related to enzyme biotherapeutic product development projects , and increased costs associated with higher headcount , which were partially offset by lower amortization of intangibles . 2015 compared to 2014 research and development expenses decreased $ 2.1 million in 2015 to $ 20.7 million , as compared to 2014 . research and development expenses in 2014 included $ 2.7 million of non-recurring non-cash impairment charges , of which $ 1.8 million was related to the write down of assets associated with our codexol ® detergent alcohols program and the remainder related to the changes in fair value of assets held for sale . in addition , research and development expenses in 2014 included a $ 0.8 million gain from the sale of our former hungarian subsidiary . excluding the aforementioned non-recurring charges , research and development expenses decreased $ 0.3 million in 2015 compared to 2014. the decrease was primarily driven by a decrease in depreciation expenses resulting from the aforementioned impairment charges and the sale of our hungarian subsidiary in 2014 , partially offset by a $ 0.6 million increase in employee-related expenses . selling , general and administrative expenses selling , general and administrative expenses consist of employee-related costs , which include salaries and other personnel-related expenses ( including stock-based compensation ) , hiring and training costs , consulting and outside services expenses ( including audit and legal counsel related costs ) , marketing costs , building lease costs , and depreciation and amortization expenses . 2016 compared to 2015 selling , general and administrative expenses were $ 25.4 million in 2016 compared to $ 22.3 million 2015 , an increase of $ 3.1 million or 14 % . the increase was primarily due to higher legal expenses relating to intellectual property and higher consulting fees relating to exploration of new business development opportunities , and increased costs associated with higher headcount , partially offset by lower facilities costs due to sublease income received in 2016 . 2015 compared to 2014 selling , general and administrative expenses were $ 22.3 million in 2015 compared to $ 21.9 million in 2014 , an increase of $ 0.4 million or 2 % . the increase was primarily due to increases in personnel-related expenses , including an increase in stock-based compensation , partially offset by decreases in legal and contractor expenses .
| results of operations overview revenues were $ 48.8 million in 2016 , an increase of 17 % from $ 41.8 million in 2015 . product sales , which consist primarily of sales of protein catalysts , pharmaceutical intermediates , and codex ® biocatalyst panels and kits , were $ 15.3 million in 2016 , an increase of 35 % compared with $ 11.4 million in 2015 . the increase was primarily due to higher customer demand in 2016 as compared to 2015. research and development revenues , which include license , technology access and exclusivity fees , research service fees , milestone payments , royalties , and optimization and screening fees , totaled $ 31.3 million in 2016 , an increase of 22 % , compared with $ 25.6 million in 2015 . the increase was primarily due to the completion of the second and final milestone in the transfer of our proprietary codeevolver ® protein engineering platform technology to merck under the merck codeevolver ® agreement , which resulted in recognition of an $ 8.0 million milestone , the achievement of the third and final milestone in the transfer of our proprietary codeevolver ® protein engineering platform technology to gsk under the gsk codeevolver ® agreement which resulted in revenue recognition of a $ 7.5 million milestone payment , and an increase of $ 4.0 million in revenue recognition from the early completion of the technology transfer for both merck and gsk . the revenue increases in 2016 were partially offset by 2015 revenues from a $ 6.5 million milestone under the gsk codeevolver ® agreement , a $ 5.0 million milestone under the merck codeevolver ® agreement and a $ 3.1 million final settlement of a royalty-related arrangement by a customer . revenue sharing arrangement was $ 2.2 million in 2016 , a decrease of 54 % , compared with $ 4.8 million in 2015 .
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our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and those listed under item 1a , risks factors . business overview we are a leading global provider of ( i ) versatile and high performance video delivery software , products , system solutions and services that enable our customers to efficiently create , prepare , store , playout and deliver a full range of high-quality broadcast and ott video services to consumer devices , including televisions , personal computers , laptops , tablets and smart phones and ( ii ) cable access solutions that enable cable operators to more efficiently and effectively deploy high-speed internet , for data , voice and video services to consumers ' homes . we do business in three geographic regions : the americas , emea and apac and operate in two segments , video and cable access . our video business sells video processing , production and playout solutions , and services worldwide to cable operators and satellite and telecommunications ( “ telco ” ) pay-tv service providers , which we refer to collectively as “ service providers , ” as well as to broadcast and media companies , including streaming media companies . our video business infrastructure solutions are delivered either through shipment of our products , software licenses or as software-as-a-service ( “ saas ” ) subscriptions . our cable access business sells cable access solutions and related services , including our cableos software-based cable access solution , primarily to cable operators globally . historically , our revenue has been dependent upon capital spending in the cable , satellite , telco , broadcast and media industries , including streaming media . our customers ' capital spending patterns are dependent on a variety of factors , including but not limited to : economic conditions in the u.s. and international markets ; access to financing ; annual budget cycles of each of the industries we serve ; impact of industry consolidations ; and customers suspending or reducing capital spending in anticipation of new products or new standards , new industry trends and or technology shifts . if our product portfolio and product development plans do not position us well to capture an increased portion of the capital spending in the markets in which we compete , our revenue may decline . as we attempt to further diversify our customer base in these markets , we may need to continue to build alliances with other equipment manufacturers , content providers , resellers and system integrators , managed services providers and software developers ; adapt our products for new applications ; take orders at prices resulting in lower margins ; and build internal expertise to handle the particular operational , payment , financing and or contractual demands of our customers , which could result in higher operating costs for us . a majority of our revenue has been derived from relatively few customers , due in part to the consolidation of our service provider customers . sales to our 10 largest customers in 2018 , 2017 and 2016 accounted for approximately 37 % , 24 % and 28 % of our revenue , respectively . although we are attempting to broaden our customer base by penetrating new markets and further expanding internationally , we expect to see continuing industry consolidation and customer concentration . during 2018 , comcast accounted for 15 % of our net revenue . during 2017 and 2016 , no single customer accounted for more than 10 % of our net revenue . the loss of any significant customer , any material reduction in orders by any significant customer , or our failure to qualify our new products with any significant customer could materially and adversely affect our operating results , financial condition and cash flows . our net revenue increased $ 45.3 million , or 13 % in 2018 , compared to 2017 , primarily due to an increase in our cable access segment revenue of $ 52.1 million , partially offset by decrease in our video segment revenue of $ 5.6 million . the increase in our cable access segment revenue in 2018 was primarily due to an increase in sales of cableos related hardware , software and support services . the decrease in our video segment revenue in 2018 was primarily due to a shift in product mix to software-based products . our video segment customers continue to be cautious with investments in new technologies , such as next-generation ip architecture and ultra hd . we believe a material and growing portion of the opportunities for our video business are linked to a migration by our customers to ip workflows and the distribution of linear and on-demand , ott , and new mobile video services . we continue to steadily transition our video business away from legacy and customized computing hardware to more software-centric solutions and services , including ott saas subscription offerings that enable video compression and processing through our vos software platform running on standard off-the-shelf servers , data centers and in the cloud . our cable access strategy is to continue to deliver software-based cable access technologies , which we refer to as our cableos solutions , to our cable operator customers . we believe our cableos software-based cable access solutions are superior to hardware-based systems and delivers unprecedented scalability , agility and cost savings for our customers . our 40 table of content cableos solutions , which can be deployed based on a centralized , distributed remote phy or hybrid architecture , enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of docsis 3.1 data , video and voice services . we believe our cableos solutions resolve space and power constraints in the headend and hub , eliminate dependence on hardware upgrade cycles and significantly reduce total cost of ownership , and will help us become a major player in the cable access market . story_separator_special_tag additionally , fair value measurements for an asset assume the highest and best use of that asset by market participants . as a result , we may have been required to value the acquired assets at fair value measurements that do not reflect its intended use of those assets . use of different estimates and judgments could yield different results . any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill . impairment of goodwill or long-lived assets goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed . we test for goodwill impairment at the reporting unit level , which is the same as our operating segment , on an annual basis in the fourth quarter of each of our fiscal years , and at any other time at which events occur or circumstances indicate that the carrying amount of goodwill may exceed its fair value . in evaluating goodwill for impairment , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value ( including goodwill ) . if we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying value , then no further testing is required . however , if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value , then the two-step goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized , if any . the two-step impairment test involves estimating the fair value of all assets and liabilities of the reporting unit , including the implied fair value of goodwill , through either estimated discounted future cash flows or market-based methodologies . during the fourth quarter of 2018 , we performed goodwill impairment testing for our two reporting units as part of our annual goodwill impairment test and concluded that goodwill was not impaired . we have not recorded any impairment charges related to goodwill for any prior periods . we evaluate the recoverability of intangible assets and other long-lived assets when indicators of impairment are present . when impairment indicators are present , we evaluate the recoverability of intangible assets and other long-lived assets on the basis of undiscounted cash flows expected to result from the use of each asset group and its eventual disposition . if the undiscounted expected future cash flows are less than the carrying amount of the asset , an impairment loss is recognized in order to write down the carrying value of the asset to its estimated fair market value . assessment of the probability of the outcome of current litigation from time to time , we are involved in lawsuits as well as subject to various legal proceedings , claims , threats of litigation , and investigations in the ordinary course of business , including claims of alleged infringement of third-party patents and other intellectual property rights , commercial , employment and other matters . we assess potential liabilities in connection with each lawsuit and threatened lawsuits and accrue an estimated loss for these loss contingencies if both of the following conditions are met : information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated . while certain 42 table of content matters to which we are a party specify the damages claimed , such claims may not represent reasonably probable losses . given the inherent uncertainties of litigation , the ultimate outcome of these matters can not be predicted at this time , nor can the amount of possible loss or range of loss , if any , be reasonably estimated . an unfavorable outcome on any litigation matters could require us to pay substantial damages , or , in connection with any intellectual property infringement claims , could require us to pay ongoing royalty payments or could prevent us from selling certain of our products . as a result , a settlement of , or an unfavorable outcome on , any of the matters referenced above or other litigation matters could have a material adverse effect on our business , operating results , financial position and cash flows . see note 19 , “ legal proceedings , ” of the notes to our consolidated financial statements for additional information on the avid litigation ) . accounting for income taxes in preparing our financial statements , we estimate our income taxes for each of the jurisdictions in which we operate . this involves estimating our actual current tax expense and assessing temporary differences resulting from differing treatment of items , such as reserves and accruals , for tax and accounting purposes . these temporary differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . we are subject to examination of our income tax returns by various tax authorities on a periodic basis . we regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes . we apply the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes , which requires application of a more-likely-than-not threshold to the recognition and de-recognition of uncertain tax positions . if the recognition threshold is met , the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of such tax benefit that , in our judgment , is more than fifty percent likely to be realized upon settlement . it further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period in which such determination is made .
| results of operations net revenue the following table presents the breakdown of net revenue by geographical region ( in thousands , except percentages ) : replace_table_token_3_th fiscal 2018 compared to fiscal 2017 net revenue in the americas increased $ 47.2 million , or 27 % in 2018 , compared to 2017 , primarily due to an increase in revenue from sale of cableos products and services . emea net revenue decreased $ 10.1 million , or 9 % in 2018 , compared to 2017 , primarily due to lower cable access volumes in the region and lower video product volumes as a result of soft demand for our traditional linear broadcast products , which was partially offset by increased volumes of ott-related products as customers transition to ott . apac net revenue increased $ 8.2 million , or 12 % in 2018 compared to 2017 , primarily due to improved demand from our service provider and broadcast and media customers for our video products and services . fiscal 2017 compared to fiscal 2016 net revenue in the americas decreased $ 35.5 million , or 17 % , in 2017 compared to 2016 , primarily due to decreased demand for our video products as customers transition investment from traditional linear broadcast video products to our new ott and saas solutions , which are being used to stream premium video content to mobile devices , computers and smart tvs , including large screen ultra hd tvs . emea net revenue decreased $ 9.6 million , or 8 % , in 2017 compared to 2016 , primarily due to the aforementioned shift from traditional broadcast pay-tv products to ott technologies and saas subscriptions , partially offset by an increase in cable access segment revenue as a result of increased customer demand for our new cableos solution , compared to 2016 .
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our historical results are not necessarily indicative of the results that may be expected for any period in the future . overview our business model is “ come for the sports , stay for the entertainment. ” first , we leverage sporting events to acquire subscribers at lower acquisition costs , given the built-in demand for sports . we then leverage our technology and data to drive higher engagement and induce retentive behaviors such as favoriting channels , recording shows , and increasing discovery through our proprietary machine learning recommendations engine . next , we look to monetize our growing base of highly engaged subscribers by driving higher average revenue per user ( “ arpu ” ) . we believe our expected expansion into wagering and interactivity is core to this model . we believe free-to-play predictive games enhance the sports streaming experience - while also providing a bridge between video and our contemplated sportsbook . we expect the integration of gaming with our expansive live sports coverage will create a flywheel that lifts engagement and retention , expands advertising revenue through increased viewership , and creates additional opportunities for attachment sales . we drive our business model with three core strategies : ● grow our paid subscriber base ● optimize engagement and retention ● increase monetization covid-19 update the widespread global impact from the outbreak and spread of the covid-19 pandemic continued throughout 2020. we took precautionary measures to protect the health and safety of our employees and slow down the spread of the virus by transitioning our workforce to remote working as we closed our offices . the global spread of covid-19 and the various attempts to contain it have created significant volatility , uncertainty and economic disruption in 2020. the impact of the covid-19 pandemic on our operations began towards the end of the first quarter of 2020 , impacting advertising markets and the availability of live sport events , as numerous professional and college sports leagues cancelled or altered seasons and events . during 2020 , the ongoing covid-19 pandemic continued to accelerate the shift of tv viewing away from traditional pay tv to streaming tv and the on-going shift of advertising budgets away from traditional linear tv into streaming offering . while in 2020 we have experienced an increase in tv streaming and our overall business was largely unaffected by the covid-19 pandemic there can be no assurance that these positive trends will continue during 2021 and beyond . 40 merger with fubotv and basis of presentation on april 1 , 2020 , fubotv acquisition corp. , a delaware corporation and our wholly-owned subsidiary ( “ merger sub ” ) merged with and into fubotv sub , whereby fubotv sub continued as the surviving corporation and became our wholly-owned subsidiary pursuant to the terms of the agreement and plan of merger and reorganization dated as of march 19 , 2020 , by and among us , merger sub and fubotv sub ( the “ merger agreement ” ) . following the merger , we changed our name from “ facebank group , inc. ” to “ fubotv inc. , ” and we changed the name of fubotv sub to “ fubotv media , inc. ” the combined company operates under the name “ fubotv , ” and our trading symbol is “ fubo. ” in accordance with the terms of the merger agreement , at the effective time of the merger , all of the capital stock of fubotv sub was converted into the right to receive shares of our newly created class of series aa convertible preferred stock , par value $ 0.0001 per share ( the “ series aa preferred stock ” ) . each share of series aa preferred stock was entitled to 0.8 votes per share and was convertible into two ( 2 ) shares of our common stock following the sale of such share of series aa preferred stock on an arms'-length basis either pursuant to rule 144 under the securities act or pursuant to an effective registration statement under the securities act . on march 1 , 2021 , we consummated an offer to exchange the remaining outstanding shares of series aa preferred stock for two shares of our common stock per share of series aa preferred stock ( the “ exchange offer ” ) . as a result of the exchange offer , 13,412,246 shares of series aa preferred stock , representing 100 % of the outstanding shares of series aa preferred stock , were exchanged for 26,824,492 shares of our common stock . unless otherwise stated , 2020 financial statements and metrics include facebank pre-merger from january 1 through march 31 and the combined company post-merger from april 1 through december 31 , and 2019 financial statements and metrics include fubotv pre-merger . these financial statements are reported on a gaap basis . the company does not intend to report pro forma results to compare fubotv pre-merger 's 2019 and first quarter 2020 performance against the combined company post-merger 's 2020 performance . a discussion and analysis covering the comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 as well as the three months ended march 31 , 2020 as compared to the three months ended march 31 , 2019 , for fubotv sub premerger , are included in our prospectus filed pursuant to rule 424 ( b ) with the securities and exchange commission on december 28 , 2020. restatement of financial statements in connection with the preparation of the company 's condensed consolidated interim financial statements as of and for the quarter ended march 31 , 2020 , the company identified an error in the accounting for goodwill relating to the company 's acquisitions of nexway ag and facebank ag . in connection with these acquisitions , goodwill was impaired . upon further evaluation , the company determined that goodwill amounting to $ 79.7 million should not have been impaired . story_separator_special_tag income tax benefit during the year ended december 31 , 2020 , we recognized an income tax benefit of $ 9.7 million compared to $ 5.3 million during the year ended december 31 , 2019. the increase is due to an increase in deferred tax assets primarily resulting from the merger . 44 key metrics & non-gaap measures note that unless otherwise stated , 2020 metrics below represent pro-forma combined fubotv , facebank pre-merger and fubotv pre-merger , and year-over-year comparisons refer to 2019 fubotv pre-merger . paid subscribers we believe the number of paid subscribers is a relevant measure to gauge the size of our user base . paid subscribers are total subscribers that have completed registration with fubotv , have activated a payment method ( only reflects one paying user per plan ) , from which fubotv has collected payment in the month ending the relevant period . users who are on a free ( trial ) period are not included in this metric . we had 547,880 and 315,729 paid subscribers as of december 31 , 2020 and 2019 , respectively . content hours we believe the number of content hours streamed on our platform is a relevant measure to gauge user engagement . content hours is defined as the sum of total hours of content watched on the fubotv platform for a given period . we had 544.9 million and 289.7 million content hours streamed in the twelve months ending december 31 , 2020 and 2019 , respectively . non-gaap monthly average revenue per user ( arpu ) we believe non-gaap monthly average revenue per user ( arpu ) is a relevant measure to gauge the revenue received per subscriber on a monthly basis . arpu is defined as total subscriber revenue collected in the period , also known as platform bookings ( subscriber and advertising revenues excluding other revenues ) divided by the average daily paid subscribers in such period divided by the number of months in the period . our arpu was $ 62.84 and $ 53.73 for the twelve months ending december 31 , 2020 and 2019 , respectively . non-gaap monthly average cost per user ( acpu ) we believe non-gaap monthly average cost per user ( acpu ) is a relevant measure to gauge our variable expenses per subscriber . acpu reflects variable cogs per user , defined as subscriber related expenses less minimum guarantees expensed , payment processing for deferred revenue , iab fees for deferred revenue and other subscriber related expenses in a given period , divided by the average daily subscribers in the period , divided by the number of months in the period . our acpu was $ 56.48 and $ 55.37 for the twelve months ending december 31 , 2020 and 2019 , respectively . non-gaap adjusted contribution margin ( acm ) we believe non-gaap adjusted contribution margin ( acm ) is a relevant metric to gauge our per-subscriber profitability . acm is calculated by subtracting acpu from arpu and dividing the result by arpu . our acm was 10.1 % and ( 3.1 % ) for the twelve months ending december 31 , 2020 and 2019 , respectively . 45 reconciliation of certain gaap to non-gaap metrics reconciliation of revenue to non-gaap platform bookings and reconciliation of subscriber related expenses to non-gaap variable cogs and adjusted contribution margin ( in thousands except average subscriber and average per user amounts ) replace_table_token_2_th 46 liquidity and capital resources the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern , which contemplates the continuity of operations , realization of assets , and liquidation of liabilities in the normal course of business . our primary sources of cash are receipts from subscriber and advertising revenue , as well as proceeds from equity and debt financings . the primary uses of cash are content and programming license fees , operating expenses including payroll-related , marketing , technology and professional fees and expenses related to the launch and operation of our wagering business . we have multi-year lease agreements for office space . we expect to continue to incur material expenses for content and programming license fees . as our business and workforce expands , we further expect ongoing expenditures for computer systems . in addition , we may pursue merger and acquisition activities that could materially impact our liquidity and capital resources . at december 31 , 2020 , we had cash and cash equivalents of $ 134.9 million and a working capital deficiency of $ 70.6 million . we successfully raised $ 181.0 million , net of offering expenses in october 2020 , through a public offering of our common stock . subsequent to december 31 , 2020 , we successfully raised $ 391.4 million , net of offering expenses through the sale of 3.25 % senior convertible notes . the proceeds from these offering together with improving results from operations provide us with the necessary liquidity to continue as a going concern within one year from the date these financial statements are issued . our future capital requirements and the adequacy of our available funds will depend on many factors , including our ability to successfully attract and retain subscribers , develop new technologies that can compete in a rapidly changing market with many competitors and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings . in addition to the foregoing , based on our current assessment , we do not expect any material impact on our long-term development timeline and our liquidity due to the worldwide spread of a novel strain of coronavirus ( “ covid 19 ” ) . however , we are continuing to assess the effect on its operations by monitoring the spread of covid-19 and the actions implemented to combat the virus throughout the world .
| components of results of operations revenues , net subscription subscription revenue consists primarily of subscription plans sold through the company 's website and third-party app stores . advertisement advertisement revenue consists primarily of fees charged to advertisers who want to display ads ( “ impressions ” ) within the streamed content . software licenses , net software license revenue consists of revenue generated from the sale of software licenses at one of our former subsidiaries , nexway ecommerce solutions . as a result of the deconsolidation of nexway ag , which was effective as of march 31 , 2020 , the company no longer generates revenue from software licenses . other other revenue consists of a contract to sub-license rights to broadcast certain international sporting events to a third party . subscriber related expenses subscriber related expenses consist primarily of affiliate distribution rights and other distribution costs related to content streaming . broadcasting and transmission broadcasting and transmission expenses consist primarily of the cost to acquire a signal , transcode , store , and retransmit it to the subscribers . sales and marketing sales and marketing expenses consist primarily of payroll and related costs , benefits , rent and utilities , stock-based compensation , agency costs , advertising campaigns and branding initiatives . technology and development technology and development expenses consist primarily of payroll and related costs , benefits , rent and utilities , stock-based compensation , technical services , software expenses , and hosting expenses . general and administrative general and administrative expenses consist primarily of payroll and related costs , benefits , rent and utilities , stock-based compensation , corporate insurance , office expenses , professional fees , as well as travel , meals , and entertainment costs . depreciation and amortization depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets .
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the following presents details of all loans acquired as of january 1 , 2015 story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with item 6 . “ selected financial data ” and the company 's consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that the company believes are reasonable but may prove to be inaccurate . certain risks , uncertainties and other factors , including those set forth under “ – cautionary notice regarding forward-looking statements , ” in this item 7 , under item 1a . “ risk factors ” and elsewhere in this annual report on form 10-k , may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis . the company assumes no obligation to update any of these forward-looking statements . cautionary notice regarding forward-looking statements statements and financial discussion and analysis contained in this annual report on form 10-k that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. we also may make forward-looking statements in our other documents filed or furnished with the sec . in addition , our senior management may make forward-looking statements orally to investors , analysts , representatives of the media and others . statements preceded by , followed by or that otherwise include the words “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” “ projects , ” “ estimates , ” “ plans ” and similar expressions or future or conditional verbs such as “ will , ” “ should , ” “ would , ” “ may ” and “ could ” are generally forward-looking in nature and not historical facts , although not all forward looking statements include the foregoing . forward-looking statements are based on assumptions and involve a number of risks and uncertainties , many of which are beyond our control . many possible events or factors could affect our future financial results and performance and could cause such results or performance to differ materially from those expressed in our forward-looking statements . while there is no assurance that any list of risks and uncertainties or risk factors is complete , below are certain factors which could cause our actual results to differ from those in our forward-looking statements : risks related to the concentration of our business in the houston metropolitan area , including risks associated with volatility or decreases in oil and gas prices or prolonged periods of lower oil and gas prices ; general market conditions and economic trends nationally , regionally and particularly in the houston metropolitan area ; our ability to retain executive officers and key employees and their customer and community relationships ; our ability to recruit and retain successful bankers that meet our expectations in terms of customer and community relationships and profitability ; risks related to our strategic focus on lending to small to medium-sized businesses ; our ability to implement our growth strategy , including through the identification of acquisition candidates that will be accretive to our financial condition and results of operations ; risks related to any businesses we acquire in the future , including exposure to potential asset and credit quality risks and unknown or contingent liabilities , the time and costs associated with integrating systems , technology platforms , procedures and personnel , the need for additional capital to finance such transactions and possible failures in realizing the anticipated benefits from such acquisitions ; potential impairment on the goodwill we have recorded or may record in connection with business acquisitions ; risks associated with our owner-occupied commercial real estate loan and other commercial real estate loan portfolios , including the risks inherent in the valuation of the collateral securing such loans ; risks associated with our commercial and industrial loan portfolio , including the risk for deterioration in value of the general business assets that generally secure such loans ; the accuracy and sufficiency of the assumptions and estimates we make in establishing reserves for potential loan losses and other estimates ; 38 risk of deteriorating asset quality and higher loan charge-offs ; time and effort necessary to resolve nonperforming assets ; potential changes in the prices , values and sales volumes of commercial and residential real estate securing our real estate loans ; changes in market interest rates that affect the pricing of our loans and deposits and our net interest income ; potential fluctuations in the market value and liquidity of the securities we hold for sale ; risk of impairment of investment securities , goodwill , other intangible assets or deferred tax assets ; the effects of competition from a wide variety of local , regional , national and other providers of financial , investment and insurance services , which may adversely affect our pricing and terms ; our ability to maintain an effective system of disclosure controls and procedures and internal controls over financial reporting ; risks associated with fraudulent and negligent acts by our customers , employees or vendors ; our ability to keep pace with technological change or difficulties when implementing new technologies ; risks associated with system failures or failures to protect against cybersecurity threats , such as breaches of our network security ; risks associated with data processing system failures and errors ; the institution and outcome of litigation and other legal proceeding against us or to which we become subject ; our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels ; our ability to comply with various governmental and regulatory requirements applicable to financial institutions ; the impact of recent and future legislative and regulatory changes , including changes in banking , securities story_separator_special_tag the period-over-period comparability of certain aspects of our results of operations and the changes in our financial condition from december 31 , 2014 to december 31 , 2015 , are affected by the issuance of these shares in the offering and our receipt of the net proceeds of the sale of shares of our common stock . in particular , the period-over-period comparability of our earnings per share and return of equity is also affected . our common stock began trading on the nasdaq global market on october 8 , 2015 , under the ticker symbol “ abtx. ” recent developments on november 3 , 2015 , the bank entered into a definitive purchase and assumption agreement providing for the sale of two of its full-service banking locations and their related assets located in central texas to incommons bank , n.a. , a national banking association headquartered in mexia , texas . on january 31 , 2016 following the period covered by this annual report on form 10-k , the transaction was completed . under the terms of the purchase and assumption agreement , incommons bank , n.a . acquired certain assets and assumed certain liabilities associated with the mart banking location at 714 texas avenue in mart , texas and the rosebud banking location at 339 main street in rosebud , texas . the company sold $ 18.2 million and $ 26.6 million of loans and deposits , respectively , and recorded an after tax gain of approximately $ 1.4 million on the sale of these branches . critical accounting policies our accounting policies are integral to understanding our results of operations . our accounting policies are described in detail in note 1 included elsewhere in our annual consolidated financial statements . we believe that of our accounting policies , the following policies may involve a higher degree of judgment and complexity . securities debt securities are classified as available for sale when they might be sold before maturity . securities available for sale are carried at fair value . unrealized gains and losses are excluded from earnings and reported , net of tax , as a separate component of stockholders ' equity until realized . securities within the available for sale portfolio may be used as part of our asset/liability strategy and may be sold in response to changes in interest rate risk , prepayment risk or other similar economic factors . interest earned on these assets is included in interest income . interest income includes amortization of purchase premium or discount . premiums and discounts on securities are amortized on the level-yield method , except for mortgage backed securities where prepayments are anticipated . gains and losses on sales are recorded on the trade date and determined using the specific identification method . 40 management evaluates debt securities for other-than-temporary impairment ( “ otti ” ) on at least a quarterly basis , and more frequently when economic or market conditions warrant such an evaluation . for securities in an unrealized loss position , management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer . management also assesses whether it intends to sell , or it is more likely than not that it will be required to sell , a security in an unrealized loss position before recovery of its amortized cost basis . if either of the criteria regarding intent or requirement to sell is met , the entire difference between amortized cost and fair value is recognized as impairment through earnings . for debt securities that do not meet the aforementioned criteria , the amount of impairment is split into two components as follows : ( 1 ) otti related to credit loss , which must be recognized in the income statement , and ( 2 ) otti related to other factors , which is recognized in other comprehensive income , net of applicable taxes . the credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis . the previous amortized cost basis less the otti recognized in earnings becomes the new amortized cost basis of the security . loans held for investment loans held for investment are those that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding , net of deferred loan fees and costs , and an allowance for loan losses . loans are typically secured by specific items of collateral including business assets , consumer assets , and commercial and residential real estate . commercial loans are expected to be repaid from cash flow from operations of businesses . interest income is accrued on the unpaid principal balance . nonperforming and past due loans loans are placed on nonaccrual status when payment in full of principal or interest is not expected or upon which principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection . if the decision is made to continue accruing interest on the loan , periodic reviews are made to confirm the accruing status of the loan . nonaccrual loans and loans past due 90 days include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans . when available information confirms that specific loans , or portions thereof , are uncollectible , these amounts are charged off against the allowance .
| results of operations net income attributable to common stockholders was $ 15.2 million ( $ 1.43 per diluted common share ) for the year ended december 31 , 2015 compared with $ 9.0 million ( $ 1.26 per diluted common share ) for the year ended december 31 , 2014 , an increase in net income attributable to common stockholders of $ 6.2 million or 69.1 % . net income attributable to common stockholders increased $ 2.2 million or 31.7 % for the year ended december 31 , 2014 compared with $ 6.8 million ( $ 1.22 per diluted common share ) for the year ended december 31 , 2013. returns on average common equity were 7.43 % , 7.73 % and 9.02 % , returns on average assets were 0.81 % , 0.75 % and 0.78 % and efficiency ratios were 65.27 % , 67.79 % and 69.23 % for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the efficiency ratio is calculated by dividing total noninterest expense by the sum of net interest income plus noninterest income , excluding net gains and losses on the sale of loans , securities and assets . additionally , taxes and provision for loan losses are not part of this calculation . net interest income year ended december 31 , 2015 compared with the year ended december 31 , 2014. net interest income before the provision for loan losses for the year ended december 31 , 2015 was $ 80.2 million compared with $ 46.8 million for the year ended december 31 , 2014 , an increase of $ 33.3 million , or 71.2 % .
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in some cases , you can identify forward-looking statements by the following words : `` anticipate , '' `` believe , '' `` can , '' `` continue , '' `` ongoing , '' `` could , '' `` estimate , '' `` expect , '' `` intend , '' `` may , '' `` plan , '' `` potential , '' `` predict , '' `` project , '' `` forecast , '' `` should , '' `` would '' , `` will '' or the negative of these terms or other comparable terminology , although the absence of these words does not mean that a statement is not forward-looking . these statements are only predictions and involve known and unknown risks , uncertainties and other factors that could cause our or our industry 's actual results , levels of activity , performance or achievements to materially differ from those expressed or implied by any forward-looking statements we make . see item 1a . risk factors in this annual report on form 10-k for a discussion of some of these risks , uncertainties and other factors . this discussion should be read with our consolidated financial statements and related notes included in this report . we are the leading provider of natural gas as an alternative fuel for vehicle fleets in the united states and canada , based on the number of stations operated and the amount of gasoline gallon equivalents ( `` gges '' ) of compressed natural gas ( `` cng '' ) , liquefied natural gas ( `` lng '' ) and renewable natural gas ( `` rng '' ) delivered . our principal business is supplying cng , lng and rng ( rng can be delivered in the form of cng or lng ) for light , medium and heavy-duty vehicles and providing operation , repair and maintenance ( `` o & m '' ) services for vehicle fleet customer stations . as a comprehensive solution provider , we also design , build , operate , service , repair and maintain fueling stations , manufacture , sell and service non-lubricated natural gas fueling compressors and related equipment used in cng stations and lng stations , offer assessment , design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets , transport and sell cng to large industrial and institutional energy users who do not have direct access to natural gas pipelines , process and sell rng , sell tradable credits we generate by selling natural gas and rng as a vehicle fuel , including credits we generate under the california and oregon low carbon fuel standards ( collectively , `` lcfs credits '' ) and renewable identification numbers ( `` rin credits '' or `` rins '' ) we generate under the federal renewable fuel standard phase 2 ( “ rfs 2 ” ) , help our customers acquire and finance natural gas vehicles and obtain federal , state and local tax credits , grants and incentives . overview this overview discusses matters on which our management focuses in evaluating our financial condition and operating performance and results . sources of revenue . we generate revenues by selling cng , lng , rng , and providing o & m services to our customers , designing and constructing fueling stations and selling or leasing those stations to our customers , processing and selling rng , manufacturing , selling and servicing non-lubricated natural gas fueling compressors and other equipment for cng and lng fueling stations , offering assessment , design and modification solutions to provide operators with code- compliant service and maintenance facilities for natural gas vehicle fleets , transporting and selling cng to large industrial and institutional energy users who do not have direct access to natural gas pipelines , providing financing for our customers ' natural gas vehicle purchases , selling tradable lcfs credits and rin credits , and receiving federal fuel tax credits . the following table represents our sources of revenue : 26 replace_table_token_5_th key operating data . in evaluating our operating performance , our management focuses primarily on : ( 1 ) the amount of cng , lng , and rng gasoline gallon equivalents delivered ( which we define as ( i ) the volume of gasoline gallon equivalents we sell to our customers , plus ( ii ) the volume of gasoline gallon equivalents dispensed at facilities we do not own but where we provide o & m services on a per-gallon fee basis , plus ( iii ) our proportionate share of the gasoline gallon equivalents sold as cng by our joint venture with mansfield ventures , llc called mansfield clean energy partners , llc ( `` mcep '' ) , plus ( iv ) our proportionate share of the gasoline gallon equivalents sold as cng by our joint venture in peru ( through march 2013 when we sold our interest in the joint venture in peru ) , plus ( v ) our proportionate share ( as applicable ) of the gasoline gallon equivalents of rng produced and sold as pipeline quality natural gas by the rng production facilities we own or operate ) , ( 2 ) our gross margin ( which we define as revenue minus cost of sales ) , and ( 3 ) net income ( loss ) attributable to us . the following tables , which should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k , present our key operating data for the years ended december 31 , 2013 , 2014 , and 2015 : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th _ ( 1 ) as noted above , this includes our proportionate share of the gges sold as cng by our joint venture mcep and our former joint venture in peru . such gges sold were 2.1 million , 0.0 million and 0.4 million for the years ended december 31 , 2013 , 2014 and 2015 , respectively . story_separator_special_tag in addition , we are entitled to recoup all of our capital investments in angh stations we build at pilot locations plus a defined return , after which we would share a portion of the station profits with pilot . recent developments . in december 2015 , the vetc alternative fuel tax credit was extended through december 31 , 2016 and made retroactive to january 1 , 2015. the program providing for the vetc had previously expired as of december 31 , 2014. pursuant to the vetc , we receive a credit of $ 0.50 per gge of cng sold as a vehicle fuel in 2015 and 2016 , $ 0.50 per liquid gallon of lng sold in 2015 and $ 0.50 per diesel gallon equivalent of lng sold in 2016. vetc revenues for 2015 , totaling $ 31.0 million , were recognized in december 2015 and subsequently collected in cash in february 2016. using the diesel gallon equivalent for lng for 2016 is expected to result in less vetc revenues . 28 on december 31 , 2015 , we terminated our credit agreement ( the “ credit agreement ” ) with general electric capital corporation ( “ ge ” ) . the credit agreement provided us the eligibility to receive up to $ 200 million of loans from ge to finance the development , construction and operation of two new lng plans . we had not borrowed any amounts under the credit agreement as of its termination . as a result of the termination of the credit agreement , all related unamortized deferred financing costs totaling $ 54.9 million , were removed from our balance sheet as an accelerated expense reported in interest expense . included in the total was $ 54.3 million related to the value of the warrant to purchase up to 5.0 million shares of our common stock we issued to ge in connection with the credit agreement that was recorded as deferred financing costs . see notes 9 and 11 to our consolidated financial statements included in this report for further information . on february 29 , 2016 , we entered into a loan and security agreement with , and issued a related promissory note to , plainscapital bank , pursuant to which we have the ability to incur additional indebtedness in the principal amount of $ 50.0 million . all amounts owed under the loan agreement are secured by the cash and corporate and municipal bonds rated aaa , aa or a by standard & poor 's rating services that we hold in an account at plainscapital bank . on march 1 , 2016 and pursuant to the consent of the holders of the slg notes , we prepaid an aggregate of $ 60.0 million in principal amount and $ 1.8 million in accrued and unpaid interest owed under the slg notes . see note 9 to the consolidated financial statements included in this report for further information about the slg notes . in february 2016 , in light of discounted trading prices of our 5.25 % notes and other factors , our board of directors authorized and approved our use of up to $ 25.0 million to opportunistically purchase in the open market our outstanding 5.25 % notes , in accordance with the terms of the indenture governing the 5.25 % notes . pursuant to such approval , on february 18 , 2016 , we purchased $ 32.5 million in face amount of our 5.25 % notes for an aggregate purchase price of $ 16.8 million . upon our purchase , such 5.25 % notes were surrendered to the trustee for such notes and canceled . see note 9 to the consolidated financial statements included in this report for further information about the 5.25 % notes . anticipated future trends . although natural gas continues to be less expensive than gasoline and diesel in most markets , the price of natural gas has been significantly closer to the prices of gasoline and diesel in recent years as a result of declining oil prices , thereby reducing the price advantage of natural gas as a vehicle fuel . we anticipate that , over the long term , the prices for gasoline and diesel will continue to be higher than the price of natural gas as a vehicle fuel and will increase overall , which would improve the cost savings of natural gas as a vehicle fuel compared to diesel and gasoline . however , the amount of time needed for oil prices to recover from their recent decline is uncertain and we expect that adoption of natural gas as a vehicle fuel generally , growth in our customer base and our gross revenue will be negatively affected until oil prices recover and this price advantage increases . our belief that natural gas will continue , over the long term , to be a cheaper vehicle fuel than gasoline or diesel is based in large part on the growth in united states natural gas production in recent years . we believe natural gas fuels are well-suited for use by vehicle fleets that consume high volumes of fuel , refuel at centralized locations or along well-defined routes and or are increasingly required to reduce emissions . as a result , we believe there will be growth in the consumption of natural gas as a vehicle fuel among vehicle fleets , and our goal is to capitalize on this trend if and to the extent it materializes and enhance our leadership position in these markets . our business plan calls for expanding our sales of natural gas fuels in the markets in which we operate , including heavy-duty trucking , refuse , airports , public transit , industrial and institutional energy users and government fleets , and pursuing additional markets as opportunities arise . if our business grows as we anticipate , our operating costs and capital expenditures may increase , primarily from the anticipated expansion of our station network and rng production capacity , as well as the logistics of delivering more natural gas fuels to our customers .
| results of operations fiscal year ended december 31 , 2015 compared to fiscal year ended december 31 , 2014 revenue . revenue decreased by $ 44.6 million to $ 384.3 million for 2015 from $ 428.9 million for 2014 due to lower effective pricing and fewer station construction and compressor sales . revenue for station construction sales decreased by $ 29.6 million principally from the sale of more station upgrades and fewer full station projects in 2015. full station projects generally have substantially higher price points than station upgrades . clean energy compression revenue decreased by $ 30.3 million due to the effects of a continued global decline in oil prices , the strength of the u.s. dollar and slower than expected sales in china . approximately $ 24.3 million of the decrease in revenue was the result of lower effective prices of gallons delivered , which were caused by lower commodity costs in 2015 compared to 2014. our effective price per gallon charged was $ 0.84 for 2015 , a $ 0.10 per gallon decrease from $ 0.94 per gallon charged for 2014. the decrease in our effective price was due to lower fuel prices driven by lower commodity costs , partially offset by increased rins and lcfs credits sales . the effective price per gallon is defined as revenues generated from selling cng , lng , rng , any related rins and lcfs credits sales and providing o & m services to our vehicle fleet customers at stations that we do not own and for which we receive a per-gallon fee , all divided by the total gges delivered less gges delivered by non-consolidated entities , such as equity method investments . 35 the decrease in revenue was partially offset by a 43.4 million increase in the number of gallons delivered , from 265.1 million gallons delivered in 2014 to 308.5 million gallons delivered in 2015 , which provided approximately $ 36.6
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unless the context otherwise requires , references in this report to the `` predecessor '' refer to westlake chemical partners lp predecessor , our predecessor for accounting purposes , and refer to the time periods prior to the completion of our initial public offering on august 4 , 2014 ( the `` ipo '' ) . unless otherwise indicated , references in this report to `` we , '' `` our , '' `` us '' or like terms used in the present tense or prospectively , or in reference to the period subsequent to the ipo , refer to westlake chemical partners lp ( `` westlake chemical partners lp '' or the `` partnership '' ) , westlake chemical opco lp ( `` opco '' ) and westlake chemical opco gp llc ( `` opco gp '' ) , and references to the partnership for all periods prior to the ipo refer to the predecessor . references to `` westlake '' refer to westlake chemical corporation and its consolidated subsidiaries other than the partnership , opco gp and opco . the initial public offering on august 4 , 2014 , the partnership closed its ipo of 12,937,500 common units . see note 2 to the combined and consolidated financial statements within this report for a description of the ipo , as well as the assets and liabilities contributed to us and agreements entered in connection with the ipo . partnership overview we are a delaware limited partnership formed by westlake to operate , acquire and develop ethylene production facilities and related assets . currently , our sole revenue generating asset is our 10.6 % limited partner interest in opco , a limited partnership formed by westlake and us in anticipation of the ipo to own and operate an ethylene production business . we control opco through our ownership of its general partner . westlake retained the remaining 89.4 % limited partner interest in opco as well as significant interest in us through its ownership of our general partner , 52.2 % of our limited partner units ( consisting of 1,436,115 common units and all of the subordinated units ) and our incentive distribution rights . opco 's assets include ( 1 ) two ethylene production facilities ( `` petro 1 '' and `` petro 2 '' and , collectively , `` lake charles olefins '' ) at westlake 's lake charles , louisiana site ; ( 2 ) one ethylene production facility ( `` calvert city olefins '' ) at westlake 's calvert city , kentucky site ; and ( 3 ) a 200-mile common carrier ethylene pipeline ( the `` longview pipeline '' ) that runs from mont belvieu , texas to westlake 's longview , texas facility . how we generate revenue we generate revenue primarily by selling ethylene and the resulting co-products we produce . in connection with the ipo , opco and westlake entered into an ethylene sales agreement ( the `` ethylene sales agreement '' ) pursuant to which we generate a substantial majority of our revenue . this agreement is a long-term , fee-based agreement with a minimum purchase commitment and includes variable pricing based on opco 's actual feedstock and natural gas costs and estimated other costs of producing ethylene , plus a fixed margin per pound of $ 0.10 less revenue from co-products sales . we expect westlake will take volumes in excess of the minimum commitment under the ethylene sales agreement if we produce more than our planned production . we sell ethylene production in excess of volumes sold to westlake , as well as associated co-products resulting from the ethylene production , directly to third parties on either a spot or contract basis . net proceeds ( after transportation and other costs ) from the sales of associated co-products that result from the production of ethylene purchased by westlake are netted against the ethylene price charged to westlake under the ethylene sales agreement thereby substantially reducing our exposure to fluctuations in the market prices of these co-products . from august 4 , 2014 through december 31 , 2014 , third-party ethylene and associated co-products sales have generated greater than 26 % of our total revenues . the significant drop in crude oil prices towards the end of 2014 and potentially continuing through 2015 may create volatility in the north american and global markets , which may result in reduced prices and margins in third-party ethylene and associated co-products sales in 2015. please refer to note 2 to the combined and consolidated financial statements within this report for more information on the ethylene sales agreement . how we source feedstock in connection with the ipo , opco entered into a feedstock supply agreement ( the `` feedstock supply agreement '' ) with 30 westlake petrochemicals llc , a wholly owned subsidiary of westlake , under which westlake petrochemicals llc supplies opco with ethane and other feedstocks that opco uses to produce ethylene under the ethylene sales agreement . opco also purchases the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from westlake petrochemicals llc . please refer to note 2 to the combined and consolidated financial statements within this report for more information on the feedstock supply agreement . how we evaluate operations our management uses a variety of financial and operating metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include : ( 1 ) production volumes , ( 2 ) operating and maintenance expenses , including turnaround costs , and ( 3 ) mlp distributable cash flow and ebitda . production volumes the amount of revenue we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at calvert city olefins and lake charles olefins . story_separator_special_tag subsequent to the ipo , a substantial majority of our revenue from ethylene sales is generated from sales of ethylene to westlake under the ethylene sales agreement . the ethylene sales agreement contains minimum purchase commitments and pricing that is expected to generate a fixed margin of $ 0.10 per pound . the price per pound of ethylene sold under the ethylene sales agreement is lower than historical prices charged by the predecessor for ethylene sold internally . as such , we expect a significant decrease in revenue from ethylene sales to westlake for periods after the ipo compared with the predecessor 's historical revenue . the predecessor 's third-party sales consisted of ethylene , feedstock and associated co-products sales . with respect to third-party ethylene sales , the predecessor also resold externally procured ethylene to third parties . subsequent to the ipo , the ethylene procurement and reselling activities of the predecessor remained with westlake . in addition , the predecessor 's net sales included revenue from sales to third parties of excess feedstock not used in the ethylene production process . following the closing of the ipo , we do not generate revenues from the sale of excess feedstock to third parties as all of the predecessor 's feedstock risk-management activities remained with westlake . however , we sell all of our co-products volume to third parties in a manner consistent with the predecessor . as such , there are no significant changes to revenue related to the sale of co-products , as compared to the predecessor 's historical revenue from co-products sales . expenses selling , general and administrative expenses the predecessor 's selling , general and administrative expenses included direct and indirect charges for the management and operation of our ethylene and other transportation assets allocated by westlake for general corporate services such as treasury , information technology , legal , corporate tax , human resources , executive compensation , and other financial and administrative services . these expenses were charged or allocated to the predecessor based on the nature of the expense and the predecessor 's proportionate share of fixed assets , headcount or other measure , as deemed appropriate . following the closing of the ipo , under the services and secondment agreement and omnibus agreement , westlake continues to charge us a combination of direct and allocated charges for similar general corporate services as those charged to the predecessor historically . we also expect to incur incremental annual general and administrative expenses as a result of being a separate publicly traded partnership . these incremental general and administrative expenses were not reflected in the predecessor 's combined financial 32 statements . income taxes the partnership is a limited partnership and is treated as a partnership for u.s. federal income tax purposes and , therefore , is not liable for entity-level federal income taxes . the partnership is , however , subject to state and local income taxes . the predecessor 's tax provision was determined on a separate return basis . accordingly , we expect our tax provision to be significantly reduced subsequent to the ipo as compared to that of the predecessor . noncontrolling interest at the closing of the ipo , westlake contributed a 5.8 % limited partner interest and the general partner interest in opco to us . immediately following the ipo , we used the ipo net proceeds to acquire an additional 4.8 % limited partner interest in opco directly from opco . westlake retained the remaining 89.4 % limited partner interest in opco , which is recorded as noncontrolling interest in our consolidated financial statements . factors affecting our business supply and demand for ethylene and resulting co-products we generate a substantial majority of our revenue from the ethylene sales agreement . this contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways : ( 1 ) the cost-plus pricing structure of the ethylene sales agreement is expected to generate a fixed margin of $ 0.10 per pound , adjusting automatically for changes in feedstock costs ; and ( 2 ) the commitment under which westlake will purchase 95 % of the annual planned production , subject to a maximum commitment of 3.8 billion pounds of ethylene per year , with an option to purchase an additional 95 % of actual monthly production in excess of the planned production . as a result , our direct exposure to commodity price risk is limited to approximately 5 % of our total ethylene production , which is that portion sold to third parties , assuming westlake exercises its option to purchase 95 % of the over production , as well as to our co-products sales . we also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers . demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand , the resulting operating rates and general economic activity . while we believe we have substantially mitigated our indirect exposure to commodity price fluctuations during the term of the ethylene sales agreement through the minimum commitment and the cost-plus based pricing , our ability to execute our growth strategy in our areas of operation will depend , in part , on the demand for ethylene derivatives in the geographical areas served by our ethylene production facilities . 33 story_separator_special_tag for 2013 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , mostly offset by the domestic manufacturing deduction and state income tax credits . 2013 compared with 2012 net sales . net sales decreased by $ 121.4 million , or 5.4 % , to $ 2,127.7 million in 2013 from $ 2,249.1 million in 2012. this decrease was mainly attributable to lower feedstock sales volume and lower average sales prices for our major products .
| results of operations the table below and descriptions that follow represent the combined results of operations of the predecessor for the years 2012 , 2013 and for the period from january 1 , 2014 through august 3 , 2014 , and the consolidated results of the partnership for the period from august 4 , 2014 , the closing date of the ipo , through december 31 , 2014. our consolidated results of operations subsequent to the ipo are not comparable to the predecessor 's historical combined results of operations for the reasons discussed above under `` factors affecting the comparability of our financial results . '' replace_table_token_5_th replace_table_token_6_th 34 replace_table_token_7_th ( 1 ) industry pricing data was obtained through ihs chemical . we have not independently verified the data . ( 2 ) represents average north american spot prices of ethylene over the period as reported by ihs chemical . reconciliation of mlp distributable cash flow attributable to the partnership to net income and cash provided by operating activities the following table presents a reconciliation of mlp distributable cash flow to net income and net cash provided by operating activities , the most directly comparable gaap financial measures . replace_table_token_8_th ( 1 ) includes the amounts for the period from august 4 , 2014 through december 31 , 2014 only . 35 reconciliation of ebitda attributable to net income and cash flow from operating activities the following table presents reconciliations of ebitda to net income and cash flow from operating activities , the most directly comparable gaap financial measures , for each of the periods indicated . replace_table_token_9_th summary for the year ended december 31 , 2014 , net income was $ 509.8 million on net sales of $ 1,749.7 million . this represents a decrease in net income of $ 36.7 million compared to 2013 net income of $ 546.5 million on net sales of $ 2,127.7 million .
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” certain risk factors may cause actual results , performance or achievements to differ materially from those expressed or implied by the following discussion . for a discussion of such risk factors , see the section in this report entitled “ risk factors. ” overview global medical reit inc. ( the “ company , ” “ us , ” “ we , ” or “ our ” ) is an externally managed , maryland corporation engaged primarily in the acquisition of purpose-built healthcare facilities and leasing of those facilities to strong healthcare systems and physician groups with leading market share . the company is externally managed and advised by inter-american management llc ( the “ advisor ” ) . we elected to be taxed as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2016. we conduct our business through an umbrella partnership real estate investment trust , or upreit , structure in which our properties are owned by wholly owned subsidiaries of our operating partnership , global medical reit l.p. ( the “ operating partnership ” ) . our wholly owned subsidiary , global medical reit gp , llc , is the sole general partner of our operating partnership and , as of december 31 , 2019 , we owned approximately 91.82 % of the outstanding operating partnership units ( “ op units ” ) of our operating partnership . our business objectives and investment strategy our principal business objective is to provide attractive , risk-adjusted returns to our stockholders through a combination of ( i ) reliable dividends and ( ii ) long-term capital appreciation . our primary strategies to achieve our business objective are to : · construct a property portfolio that consists substantially of medical office buildings ( mobs ) , specialty hospitals and ambulatory surgery centers ( ascs ) and in-patient rehabilitation facilities that are primarily located in secondary markets and are situated to take advantage of the aging of the u.s. population and the decentralization of healthcare ; · focus on practice types that will be utilized by an aging population and that are highly dependent on their purpose-built real estate to deliver core medical procedures , such as cardiovascular treatment , rehabilitation , eye surgery , gastroenterology , oncology treatment and orthopedics ; · set aside a portion of our property portfolio for opportunistic acquisitions of non-core assets , such as ( i ) certain acute-care hospitals and long-term acute care facilities ( ltacs ) , that we believe provide premium , risk-adjusted returns and ( ii ) health system corporate office and administrative buildings , which we believe will help us develop relationships with larger health systems ; · lease the facilities under long-term , triple-net leases with contractual rent escalations ; · lease each facility to medical providers with a track record of successfully managing excellent clinical and profitable practices ; and · receive credit protections from our tenants or their affiliates , including personal and corporate guaranties , rent reserves and rent coverage requirements . 2019 executive summary the following table summarizes the material changes in our business and operations during 2019 : replace_table_token_8_th ( 1 ) see “ —non-gaap financial measures , ” for a description of our non-gaap financial measures and a reconciliation of our non-gaap financial measures . 38 replace_table_token_9_th our properties during the year ended december 31 , 2019 , we completed 18 acquisitions encompassing an aggregate of 701,936 leasable square feet for an aggregate contractual purchase price of approximately $ 253.5 million with annualized base rent of $ 19.0 million . we funded our 2019 acquisitions through a combination of equity issuances and borrowings under our credit facility . as of december 31 , 2019 , our portfolio consisted of gross investment in real estate of $ 905.5 million , which was comprised of 68 facilities with an aggregate of approximately 2.8 million leasable square feet and approximately $ 70.4 million of annualized base rent . capital raising activity during the year ended december 31 , 2019 , we raised $ 200.1 million of equity through a combination of common stock and op unit issuances at an average issuance price of $ 11.23 per share . our equity issuances during the year ended december 31 , 2019 included the following : · underwritten public offerings of our common stock in march and december 2019 , which resulted in the issuance of 15.1 million shares of our common stock at an average public offering price of $ 11.23 per share , generating gross proceeds of $ 170.0 million ; · at-the-market ( “ atm ” ) offering issuances of 2.6 million shares of our common stock at an average public offering price of $ 11.24 per share , generating gross proceeds of $ 29.6 million : and · an op unit issuance of 49 thousand units with a value of $ 506 thousand in connection with a facility acquisition , at a price of $ 10.30 per unit . debt activity during the year ended december 31 , 2019 , we borrowed $ 244.3 million under the credit facility and repaid $ 173.2 million , for a net amount borrowed of $ 71.1 million . as of december 31 , 2019 , the net outstanding credit facility balance was $ 347.5 million . on september 30 , 2019 , we entered into an amendment to our credit facility that , among other things , ( i ) increased the borrowings under the term-loan component ( the “ term loan ” ) from $ 175 million to $ 300 million , representing the exercise of the remaining $ 75 million accordion feature and a re-allocation of $ 50 million from the revolver component ( the “ revolver ” ) to the term loan and ( ii ) added a new $ 150 million accordion feature . story_separator_special_tag investment in real estate the company determines when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition in accordance with accounting standard codification ( “ asc ” ) topic 805 “ business combinations ” ( “ asc topic 805 ” ) , which requires that , when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets , the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition . transaction costs continue to be capitalized for asset acquisitions and expensed as incurred for business combinations . asc topic 805 resulted in all of our post-january 1 , 2018 acquisitions being accounted for as asset acquisitions because substantially all of the fair value of the gross assets the company acquires are concentrated in a single asset or group of similar identifiable assets . for asset acquisitions that are “ owner occupied ” ( meaning that the seller either is the tenant or controls the tenant ) , the purchase price , including capitalized acquisition costs , will be allocated to land and building based on their relative fair values with no value allocated to intangible assets or liabilities . for asset acquisitions where there is a lease in place but not “ owner occupied , ” we will allocate the purchase price to tangible assets and any intangible assets acquired or liabilities assumed based on their relative fair values . fair value is determined based upon the guidance of asc topic 820 , “ fair value measurements and disclosures , ” and generally are determined using level 2 inputs , such as rent comparables , sales comparables , and broker indications . although level 3 inputs are utilized , they are minor in comparison to the level 2 data used for the primary assumptions . the determination of fair value involves the use of significant judgment and estimates . we make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources , including pre-acquisition due diligence , and we routinely utilize the assistance of a third-party appraiser . valuation of tangible assets : the fair value of land is determined using the sales comparison approach whereby recent comparable land sales and listings are gathered and summarized . the available market data is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as market conditions , size , and location . we estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over its estimated remaining life . fair value is primarily based on estimated cash flow projections that utilize discount and or capitalization rates as well as available market information . we determine the fair value of site improvements ( non-building improvements that include paving and other ) using the cost approach , with a deduction for depreciation , and depreciate the site improvements over their estimated remaining useful lives . tenant improvements represent fixed improvements to tenant spaces , the fair value of which is estimated using prevailing market tenant improvement allowances . tenant improvements are amortized over the remaining term of the lease . valuation of intangible assets : in determining the fair value of in-place leases ( the avoided cost associated with existing in-place leases ) management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy . in estimating carrying costs , management includes reimbursable ( based on market lease terms ) real estate taxes , insurance , other operating expenses , as well as estimates of lost market rental revenue during the expected lease-up periods . the values assigned to in-place leases are amortized over the remaining term of the lease . the fair value of above-or-below market leases is estimated based on the present value ( using an interest rate which reflected the risks associated with the leases acquired ) of the difference between contractual amounts to be received pursuant to the leases and management 's estimate of market lease rates measured over a period equal to the estimated remaining term of the lease . an above market lease is classified as an intangible asset and a below market lease is classified as an intangible liability . the capitalized above-market or below-market lease intangibles are amortized as a reduction of or an addition to rental income over the estimated remaining term of the respective leases . 41 intangible assets related to leasing costs consist of leasing commissions and legal fees . leasing commissions are estimated by multiplying the remaining contract rent associated with each lease by a market leasing commission . legal fees represent legal costs associated with writing , reviewing , and sometimes negotiating various lease terms . leasing costs are amortized over the remaining useful life of the respective leases . story_separator_special_tag text-indent : 0.5in '' > preacquisition fees for the year ended december 31 , 2019 were $ 0.3 million , compared to $ 0.4 million for the same period in 2018 , a decrease of $ 0.1 million . preacquisition fees for both the years ended december 31 , 2019 and 2018 represent costs associated with acquisitions that the company did not , or does not expect to , complete and therefore were expensed . income before gain on sale of investment property income before gain on sale of investment property for the year ended december 31 , 2019 was $ 9.6 million , compared to $ 6.9 million for the same period in 2018 , an increase of $ 2.7 million .
| consolidated results of operations the major factor that resulted in variances in our results of operations for each revenue and expense category for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , was the increase in the size of our property portfolio . our total investments in real estate , net of accumulated depreciation and amortization , was $ 849.0 million and $ 616.9 million as of december 31 , 2019 and 2018 , respectively . for a discussion related to our results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , refer to part ii , item 7. management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the year ended december 31 , 2018 , which was filed with the sec on march 11 , 2019. year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_11_th revenue total revenue total revenue for the year ended december 31 , 2019 was $ 70.7 million , compared to $ 53.2 million for the same period in 2018 , an increase of $ 17.5 million . the increase was primarily the result of rental revenue earned from the facilities we acquired during 2019 , as well as from the recognition of a full year of rental revenue in 2019 from acquisitions that were completed during 2018. additionally , rental revenue for the years ended december 31 , 2019 and 2018 included $ 5.2 million and $ 3.6 million , respectively , in revenue that was recognized from expense recoveries . expenses general and administrative general and administrative expenses for the year ended december 31 , 2019 were $ 6.5 million , compared to $ 5.5 million for the same period in 2018 , an increase of $ 1.0 million .
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the warrants are exercisable at an exercise price of $ 7.50 per share beginning 180 days after the effective date of the company 's registration statement and expiring on august 27 , 2019. the company classified this warrant as a liability since it did not meet the requirements to be included in equity . the fair value of the warrant will be re-measured at each reporting period and changes in fair value will be recognized in the statement of operations ( see note 3 , fair value measurements ) . voting the holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings . f-20 dividends the holders of shares of common stock are entitled to receive dividends , if and when declared by the board of directors . as of december 31 , 2014 , no dividends have been declared or paid on the company 's common stock since inception . reserved for future issuance the company has reserved for future issuance the following number of shares of common stock as of december 31 , 2014 and 2013 : replace_table_token_25_th convertible preferred stock dividends on may 28 , 2014 , the board of directors declared a dividend to be paid in-kind to the holders of the company 's preferred stock in accordance with the company 's fourth amended and restated certificate of incorporation , whereby each holder of shares of preferred stock will be entitled to a number of additional shares of the applicable series of preferred stock equal to the amount of the accrued and unpaid dividend on such holder 's shares ( the dividend ) . the company determined that 605,645 shares of series a preferred stock , 1,172,645 shares of series b preferred stock , 1,379,388 shares of series c preferred stock and 2,395 shares of series c-1 preferred stock would be required to satisfy the dividend . the company recorded the in-kind dividend payable and story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biotechnology company focused on discovering and developing therapeutic protein and antibody products for life-threatening , drug-resistant infectious diseases , particularly those treated in hospital settings . due to drug-resistant and newly emerging pathogens , hospital acquired infections are currently the fourth leading cause of death in the united states , following heart disease , cancer and stroke . we intend to address drug-resistant infections using our therapeutic product candidates from our lysin and monoclonal antibody platforms to target conserved regions of either bacteria or viruses . lysins are enzymes that are produced in the life cycle stage of a bacteriophage , a virus that infects and kills bacteria . lysins digest bacterial cell walls and are fundamentally different than antibiotics because they kill bacteria immediately upon contact . we believe the properties of our lysins make them suitable for the treatment of antibiotic-resistant organisms that can cause serious infections such as staph aureus bacteremia , pneumonia and osteomyelitis , and the treatment of biofilm-related indications for infected prosthetic joints , indwelling devices and catheters . in addition to our lysins , we are exploring therapies using mabs that block and disarm virulence factors of bacteria and viruses , rendering them vulnerable to the body 's natural immune response . our most advanced product candidates are cf-301 , a lysin for the treatment of staph aureus bacteremia , and cf-404 , a combination of mabs for the treatment of life-threatening seasonal and pandemic varieties of influenza . we have not generated any revenues and , to date , have funded our operations primarily through sales of our units , common stock and convertible preferred stock and issuances of convertible debt to our investors . during the two years ended december 31 , 2014 , we have received gross proceeds of $ 41.3 million from the sale of units in our ipo and and $ 15.0 million from the issuance of our convertible notes due 2015. in august 2014 , we completed our ipo , raising net proceeds of $ 35.0 million , net of underwriting discount , commissions and offering expenses . the units sold in the ipo were separated into freely traded common stock , class a warrants and class b warrants on september 12 , 2014. in connection with the ipo , our board of directors and stockholders approved a 1-for-7 reverse stock split of our common stock . the reverse stock split became effective on july 25 , 2014. all share and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to this reverse stock split , including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital . we have never been profitable and our net losses from operations were $ 30.1 million and $ 23.6 million for the years ended december 31 , 2014 and 2013 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . story_separator_special_tag this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our research and development activities ; clinical trial results ; the terms and timing of regulatory approvals ; our ability to market , commercialize and achieve market acceptance for our product candidates in the future ; and the expense , filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights . 59 a change in the outcome of any of these variables with respect to the development of cf-301 , cf-404 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of cf-301 , cf-404 or any such product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of cf-301 or if we experience significant delays in enrollment in any clinical trials of cf-301 , we could be required to expend significant additional financial resources and time on the completion of the clinical development of cf-301 . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including non-cash share-based compensation expense , in our executive , finance , legal , human resource and business development functions . other general and administrative expenses include facility costs , insurance expenses and professional fees for legal , consulting and accounting services . we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . interest expense interest expense consists primarily of cash and non-cash interest costs , including the accretion of the carrying value of our convertible notes due 2015 to face value and the estimated value of equity linked securities issued in conjunction with the issuance of these notes , related to our outstanding debt . we capitalize costs incurred in connection with the issuance of debt . we amortize these costs over the life of our debt agreements as interest expense in our statement of operations . upon the closing of our ipo , we accelerated the amortization of the remaining balances of debt issuance costs and debt discount to interest expense and recognized the cost of the beneficial conversion feature of our convertible notes due 2015 as an additional component of interest expense . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . 60 accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses are related to fees paid to cros in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period .
| results of operations comparison of years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 : replace_table_token_5_th research and development expenses research and development expense was $ 8.9 million for the year ended december 31 , 2014 , compared with $ 9.1 million for the year ended december 31 , 2013 , a decrease of $ 0.2 million . this decrease was primarily 62 attributable to a $ 0.9 million decrease in our research headcount and related salaries , benefits and laboratory support costs and a $ 0.6 million decrease in product development costs associated with our lead product , cf-301 , for which we obtained regulatory approval to initiate clinical trials in december 2014. this decrease was partially offset by a $ 0.8 million increase in external research and licensing expense as a result of the trellis license and a $ 0.5 million increase in our non-cash stock-based compensation expense as a result of the vesting of retention grants upon the closing of our ipo . general and administrative expenses general and administrative expense was $ 8.1 million for the year ended december 31 , 2014 , compared with $ 10.2 million for the year ended december 31 , 2013 , a decrease of $ 2.1 million . this decrease was primarily attributable to the $ 3.6 million in severance related charges for the termination of the former ceo in 2013. this decrease was partially offset by an increase of $ 1.3 million in legal expenses including the termination of the morphosys agreement and a $ 0.2 million increase in our insurance and investor relations costs related to being a public company .
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the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section of this report entitled “ selected consolidated financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations , and intentions . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by these forward-looking statements . overview penumbra is a global healthcare company focused on innovative therapies . we design , develop , manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need . our team focuses on developing , manufacturing and marketing medical devices for use by specialist physicians and healthcare providers to drive improved clinical outcomes . we believe that the cost-effectiveness of our products is attractive to our customers . since our founding in 2004 , we have invested heavily in our product development capabilities in our major markets : neuro and vascular . we have successfully developed , obtained regulatory clearance or approval for , and introduced products into the neurovascular market since 2007 , vascular market since 2013 and neurosurgical market since 2014. we continue to expand our portfolio of product offerings , while developing and iterating on our currently available products . we expect to continue to develop and build our portfolio of products , including our thrombectomy , embolization and access technologies . generally , when we introduce a next generation product or a new product designed to replace a current product , sales of the earlier generation product or the product replaced decline . our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products . we sell our products to hospitals primarily through our direct sales organization in the united states , most of europe , canada and australia , as well as through distributors in select international markets . in 2020 , 28.6 % of our revenue was generated from customers located outside of the united states . our sales outside of the united states are denominated principally in the euro and japanese yen , with some sales being denominated in other currencies . as a result , we have foreign exchange exposure , but do not currently engage in hedging . we generated revenue of $ 560.4 million , $ 547.4 million and $ 444.9 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . this represents an annual increase of 2.4 % and of 23.0 % , respectively . we generated operating losses of $ 38.9 million and $ 0.9 million for the years ended december 31 , 2020 and 2018 , respectively . the operating loss for the year ended december 31 , 2018 occurred as a result of the $ 30.8 million acquired in-process research and development ( “ ipr & d ” ) charge recorded in connection with the acquisition of a controlling interest in mvi which was accounted for as an asset acquisition in the third quarter of 2018. we generated operating income of $ 47.5 million for the year ended december 31 , 2019. covid-19 pandemic in march 2020 , the world health organization declared the outbreak of covid-19 as a pandemic , which has spread throughout the u.s. and the world . in response , governments have issued orders restricting certain activities , and while our business falls within the category of healthcare operations , which are essential businesses currently permitted to continue operating during the covid-19 pandemic , we have experienced , and expect to continue to experience , disruptions to our operations as a result of the pandemic . for example , hospital resources have been diverted to fight the pandemic , and many government agencies in conjunction with healthcare systems have recommended the deferral of elective and semi-elective medical procedures during the pandemic . some of penumbra 's medical devices are used in certain procedures that the united states centers for medicare & medicaid services has indicated are “ high-acuity ” procedures that should not be postponed during the pandemic in its march 18 , 2020 recommendations , while other penumbra devices are used in elective procedures that physicians may consider postponing . many of the procedures in which our vascular products are used are elective in nature , whereas procedures in which our neuro products are used , such as stroke , tend to be more emergent in nature . the impact of covid-19 on our business remains fluid , and we continue to actively monitor the dynamic situation . we will continue to undertake the following specific actions and strategic priorities to navigate the pandemic : we have made changes to how we manufacture , inspect and ship our products to prioritize the health and safety of our employees and to operate under the protocols mandated by our local and state governments . while we are committed to 54 continue meeting demand for our essential devices , we have implemented social distancing and other measures to protect the health and safety of our employees , which have reduced , and may continue to reduce , our manufacturing capacity . story_separator_special_tag the specialist physicians who use our products may not perform procedures during certain times of the year , such as those periods when they are at major medical conferences or are away from their practices for other reasons , the timing of which occurs irregularly during the year and from year to year . most of our sales outside of the united states are denominated in the local currency of the country in which we sell our products . as a result , our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates . the availability and levels of reimbursement within the relevant healthcare payment system for healthcare providers for procedures in which our products are used . in addition , we have experienced and expect to continue to experience meaningful variability in our quarterly revenue , gross profit and gross margin percentage as a result of a number of factors , including , but not limited to : the impact of covid-19 , the number of available selling days , which can be impacted by holidays ; the mix of products sold ; the geographic mix of where products are sold ; the demand for our products and the products of our competitors ; the timing of or failure to obtain regulatory approvals or clearances for products ; increased competition ; the timing of customer orders ; inventory write-offs due to obsolescence ; costs , benefits and timing of new product introductions ; costs , benefits and timing of the acquisition and integration of businesses and product lines we may acquire ; the availability and cost of components and raw materials ; and fluctuations in foreign currency exchange rates . we may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth . additionally , we may experience quarters in which operating expenses , in particular research and development expenses , fluctuate depending on the stage and timing of product development . critical accounting policies and use of estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements requires management to make estimates , assumptions and judgments 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 applicable periods . management bases its estimates , assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances . different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements , which , in turn , could materially change our results from those reported . management evaluates its estimates , assumptions and judgments on an ongoing basis . historically , our critical accounting estimates have not differed materially from actual results . however , if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our consolidated statements of operations , liquidity and financial condition . we believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements . leases the company adopted the guidance under asc 842 on january 1 , 2019 using the modified retrospective transition approach . there was no cumulative-effect adjustment recorded to retained earnings upon adoption . under asc 842 , the company determines if an arrangement is a lease at inception . in addition , the company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering : ( 1 ) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term , ( 2 ) whether the lease contains a bargain purchase option , ( 3 ) whether the lease term is for a major part of the remaining economic life of the underlying asset , ( 4 ) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset , and ( 5 ) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term . as of december 31 , 2020 , the company 's lease population consisted of operating and finance real estate , equipment and vehicle leases . as of the date of adoption of asc 842 the company did not have material finance leases . operating leases are included in operating lease right-of-use assets , current operating lease liabilities , and non-current operating lease liabilities in our consolidated balance sheet . finance leases are included in finance lease right-of-use assets , current finance lease liabilities , and non-current finance lease liabilities in our consolidated balance sheet . rou assets represent the company 's right to use an underlying asset for the lease term and lease liabilities represent the company 's obligation to 56 make lease payments arising from the lease . lease rou assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term . in determining the present value of lease payments , the company uses its incremental borrowing rate which requires management 's judgement as the rate implicit in the lease is generally not readily determinable . the determination of the company 's incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as the company currently does not carry any debt . the lease rou assets also include adjustments for prepayments , accrued lease payments and exclude lease incentives .
| results of operations the following table sets forth the components of our consolidated statements of operations in dollars and as a percentage of revenue for the periods presented : replace_table_token_3_th 60 year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue replace_table_token_4_th revenue increased $ 13.0 million , or 2.4 % , to $ 560.4 million in 2020 , from $ 547.4 million in 2019. the increase in overall revenue was primarily due to an increase in sales of new and existing products within our vascular business , partially offset by a decrease in sales within our neuro business . revenue from our vascular products increased $ 52.1 million , or 24.1 % , to $ 267.8 million in 2020 , from $ 215.7 million in 2019. this increase was driven by sales of our vascular thrombectomy products and peripheral embolization products , which globally increased by 38.6 % and 9.3 % , respectively , in the year ended december 31 , 2020. this increase was primarily due to high sales volume as a result of sales of new products and further market penetration of our existing products . prices for our vascular products remained substantially unchanged during the period .
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all unvested options outstanding under the company 's option plans have grant prices equal to the market price of the company 's stock on the dates of grant . compensation cost for restricted stock and restricted stock units is determined based on the fair market value of story_separator_special_tag introduction the following discussion and analysis is provided to increase the understanding of , and should be read in conjunction with , the consolidated financial statements and accompanying notes . for purposes of reviewing this document , `` segment profit '' is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding : corporate general and administrative expense ; interest expense ; interest income ; domestic and foreign income taxes ; other non-operating income and expense items ; and loss from discontinued operations . for a reconciliation of total segment profit to earnings from continuing operations before taxes , see `` 16. operations by business segment and geographical area '' in the notes to consolidated financial statements . story_separator_special_tag in december 2015 , the company signed an agreement with u.k.-based private equity firm arle capital partners to acquire 100 percent of stork holding b.v. ( `` stork '' ) , based in the netherlands , for 695 million ( or approximately $ 755 million ) , including the assumption of debt and other liabilities . stork is a global provider of maintenance , modification and asset integrity services associated with large existing industrial facilities in the oil and gas , chemicals , petrochemicals , industrial and power markets . the acquisition is expected to close in the first half of 2016 and is subject to regulatory approvals and consultation procedures . the company intends to use existing sources of liquidity , including existing lines of credit to initially finance the transaction and expects to secure long-term financing through the issuance of debt in international markets . consolidated new awards for 2015 were $ 21.8 billion compared to $ 28.8 billion in 2014 and $ 25.1 billion in 2013. the oil & gas and power segments were the major contributors to the new award activity during 2015. the major contributors of new award activity during 2014 were the oil & gas and government segments . the oil & gas and industrial & infrastructure segments were the significant drivers of new award activity during 2013. approximately 48 percent of consolidated new awards for 2015 were for projects located outside of the united states compared to 71 percent for 2014. consolidated backlog was $ 44.7 billion as of december 31 , 2015 , $ 42.5 billion as of december 31 , 2014 , and $ 34.9 billion as of december 31 , 2013. the higher backlog at the end of 2015 was primarily due to significant new awards in the power segment , partially offset by declines in backlog in the mining and metals business line of the industrial & infrastructure segment and the government segment . backlog was negatively impacted by approximately $ 3.0 billion in 2015 due to a strengthening u.s. dollar compared to most major foreign currencies . the higher backlog at the end of 2014 was primarily due to significant new awards in the oil & gas and government segments , partially offset by a decline in backlog in the mining and metals business line of the industrial & infrastructure segment . as of december 31 , 2015 , approximately 59 percent of consolidated backlog related to projects located outside of the united states compared to 66 percent as of december 31 , 2014 . 36 for a more detailed discussion of operating performance of each business segment , corporate general and administrative expense and other items , see `` segment operations '' and `` corporate , tax and other matters '' below . non-gaap financial measures `` results of operations '' contains a discussion of diluted earnings per share from continuing operations , excluding certain expenses relating to the settlement of the u.s. defined benefit pension plan , that would be deemed a non-gaap financial measure . the company believes the exclusion of this unusual item allows investors to evaluate the company 's ongoing earnings and make meaningful period-over-period comparisons . discussion of critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's significant accounting policies are described in the notes to consolidated financial statements . the preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . estimates are based on information available through the date of the issuance of the financial statements and , accordingly , actual results in future periods could differ from these estimates . significant judgments and estimates used in the preparation of the consolidated financial statements apply to the following critical accounting policies : engineering and construction contracts contract revenue is recognized on the percentage-of-completion method based on contract cost incurred to date compared to total estimated contract cost . contracts are generally segmented between types of services , such as engineering and construction , and accordingly , gross margin related to each activity is recognized as those separate services are rendered . the percentage-of-completion method of revenue recognition requires the company to prepare estimates of cost to complete for contracts in progress . in making such estimates , judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials , labor cost and productivity , the impact of change orders , liability claims , contract disputes and achievement of contractual performance standards . changes in total estimated contract cost and losses , if any , are recognized in the period they are determined . pre-contract costs are expensed as incurred . story_separator_special_tag for partnerships and joint ventures in the construction industry , unless full consolidation is required , the company generally recognizes its proportionate share of revenue , cost and profit in its consolidated statement of earnings and uses the one-line equity method of accounting in the consolidated balance sheet , which is a common application of asc 810-10-45-14 in the construction industry . the most significant application of the proportionate consolidation method is in the oil & gas , industrial & infrastructure and government segments . the cost and equity methods of accounting are also used , depending on the company 's respective ownership interest and amount of influence on the entity , as well as other factors . at times , the company also executes projects through collaborative arrangements for which the company recognizes its relative share of revenue and cost . deferred taxes and uncertain tax positions deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns . as of december 31 , 2015 , the company had deferred tax assets of $ 751 million 38 which were partially offset by a valuation allowance of $ 167 million and further reduced by deferred tax liabilities of $ 189 million . the valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized . the allowance for 2015 primarily relates to the deferred tax assets on certain net operating loss carryforwards for u.s. and non-u.s. subsidiaries . the company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are the company 's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company 's effective tax rate on future earnings . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met . previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met . the company recognizes potential interest and penalties related to unrecognized tax benefits within its global operations in income tax expense . retirement benefits the company accounts for its defined benefit pension plans in accordance with asc 715-30 , `` defined benefit plans pension . '' as required by asc 715-30 , the unfunded or overfunded projected benefit obligation is recognized in the company 's financial statements . assumptions concerning discount rates , long-term rates of return on plan assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period . the company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . assuming no changes in current assumptions , the company expects to contribute up to $ 15 million to its international plans in 2016 , which is expected to be in excess of the minimum funding required . if the discount rates were reduced by 25 basis points , plan liabilities would increase by approximately $ 48 million . segment operations the company provides professional services in the fields of engineering , procurement , construction , fabrication and modularization , commissioning and maintenance , as well as project management services , on a global basis and serves a diverse set of industries worldwide . the five principal business segments are : oil & gas , industrial & infrastructure , government , global services and power . for more information on the business segments see `` item 1 . business '' above . oil & gas revenue and segment profit for the oil & gas segment are summarized as follows : replace_table_token_7_th revenue in 2015 decreased by 13 percent compared to 2014 , primarily due to reduced volume of project execution activities for certain large upstream projects that were completed or nearing completion , including a coal bed methane project in australia and two oil sands facilities in canada . this revenue decline was partially offset by an increase in project execution activities for numerous petrochemical projects on the gulf coast of the united states and downstream projects across various regions . revenue in 2014 was essentially level with 2013 due to an increase in project execution activities for several 39 petrochemical projects on the gulf coast of the united states offset by a reduction in project execution activities for certain large projects that were completed or progressing to completion during 2014. segment profit in 2015 increased 14 percent compared to 2014 , primarily due to higher contributions associated with the increase in project execution activities for numerous downstream projects across various regions , which more than offset the reduced contributions from the upstream projects that were completed or nearing completion . segment profit in 2014 increased 50 percent compared to 2013 primarily due to higher project execution activities related to several petrochemical projects on the gulf coast of the united states and various international projects in the upstream market . segment profit margin was 7.6 percent in 2015 , compared to 5.8 percent in 2014 and 3.8 percent in 2013. the current year improvement was largely attributable to the continued shift in the mix of work from lower margin construction activities to higher margin engineering activities and positive contributions from the upstream projects that were completed or nearing completion .
| results of operations consolidated revenue for 2015 was $ 18.1 billion compared to $ 21.5 billion for 2014. this decrease was principally due to a significant decline in project execution activities in the mining and metals and infrastructure business lines of the industrial & infrastructure segment and lower revenue from project execution activities for certain large upstream projects progressing to completion in the oil & gas segment . consolidated revenue for 2014 was $ 21.5 billion compared to $ 27.4 billion for 2013. this decrease was primarily due to reduced volume in the mining and metals business line of the industrial & infrastructure segment . 34 earnings from continuing operations before taxes for 2015 decreased 40 percent to $ 727 million from $ 1.2 billion in 2014 primarily due to a pre-tax pension settlement charge of $ 240 million ( discussed below ) . the decrease in earnings from continuing operations before taxes in 2015 also reflected reduced contributions from the mining and metals and infrastructure business lines of the industrial & infrastructure segment , as well as the power and global services segments . these declines were partially offset by higher contributions from the oil & gas segment and a $ 68 million pre-tax gain related to the sale of 50 percent of the company 's ownership interest in its principal operating subsidiary in spain to facilitate the formation of an oil & gas joint venture . earnings from continuing operations before taxes for 2014 of $ 1.2 billion were up modestly compared to 2013. improved contributions from the oil & gas segment during 2014 were offset by lower earnings in the industrial & infrastructure , government and global services segments . improvements in the oil & gas segment were primarily due to higher project execution activities on several petrochemical projects on the gulf coast of the united states and various international projects in the upstream market .
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a valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets , including net operating losses and tax credits , will not be realized . we periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings experience by taxing jurisdiction , story_separator_special_tag some of the statements under in this “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements . these statements are based on our current expectations , assumptions , estimates and projections about our business and our industry and involve known and unknown risks , uncertainties and other factors that may cause our company 's or our industry 's results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied in , or contemplated by , the forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed in “ item 1a . risk factors ” as well as those discussed elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this report . we have adopted a 52- or 53-week fiscal year policy that ends on the friday closest to december 31st . fiscal year 2020 , which was a 52-week fiscal year , ended on january 1 , 2021 , fiscal year 2019 , which was a 53-week fiscal year , ended on january 3 , 2020 , and fiscal year 2018 , which was a 52-week fiscal year , ended on december 28 , 2018. for convenience , references in this report as of and for the fiscal years ended january 1 , 2021 , january 3 , 2020 and december 28 , 2018 are indicated as being as of and for the years ended december 31 , 2020 , 2019 and 2018 , respectively . this discussion and analysis generally addresses 2020 and 2019 items and year-over-year comparisons between 2020 and 2019. discussions of 2018 items and year-over-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in “ 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 , filed with the sec on february 25 , 2020. overview we are an oncology-focused biotechnology company that strives to accelerate the discovery , development and commercialization of new medicines for difficult-to-treat cancers . since we were founded in 1994 , four products resulting from our discovery efforts have progressed through clinical development , received regulatory approval and established a commercial presence in various geographies around the world . two are derived from cabozantinib , our flagship molecule , an inhibitor of multiple tyrosine kinases including met , axl , vegf receptors and ret . our cabozantinib products are : cabometyx tablets approved for advanced rcc , both alone and in combination with opdivo , and for previously treated hcc ; and cometriq capsules approved for progressive , metastatic mtc . for these types of cancer , cabozantinib has become or is becoming a standard of care . the other two products resulting from our discovery efforts are : cotellic , an inhibitor of mek , approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with genentech ; and minnebro , an oral , non-steroidal , selective blocker of the mr , approved for the treatment of hypertension in japan and licensed to daiichi sankyo . the fda first approved cabometyx for previously treated patients with advanced rcc in april 2016 , and in december 2017 the fda expanded cabometyx 's approval to include previously untreated patients with advanced rcc . additionally , in january 2019 , the fda approved cabometyx for the treatment of patients with hcc who have been previously treated with sorafenib . most recently on january 22 , 2021 , the fda approved cabometyx in combination with opdivo as a first-line treatment of patients with advanced rcc . to develop and commercialize cabometyx and cometriq outside the u.s. , we have entered into license agreements with ipsen and takeda . we granted to ipsen the rights to develop and commercialize cabozantinib outside of the u.s. and japan , and to takeda the rights to develop and commercialize cabozantinib in japan . both ipsen and takeda also contribute financially and operationally to the further global development and commercialization of the cabozantinib franchise in other potential indications , and we continue to work closely with them on these activities . utilizing its regulatory expertise and established international oncology marketing network , ipsen has continued to execute on its commercialization plans for cabometyx , having received regulatory approvals and launched in multiple territories outside of the u.s. , including in the eu and canada , as a treatment for advanced rcc and for hcc in adults who have previously been treated with sorafenib . in addition , in september 2020 , ipsen and bms submitted type ii variation applications to the ema to approve the combination of cabometyx and opdivo as a treatment for advanced rcc , with the ema validating the type ii variations and beginning its centralized review process , and both ipsen and bms plan to submit applications to approve the combination in other territories beyond the eu . story_separator_special_tag 64 we remain committed to expanding our oncology product pipeline through drug discovery efforts , which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action . our small molecule discovery programs are supported by a robust and expanding infrastructure , including a library of 4.6 million compounds . we have extensive experience in the identification and optimization of drug candidates against multiple target classes for oncology , inflammation and metabolic diseases . we also augment our small molecule discovery activities through research collaborations and in-licensing arrangements with other companies engaged in small molecule discovery , including stemsynergy and aurigene . for additional information on these research collaborations and in-licensing arrangements related to our small molecule programs , see “ business—collaborations—research collaborations and in-licensing arrangements ” in part i , item 1 of this annual report on form 10-k. the first compound to advance from our recent internal drug discovery efforts is xl092 , a next-generation oral tki that is currently in a phase 1 clinical trial in patients with advanced solid malignancies for which dose-escalation cohorts evaluating the compound , both as a single agent and in combination with atezolizumab , are currently enrolling . we presented data that support the ongoing clinical development of xl092 at the 32 nd eortc-nci-aacr ( ena ) symposium in october 2020 , and we expect that once recommended doses of both single-agent xl092 and xl092 in combination with atezolizumab are established , the trial will begin to enroll expansion cohorts for patients with clear cell and non-clear cell rcc , hormone-receptor positive breast cancer and mcrpc . we also submitted an ind in november 2020 for xl102 , the lead aurigene program targeting cdk7 , and initiated a phase 1 clinical trial in january 2021. we are also focusing our drug discovery activities on discovering and advancing various biologics , such as bispecific antibodies , adcs and other innovative biologics that have the potential to become anti-cancer therapies . we believe that biotherapeutics of these classes have the potential to be significant cancer therapies , as evidenced , for example , by the multiple regulatory approvals for the commercial sale of adcs in the past year . to facilitate the growth of our biologics programs , we have established multiple research collaborations and in-licensing arrangements that provide us with access to antibodies or other binders , which are the starting point for use with additional technology platforms that we employ to generate next-generation adcs or bispecific antibodies . our current research collaborations and in-licensing arrangements for biologics programs include invenra , iconic , nbe , catalent and adagene . we have already made significant progress under these research collaborations and in-licensing arrangements and believe we will continue to do so in 2021. for example , xb002 , the lead tissue factor adc program with iconic , has continued to progress through preclinical development , and we plan to submit an ind once the drug product release assays are finalized . for additional information on these research collaborations and in-licensing arrangements related to our biologics programs , see “ business—collaborations—research collaborations and in-licensing arrangements ” in part i , item 1 of this annual report on form 10-k. we will continue to engage in business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure . in total , we are advancing drug candidates across approximately 20 ongoing discovery programs toward and through preclinical development , and subject to preclinical data , we have the potential to submit multiple inds in 2021. covid-19 update as of the date of this annual report , the covid-19 pandemic continues to have a modest impact on our business operations , in particular on our clinical trial , drug discovery and commercial activities . we have and continue to undertake considerable efforts to mitigate the various problems presented by this crisis , including as described below : clinical trials . to varying degrees and at different rates across our clinical trials being conducted in regions impacted by covid-19 , we have experienced declines in screening and enrollment activity , delays in new site activations , and restrictions on the access to treatment sites that is necessary to monitor clinical study progress and administration . however , beginning with the second quarter of 2020 and throughout the rest of 2020 , we experienced an increase in screening and enrollment activity , and overall , we and our collaboration partners , including principal investigators and personnel at clinical trial sites , have been successful in preventing material delays to our ongoing and planned clinical trials . we have done this through ongoing assessment of the covid-19 pandemic 's impact and , wherever possible , taking proactive steps in compliance with guidance issued by the fda , ema and other regulatory agencies to support the safety of our patients and their access to treatment , as well as to maintain the high quality of our clinical trials . we recognize , however , that we may have to make further operational adjustments to our ongoing and planned clinical trials and that patient enrollment , and new clinical trial site initiations may be further slowed due to the covid-19 pandemic , especially if it is further prolonged or grows in severity . 65 drug discovery and preclinical development . we have partially resumed internal drug discovery in our laboratories following a temporary suspension of these activities while we observed the shelter in place orders issued by the state of california and alameda county . while this temporary suspension did not result in any significant changes to the timelines for our late-stage discovery work , we did experience modest delays in the advancement of certain of our early-stage programs . we also experienced some modest delays with respect to the portion of drug discovery work outsourced to third-party contractors in regions first impacted by covid-19 .
| results of operations we have adopted a 52- or 53-week fiscal year policy that ends on the friday closest to december 31st . fiscal year 2020 , which was a 52-week fiscal year , ended on january 1 , 2021 , fiscal year 2019 , which was a 53-week fiscal year , ended on january 3 , 2020 , and fiscal year 2018 , which was a 52-week fiscal year , ended on december 28 , 2018. for convenience , references in this report as of and for the fiscal years ended january 1 , 2021 , january 3 , 2020 and december 28 , 2018 are indicated as being as of and for the years ended december 31 , 2020 , 2019 and 2018 , respectively . this discussion and analysis generally addresses 2020 and 2019 items and year-over-year comparisons between 2020 and 2019. discussions of 2018 items and year-over-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in “ 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 , filed with the sec on february 25 , 2020. revenues revenues by category were as follows ( dollars in thousands ) : replace_table_token_6_th net product revenues gross product revenues , discounts and allowances , and net product revenues were as follows ( dollars in thousands ) : replace_table_token_7_th net product revenues by product were as follows ( dollars in thousands ) : replace_table_token_8_th the decrease in net product revenues for cabometyx for the year ended december 31 , 2020 , as compared to 2019 , was primarily due to a decrease in sales volume and an increase in discounts and allowances , partially offset by an increase in the average selling price .
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replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception ( “ asu 2017-11 ” ) . part i applies to entities that issue financial instruments such as warrants , convertible debt or convertible preferred stock that contain down-round features . part ii replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within asc topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments . as the company has elected to use the extended transition period for complying with new or revised accounting standards as available under the jobs act , the standard is effective for the company beginning january 1 , 2021 , with early adoption permitted . the company is currently story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed in part i , item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. see “ special note regarding forward-looking statements. ” overview we are a clinical stage biopharmaceutical company focused on discovering , developing and commercializing antiviral therapeutics to improve the lives of patients suffering from life threatening viral infections . our current focus is on the development of product candidates to treat covid-19 , dengue , chronic hepatitis c infection ( “ hcv ” ) , and respiratory syncytial virus ( “ rsv ” ) . leveraging our deep understanding of antiviral drug development , nucleos ( t ) ide chemistry , biochemistry and virology , we have built a proprietary purine nucleotide prodrug platform to develop novel treatments for life threatening diseases caused by single stranded ribonucleic acid ( “ ssrna ” ) viral infections . in october 2020 , we entered into a license agreement ( the “ roche license agreement ” ) with f. hoffmann-laroche ltd. and genentech , inc. ( together , “ roche ” ) under which we granted an exclusive license for certain development and commercialization rights related to at-527 outside of the united states ( other than for certain hcv uses ) to roche . pursuant to the roche license agreement , we will rely on roche to manufacture the commercial supply of at-527 for the treatment of covid-19 . as part of the consideration , roche agreed to pay us an upfront payment of $ 350.0 million which was received in november 2020. on november 3 , 2020 , we completed the initial public offering of our common stock ( the “ ipo ” ) . in connection with the ipo , we issued 14,375,000 shares of common stock at $ 24.00 per share for net proceeds of $ 317.6 million after deducting underwriting discounts and commissions and offering expenses . upon closing of the ipo , all then-outstanding shares of our former convertible preferred stock converted into 57,932,090 shares of common stock . 108 at-527 for the t reatment of covid-19 our product candidate for the treatment of patients with covid-19 is at-527 , an orally administered , novel antiviral agent . we , together with our collaborator roche , anticipate initiating a phase 3 clinical trial to study at-527 in adult patients with mild or moderate covid-19 in the outpatient setting ( morningsky ) in the second quarter of 2021. currently , we are evaluating at-527 for the treatment of patients with mild or moderate covid-19 in two phase 2 clinical trials . the first trial is a randomized , double-blind , placebo-controlled phase 2 clinical trial in approximately 190 adult patients with moderate covid-19 and one or more risk factors for poor outcomes in a hospitalized setting . we dosed our first patient in september 2020 and expect to report interim virology data from this clinical trial in the second quarter of 2021. the second trial , which is being conducted in collaboration with roche , is a randomized , double-blind , placebo-controlled phase 2 clinical trial in up to 220 adult patients with mild or moderate covid-19 in an outpatient setting ( moonsong ) . the first patient in this trial was dosed in february 2021. we expect to report interim virology data from this trial in the second quarter of 2021. in addition , several phase 1 clinical trials in healthy volunteers are planned in addition to the one currently being conducted and the one recently completed for which positive results have been announced . at-752 for the treatment of dengue we are developing at-752 , an oral , purine nucleoside prodrug product candidate for the treatment of dengue . at-752 has shown potent activity against all serotypes tested in preclinical studies . we have initiated a randomized , double-blind , placebo-controlled phase 1a trial to evaluate the safety and pharmacokinetics ( “ pk ” ) of several different dosages of at-752 in 50-60 healthy adult subjects . following the completion of the phase 1a trial , we expect to initiate in the second half of 2021 a phase 1b trial of at-752 in 60-80 adult subjects with dengue virus infection to evaluate antiviral activity , safety and pk . as part of the roche license agreement , we agreed that we would not commercialize at-752 outside the united states unless we enter into a separate agreement with roche to do so . at-787 for the treatment of hepatitis c hcv is a blood-borne , positive sense , ssrna virus , primarily infecting cells of the liver . story_separator_special_tag these expenses include fees paid to third parties to conduct certain research and development activities on our behalf , consulting costs , certain payroll and personnel-related expenses , including salaries and bonuses , employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead , including rent , equipment , depreciation , information technology costs and utilities attributable to research and development personnel . we expense both internal and external research and development expenses as they are incurred . in circumstances where amounts have been paid in advance or in excess of costs incurred , we record a prepaid expense , which is expensed as services are performed or goods are delivered . a significant portion of our research and development costs have been external costs , which we track by therapeutic area . our internal research and development costs are primarily personnel-related costs , facility costs , including depreciation and lab consumables . we have not historically tracked our internal research and development expenses by therapeutic area as they are deployed across multiple programs . the following table summarizes our external research and development expenses by indication and internal research and development expenses : replace_table_token_5_th we are focusing substantially all of our resources on the development of our product candidates , particularly at-527 . we expect our research and development expenses to increase substantially for at least the next few years , as we seek to initiate additional clinical trials for our product candidates , complete our clinical programs , pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates . predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors , including factors outside of our control . for example , if the u.s. food and drug administration ( “ fda ” ) or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , we could be required to expend significant additional financial resources and time on the completion of clinical development . furthermore , we are unable to predict when or if our product candidates will receive regulatory approval with any certainty . general and administrative expenses general and administrative expenses consist principally of payroll and personnel expenses , including salaries and bonuses , benefits and stock-based compensation expenses , professional fees for legal , consulting , accounting and tax services , allocated overhead , including rent , equipment , depreciation , information technology costs and utilities , and other general operating expenses not otherwise classified as research and development expenses . we anticipate that our general and administrative expenses will increase as a result of increased personnel costs , expanded infrastructure and higher consulting , legal and accounting services costs associated with complying with nasdaq and sec requirements , investor relations costs and director and officer insurance premiums associated with being a public company . 111 interest income and other , net interest income and other , net , consists primarily of interest income earned on our cash and cash equivalents . story_separator_special_tag product revenue . we do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when , or if , this will occur . we expect to continue to incur increased expenditures for the foreseeable future , and we expect our expenses to increase as we continue the development of , and seek regulatory approvals for , our product candidates and begin to commercialize any approved products . we are subject to all of the risks typically related to the development of new product candidates , and we may encounter unforeseen expenses , difficulties , complications , delays and other unknown factors that may adversely affect our business . moreover , we expect to incur additional general and administrative costs as we continue to operate as a public company . 113 we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future . we may seek to raise capital through public or private equity or debt financings , collaborative or other arrangements with corporate sources , or through other sources of financing . we anticipate that we may need to raise substantial additional capital , the requirements for which will depend on many factors , including : the scope , timing , rate of progress and costs of our drug discovery efforts , preclinical development activities , laboratory testing and clinical trials for our product candidates ; the number and scope of clinical programs we decide to pursue ; the cost , timing and outcome of preparing for and undergoing regulatory review of our product candidates ; the scope and costs of development and commercial manufacturing activities ; the cost and timing associated with commercializing our product candidates , if they receive marketing approval ; the extent to which we acquire or in-license other product candidates and technologies ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; our ability to maintain the collaboration with roche and to establish and maintain other collaborations on favorable terms , if at all ; our efforts to enhance operational systems and our ability to attract , hire and retain qualified personnel , including personnel to support the development of our product candidates and , ultimately , the sale of our products , following regulatory approval ; our implementation of operational , financial and management systems ; and the costs associated with being a public company . a change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the periods indicated : replace_table_token_6_th revenue collaboration revenue for the year ended december 31 , 2020 was derived from the roche license agreement that was executed in october 2020. see note 3 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for a description of the accounting treatment of the roche license agreement . research and development expenses research and development expenses increased by $ 27.8 million from $ 10.2 million for the year ended december 31 , 2019 to $ 38.0 million for the year ended december 31 , 2020. the increase in research and development expenses was primarily due to a $ 20.2 million increase in external expenses incurred related to cro and cmo services in connection with the advancement of product candidates for the treatment of covid-19 and dengue , partially offset by a decrease in external spend related to our hcv and rsv programs and an increase of $ 6.5 million in internal spend primarily due to an increase in personnel-related expenses , including salaries and bonuses , benefits and stock-based compensation expense of $ 3.3 million for our research and product development employees and consulting fees , and $ 1.1 million in other research and development expenses . research and development expenses include a reduction of $ 7.9 million representing roche 's share of certain expenses incurred that are subject to asc 808 as discussed in note 3 to our audited consolidated financial statements . the company also recorded research and development expense of $ 2.1 million relating to its share of costs incurred by roche .
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to the extent that exchange rates move unfavorably for our suppliers , they may seek to pass these additional costs on to us , which could have a material impact on our future average selling prices and unit costs . gross profit and gross profit margin may fluctuate over time based on the factors described above . operating expenses we classify our operating expenses into two categories : research and development and general and administrative . research and development . research and development expense consists primarily of personnel related costs , prototype and sample costs , design costs and global product certifications mostly for wireless certifications . 19 general and administrative . general and administrative expense consists of personnel related costs , which include salaries , as well as the costs of professional services , such as accounting and legal , facilities , information technology , depreciation and amortization and other administrative expenses . we expect our general and administrative expense to increase in absolute dollars following the completion of our initial public offering due to the anticipated growth of our business and related infrastructure as well as accounting , insurance , investor relations and other costs associated with becoming a public company . general and administrative expense may fluctuate as a percentage of revenue , notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue . other income ( expense ) , net other income ( expense ) , net consists of interest expense associated with our debt financing arrangements and interest income earned on our cash . we do not utilize derivatives to hedge our foreign exchange risk , as we believe the risk to be immaterial to our results of operations . income tax expense we are subject to income taxes in the united states and mexico in which we do business . mexico has a statutory tax rate different from those in the united states . additionally , certain of our international earnings are also taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to u.s. income , the absorption of foreign tax credits , changes in the valuation of our deferred tax assets and liabilities and changes in tax laws . we regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the u.s. internal revenue service , or irs , and other tax authorities to determine the adequacy of our income tax reserves and expense . should actual events or results differ from our current expectations , charges or credits to our income tax expense may become necessary . any such adjustments could have a significant impact on our results of operations . operating results – boxlight corporation ( retrospectively adjusted for the acquisitions of mimio and genesis ) for the years ended december 31 , 2017 and 2016 revenues . total revenues for the year ended december 31 , 2017 were $ 25,743,612 as compared to $ 20,371,826 for the year ended december 31 , 2016. revenues consist of product revenue , software revenue , installation and professional development . for the year ended december 31 , 2016 , boxlight group 's operating results were only included in the balances from their acquisition date on july 18 , 2016 through december 31 , 2016. accordingly , the increase in revenues in 2017 is primarily attributable to the inclusion of boxlight group 's revenues for a full year in 2017. cost of revenues . cost of revenues for the year ended december 31 , 2017 was $ 19,329,831 as compared to $ 12,959,749 for the year ended december 31 , 2016. cost of revenues consists primarily of product cost , freight expenses and inventory write-downs . cost of revenues increased due to the increase in revenues . another factor resulting in an increase in cost of revenues was the company sold product in some instances at a lower margin in exchange for improved payment terms . freight expenses as a component of cost of revenues increased approximately $ 1.7 million in 2017 due to alternative freight arrangements . prior to the completion of our ipo , we had restrictive credit terms with existing freight vendors due to cash restrictions . these costs are expected to be significantly reduced in 2018. gross profit . gross profit for the year ended december 31 , 2017 was $ 6,413,781 as compared to $ 7,412,077 for the year ended december 31 , 2016 due to the sale of some products at lower margins to increase cash flow and increased freight costs in the amount of approximately $ 1.7 million . story_separator_special_tag operating leases . we lease all of our office facilities . we expect to make future payments on existing leases from cash generated from operations . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles accepted in the united states . in connection with the preparation of our financial statements , we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets , liabilities , revenue , expenses and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . 22 our significant accounting policies are discussed in notes of the consolidated financial statements . we believe that the following story_separator_special_tag to the extent that exchange rates move unfavorably for our suppliers , they may seek to pass these additional costs on to us , which could have a material impact on our future average selling prices and unit costs . gross profit and gross profit margin may fluctuate over time based on the factors described above . operating expenses we classify our operating expenses into two categories : research and development and general and administrative . research and development . research and development expense consists primarily of personnel related costs , prototype and sample costs , design costs and global product certifications mostly for wireless certifications . 19 general and administrative . general and administrative expense consists of personnel related costs , which include salaries , as well as the costs of professional services , such as accounting and legal , facilities , information technology , depreciation and amortization and other administrative expenses . we expect our general and administrative expense to increase in absolute dollars following the completion of our initial public offering due to the anticipated growth of our business and related infrastructure as well as accounting , insurance , investor relations and other costs associated with becoming a public company . general and administrative expense may fluctuate as a percentage of revenue , notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue . other income ( expense ) , net other income ( expense ) , net consists of interest expense associated with our debt financing arrangements and interest income earned on our cash . we do not utilize derivatives to hedge our foreign exchange risk , as we believe the risk to be immaterial to our results of operations . income tax expense we are subject to income taxes in the united states and mexico in which we do business . mexico has a statutory tax rate different from those in the united states . additionally , certain of our international earnings are also taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to u.s. income , the absorption of foreign tax credits , changes in the valuation of our deferred tax assets and liabilities and changes in tax laws . we regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the u.s. internal revenue service , or irs , and other tax authorities to determine the adequacy of our income tax reserves and expense . should actual events or results differ from our current expectations , charges or credits to our income tax expense may become necessary . any such adjustments could have a significant impact on our results of operations . operating results – boxlight corporation ( retrospectively adjusted for the acquisitions of mimio and genesis ) for the years ended december 31 , 2017 and 2016 revenues . total revenues for the year ended december 31 , 2017 were $ 25,743,612 as compared to $ 20,371,826 for the year ended december 31 , 2016. revenues consist of product revenue , software revenue , installation and professional development . for the year ended december 31 , 2016 , boxlight group 's operating results were only included in the balances from their acquisition date on july 18 , 2016 through december 31 , 2016. accordingly , the increase in revenues in 2017 is primarily attributable to the inclusion of boxlight group 's revenues for a full year in 2017. cost of revenues . cost of revenues for the year ended december 31 , 2017 was $ 19,329,831 as compared to $ 12,959,749 for the year ended december 31 , 2016. cost of revenues consists primarily of product cost , freight expenses and inventory write-downs . cost of revenues increased due to the increase in revenues . another factor resulting in an increase in cost of revenues was the company sold product in some instances at a lower margin in exchange for improved payment terms . freight expenses as a component of cost of revenues increased approximately $ 1.7 million in 2017 due to alternative freight arrangements . prior to the completion of our ipo , we had restrictive credit terms with existing freight vendors due to cash restrictions . these costs are expected to be significantly reduced in 2018. gross profit . gross profit for the year ended december 31 , 2017 was $ 6,413,781 as compared to $ 7,412,077 for the year ended december 31 , 2016 due to the sale of some products at lower margins to increase cash flow and increased freight costs in the amount of approximately $ 1.7 million . story_separator_special_tag operating leases . we lease all of our office facilities . we expect to make future payments on existing leases from cash generated from operations . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles accepted in the united states . in connection with the preparation of our financial statements , we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets , liabilities , revenue , expenses and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . 22 our significant accounting policies are discussed in notes of the consolidated financial statements . we believe that the following
| general and administrative expense . general and administrative expense for the year ended december 31 , 2017 was $ 13,086,120 as compared to $ 7,689,898 for the year ended december 31 , 2016. the increase resulted from the inclusion of a full year of boxlight group 's operating expenses included for the year ended december 31 , 2017 , along with $ 4 million of non-cash stock compensation expense . research and development expense . research and development expense was $ 465,940 and $ 1,008,433 for the years ended december 31 , 2017 and 2016 , respectively . research and development expense primarily consists of costs associated with mimio 's development of proprietary technology . the decrease was due to the company 's decision to decrease research and development expenditures in 2017. the r & d investments are cyclical and we had limited major enhancements to our software products or new hardware launches . a significant portion of our research and development is now paid for by several of our contract manufacturers . other income ( expense ) , net . other expense for the year ended december 31 , 2017 was $ 158,830 as compared to $ 775,729 for the year ended december 31 , 2016. during 2017 , the company settled debt and other liabilities with a net gain of $ 276,026. in 2016 , the company amended a note payable agreement that resulted in $ 350,000 of additional interest expense in august , which resulted in a significant increase in interest expense . additionally , the company issued additional notes to acquire mimio and boxlight group during 2016 resulting in an increase in interest expense . 20 net loss . net loss was $ 7,297,109 and $ 2,061,983 for the years ended december 31 , 2017 and 2016 , respectively .
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we also seek to develop online kids clubs . on march 7 , 2016 , we acquired dolphin films , a content producer of motion pictures , from dolphin entertainment , an entity wholly owned by our president , chairman and ceo , mr. o'dowd . see note 4 for additional information regarding the dolphin films acquisition . the following management discussion is based on financial information that has been retrospectively adjusted as if the merger had occurred from the first date of financial information presented . all financial information has been retrospectively adjusted at the historical values of dolphin films , as the merger was between entities under common control . on may 9 , 2016 , we filed articles of amendment to our articles of incorporation with the secretary of state of the state of florida to effectuate a 1-to-20 reverse stock split . the reverse stock split was effective as of may 10 , 2016. the reverse stock split was approved by our board of directors and a majority of our shareholders . shares of common stock have been retrospectively adjusted to reflect the reverse stock split in the following management discussion . on march 30 , 2017 , we acquired 42west , an entertainment public relations agency offering talent publicity , strategic communications and entertainment , content marketing . as consideration for the 42west acquisition , we paid approximately $ 18.7 million in shares of common stock , based on the company 's 30-trading-day average stock price prior to the closing date of $ 4.61 per share ( less certain working capital and closing adjustments , transaction expenses and payments of indebtedness ) , plus the potential to earn up to an additional $ 9.3 million in shares of common stock . as a result , we ( i ) issued 1,230,280 shares of common stock on the closing date and ( ii ) will issue ( a ) 344,550 shares of common stock to certain employees within 30 days of the closing date , ( b ) 118,655 shares of common stock as bonuses during 2017 and ( c ) approximately 1,961,821 shares of common stock on january 2 , 2018. in addition , we may issue up to 1,963,126 shares of common stock based on the achievement of specified financial performance targets over a three-year period . prior to its acquisition , 42west was the largest independently-owned public relations firm in the entertainment industry . among other benefits , we anticipate that the 42west acquisition will strengthen and complement our current digital and motion picture business , while expanding and diversifying our operations . having marketing expertise in-house will allow dolphin to review any prospective project 's marketing potential prior to making a production commitment . the principal sellers have each entered into employment agreements with us and will continue as employees of the company for a three-year term after the closing date of the 42west acquisition . the nonexecutive employees of 42west are expected to be retained as well . in connection with the 42west acquisition , we granted the sellers the right , but not the obligation , to cause the company to purchase up to an aggregate of 2,374,187 of their shares of common stock received as consideration for a purchase price equal to $ 4.61 per share during certain specified exercise periods up until december 2020. going concern our independent auditors issued an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our net loss for the years ended december 31 , 2016 and 2015 , our accumulated deficit as of december 31 , 2016 and 2015 and our level of working capital . the financial statements do not include any adjustments that might result from the outcome of these uncertainties . management is planning to raise any necessary additional funds through loans and additional sales of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising any necessary additional loans or capital . such issuances of additional securities would further dilute the equity interests of our existing shareholders , perhaps substantially . 20 revenues during 2016 , our primary source of revenue was from the release of our motion picture , max steel . during 2015 , we derived revenue through ( 1 ) the online distribution rights of our web series south-beach – fever and international distribution rights to our motion picture believe and ( 2 ) a portion of fees obtained from the sale of memberships to online kids clubs . the table below sets forth the components of revenue for the years ended december 31 , 2016 and 2015 : replace_table_token_2_th dolphin digital studios during 2016 , we entered into a co-production agreement to produce jack of all tastes , a digital project that showcases favorite restaurants of nfl players . the show was produced during 2016 throughout several cities in the us and we anticipate that it will be available for distribution during the third quarter of 2017. we are currently sourcing distribution platforms in which to release projects currently in production and those for which we have the rights and which we intend to produce . we earn production and online distribution revenue solely through the following : ● producer 's fees : we earn fees for producing each web series , as included in the production budget for each project . we either recognize producer 's fees on a percentage of completion or a completed contract basis depending on the terms of the producer agreements , which we negotiate on a project by project basis . during 2016 , we began production of our new web series but it had not been completed as of december 31 , 2016. in addition , we concentrated our efforts in identifying potential distribution partners . ● initial distribution/ advertising revenue : we earn revenues from the distribution of online content on avod platforms . story_separator_special_tag residuals represent amounts payable to various unions or “ guilds ” such as the screen actors guild , directors guild of america , and writers guild of america , based on the performance of the digital production in certain ancillary markets . included within direct costs are immaterial impairments for any of our projects . capitalized production costs are recorded at the lower of their cost , less accumulated amortization and tax incentives , or fair value . if estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that title , the unamortized capitalized production costs will be written down to fair value . material impairments would be recorded as a separate item on our statement of operations . distribution and marketing expenses include the costs of theatrical , prints and advertising ( `` p & a '' ) and of dvd/blu-ray duplication and marketing . theatrical p & a includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture . dvd/blu-ray duplication represents the cost of the dvd/blu-ray product and the manufacturing costs associated with creating the physical products . dvd/blu-ray marketing costs represent the cost of advertising the product at or near the time of its release . selling , general and administrative expenses include all overhead costs except for payroll and legal and professional fees that are reported as a separate expense item . included within selling , general and administrative expenses are the commissions that we pay our advertising and distribution brokers , which can range up to 25 % of the distribution and advertising revenue that we receive . legal and professional fees include fees paid to our attorneys , fees for public relations consultants , fees for general business consultants and fees paid to our sales agent for back office services . other income and expenses other income and expenses consist primarily of ( i ) interest to dolphin entertainment , an entity owned by our ceo , in connection with loans made to the company ; ( ii ) interest payments related to the loan and security agreements entered into to finance the production of certain digital content and motion pictures ( iii ) loss on extinguishment of debt ( iv ) amortization of loan fees , ( v ) warrant issuance expense and ( vi ) change in fair value of derivative liability . during the year ended december 31 , 2016 , we entered into agreements with certain debtholders , including dolphin entertainment , to convert an aggregate of $ 25,164,798 principal and interest into 5,032,960 shares of common stock at a price of $ 5.00 per share . the conversions occurred on days when the market price of the stock was between $ 6.00 and $ 6.99 per share . as a result , we recorded a loss on the extinguishment of the debt of approximately $ 6.3 million . in addition , we entered into ( i ) a termination agreement to terminate an equity finance agreement , ( ii ) a purchase agreement for the acquisition of 25 % membership interest of dolphin kids clubs and ( iii ) a debt exchange agreement to convert certain notes . as consideration for the three agreements , we issued warrant j and warrant k that entitle the warrant holder to purchase up to 2,340,000 shares of common stock at a price of $ 0.015 per share . as a result of the issuance of the shares , we recorded a loss on extinguishment of debt of approximately $ 3.3 million . in addition to warrants j and k , we entered into a warrant purchase agreement whereby we agreed to issue warrants g , h and i in exchange for a $ 50,000 payment that was used to reduce the exercise price of warrant e. the warrant purchase agreement entitles the warrant holder to purchase shares of common s tock as follows : ( i ) up to 1,500,000 shares of common stock prior to january 31 , 2018 , at $ 5.00 per share ( ii ) up to 500,000 shares of common stock at $ 6.00 per share prior to january , 31 , 2019 , and ( iii ) up to 500,000 shares of common stock at $ 7.00 per share prior to january 31 , 2020. we determined that warrants g , h , i , j , and k , collectively , ( the “ new warrants ” ) should be accounted for as a derivative for which a liability is recorded in the aggregate and measured fair value in the consolidated balance sheets and changes in the fair value from one reporting period to the next are reported as income or expense . as a result of the issuance of the new warrants , we recorded a warrant issuance expense of approximately $ 7.4 million and income of approximately , $ 2.2 million from changes in the fair value of the new warrants from the dates of issuance through december 31 , 2016 . 23 story_separator_special_tag margin-left : 0px ; margin-right : 0px ; text-indent : 48px '' > interest expense increased by $ 0.7 million for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 and was directly related to , ( i ) interest related to the conversion of certain notes payable to shares of our common stock , and ( ii ) interest related to the production and distribution loans of our motion picture . during the year ended december 31 , 2016 , we amortized approximately $ 0.5 million of certain loan fees related to the financing obtained for the distribution and marketing expenses for the release of max steel .
| results of operations year ended december 31 , 2016 as compared to year ended december 31 , 2015 revenues for the year ended december 31 , 2016 , we generated our revenue from ( i ) the domestic theatrical release and international distribution rights of our motion picture , max steel and ( ii ) portion of fees obtained from the sale of memberships to online kids clubs . by contrast , for the year ended december 31 , 2015 , we generated our revenue primarily from ( i ) online distribution of our web series , south beach – fever ( ii ) portion of fees obtained from the sale of memberships to online kids clubs and ( iii ) international distribution rights of our motion picture , believe . replace_table_token_3_th revenues from production and distribution increased by $ 6.3 million for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 , primarily due to the release of our motion picture max steel on october 14 , 2016 and the recognition of domestic box office revenues and recognition of revenue from international licensing agreements of the motion picture . during the same period in 2015 , we derived revenues from the online release of our web series , south beach – fever on hulu . revenues from membership fees decreased by $ 0.04 million , for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 as a result of one individual that purchased memberships to the online kids club for a group of schools in louisiana during the second quarter of 2015. expenses for the years ended december 31 , 2016 and 2015 , our operating expenses were direct costs , distribution and marketing , selling , general and administrative expenses , legal and professional fees and payroll expenses .
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derivatives — as part of its asset and liability management strategy , the company uses derivative financial instruments to mitigate exposure to interest rate and foreign currency risks , and story_separator_special_tag condition and results of operations replace_table_token_0_th 29 overview the following discussion provides information about the results of operations , financial condition , liquidity , and capital resources of east west , and its subsidiaries , including its subsidiary bank , east west bank and its subsidiaries ( referred to herein as “ east west bank ” or the “ bank ” ) . this information is intended to facilitate the understanding and assessment of significant changes and trends related to the company 's results of operations and financial condition . this discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes presented elsewhere in this report . company overview east west is a bank holding company incorporated in delaware on august 26 , 1998 and is registered under the bhc act . the company commenced business on december 30 , 1998 when , pursuant to a reorganization , it acquired all of the voting stock of the bank , which became its principal asset . the bank is an independent commercial bank headquartered in california that has a strong focus on the financial service needs of the chinese-american community . through over 125 locations in the u.s. and greater china , the company provides a full range of consumer and commercial products and services through three business segments : consumer and business banking , commercial banking , with the remaining operations included in other . the company 's principal activity is lending to and accepting deposits from businesses and individuals . the primary source of revenue is net interest income , which is principally derived from the difference between interest earned on loans and investment securities and interest paid on deposits and other funding sources . as of december 31 , 2019 , the company had $ 44.20 billion in assets and approximately 3,300 full-time equivalent employees . for additional information on products and services provided by the bank , see item 1. business — banking services . corporate strategy we are committed to enhancing long-term shareholder value by executing on the fundamentals of growing loans , deposits and revenue , improving profitability , and investing for the future while managing risk , expenses and capital . our business model is built on customer loyalty and engagement , understanding of our customers ' financial goals , and meeting our customers ' financial needs through our diverse products and services . the company 's approach is concentrated on seeking out and deepening client relationships that meet our risk/return measures . this focus guides our decision-making across every aspect of our operations : the products we develop , the expertise we cultivate and the infrastructure we build to help our customers conduct business . we expect our relationship-focused business model to continue to generate organic growth and to expand our targeted customer bases . on an ongoing basis , we invest in technology related to critical business infrastructure and streamlining core processes , in the context of maintaining appropriate expense management . our risk management activities are focused on ensuring that the company identifies and manages risks to maintain safety and soundness while maximizing profitability . 30 five-year summary of selected financial data ( $ and shares in thousands , except per share , ratio and headcount data ) 2019 2018 2017 2016 2015 summary of operations : interest and dividend income $ 1,882,300 $ 1,651,703 $ 1,325,119 $ 1,137,481 $ 1,053,815 interest expense 414,487 265,195 140,050 104,843 103,376 net interest income before provision for credit losses 1,467,813 1,386,508 1,185,069 1,032,638 950,439 provision for credit losses 98,685 64,255 46,266 27,479 14,217 net interest income after provision for credit losses 1,369,128 1,322,253 1,138,803 1,005,159 936,222 noninterest income ( 1 ) 209,377 210,909 257,748 182,278 182,779 noninterest expense 734,588 714,466 661,451 615,249 540,280 income before income taxes 843,917 818,696 735,100 572,188 578,721 income tax expense ( 2 ) 169,882 114,995 229,476 140,511 194,044 net income $ 674,035 $ 703,701 $ 505,624 $ 431,677 $ 384,677 per common share : basic earnings $ 4.63 $ 4.86 $ 3.50 $ 3.00 $ 2.67 diluted earnings $ 4.61 $ 4.81 $ 3.47 $ 2.97 $ 2.66 dividends declared $ 1.06 $ 0.86 $ 0.80 $ 0.80 $ 0.80 book value $ 34.46 $ 30.52 $ 26.58 $ 23.78 $ 21.70 non-gaap tangible common equity per share ( 3 ) $ 31.15 $ 27.15 $ 23.13 $ 20.27 $ 18.15 weighted-average number of shares outstanding : basic 145,497 144,862 144,444 144,087 143,818 diluted 146,179 146,169 145,913 145,172 144,512 common shares outstanding at period-end 145,625 144,961 144,543 144,167 143,909 at year end : total assets ( 4 ) $ 44,196,096 $ 41,042,356 $ 37,121,563 $ 34,788,840 $ 32,350,922 total loans ( 4 ) $ 34,778,973 $ 32,385,464 $ 29,053,935 $ 25,526,215 $ 23,675,706 investment securities $ 3,317,214 $ 2,741,847 $ 3,016,752 $ 3,335,795 $ 3,773,226 total deposits , excluding held-for-sale deposits $ 37,324,259 $ 35,439,628 $ 31,615,063 $ 29,890,983 $ 27,475,981 long-term debt and finance lease liabilities $ 152,270 $ 146,835 $ 171,577 $ 186,327 $ 206,084 fhlb advances $ 745,915 $ 326,172 $ 323,891 $ 321,643 $ 1,019,424 stockholders ' equity $ 5,017,617 $ 4,423,974 $ 3,841,951 $ 3,427,741 $ 3,122,950 non-gaap tangible common equity ( 3 ) $ 4,535,841 $ 3,936,062 $ 3,343,693 $ 2,922,638 $ 2,611,919 head count ( full-time equivalent ) 3,294 3,196 2,933 2,838 2,804 performance metrics : return on average assets ( “ roa ” ) 1.59 % 1.83 % 1.41 % 1.30 % 1.27 % return on average equity ( “ roe ” ) 14.16 % 17.04 % 13.71 % 13.06 % 12.74 % net interest margin 3.64 % 3.78 % 3.48 % 3.30 % 3.35 % efficiency ratio ( 5 ) 43.80 % 44.73 % 45.84 % 50.64 % 47.68 % non-gaap efficiency ratio ( 3 ) 38.43 % 39.55 % 41.44 % 44.21 % 41.75 % credit quality metrics : allowance for loan story_separator_special_tag this was primarily due to increases of $ 2.98 billion in average loans and $ 367.2 million in average interest-bearing cash and deposits with banks , partially offset by decreases of $ 417.9 million in average securities purchased under resale agreements ( “ resale agreements ” ) and $ 253.5 million in average investment securities . deposits are an important source of funds and impact both net interest income and net interest margin . average noninterest-bearing demand deposits totaled $ 10.50 billion in 2019 , compared with $ 11.09 billion in 2018 , a decrease of $ 586.9 million or 5 % . average noninterest-bearing demand deposits in 2018 increased $ 461.8 million or 4 % from $ 10.63 billion in 2017 . average noninterest-bearing demand deposits made up 29 % , 33 % and 34 % of average total deposits in 2019 , 2018 and 2017 , respectively . average interest-bearing deposits of $ 25.54 billion in 2019 increased $ 3.40 billion or 15 % from $ 22.14 billion in 2018 . average interest-bearing deposits in 2018 increased $ 1.95 billion or 10 % from $ 20.19 billion in 2017 . the average cost of funds was 1.12 % , 0.78 % and 0.44 % in 2019 , 2018 and 2017 , respectively . the year-over-year increases in the average cost of funds were primarily due to increase s in the cost of interest-bearing deposits . the average cost of interest-bearing deposits increased 41 basis points to 1.47 % in 2019 , and 48 basis points to 1.06 % in 2018 , up from 0.58 % in 2017 . other sources of funding included in the calculation of the average cost of funds primarily consist of fhlb advances , long-term debt and securities sold under repurchase agreements ( “ repurchase agreements ” ) . the company utilizes various tools to manage interest rate risk . refer to the “ interest rate risk management ” section of item 7. md & a — risk management — market risk management for details . 34 the following table presents the interest spread , net interest margin , average balances , interest income and expense , and the average yield/rate by asset and liability component in 2019 , 2018 and 2017 : ( $ in thousands ) year ended december 31 , 2019 2018 2017 average balance interest average yield/ rate average balance interest average yield/ rate average balance interest average yield/ rate assets interest-earning assets : interest-bearing cash and deposits with banks $ 3,050,954 $ 66,760 2.19 % $ 2,609,463 $ 54,804 2.10 % $ 2,242,256 $ 33,390 1.49 % resale agreements ( 1 ) 969,384 27,819 2.87 % 1,020,822 29,328 2.87 % 1,438,767 32,095 2.23 % investment securities ( 2 ) ( 3 ) 2,850,476 67,838 2.38 % 2,773,152 60,911 2.20 % 3,026,693 58,670 1.94 % loans ( 4 ) ( 5 ) 33,373,136 1,717,415 5.15 % 30,230,014 1,503,514 4.97 % 27,252,756 1,198,440 4.40 % restricted equity securities 76,854 2,468 3.21 % 73,691 3,146 4.27 % 73,593 2,524 3.43 % total interest-earning assets $ 40,320,804 $ 1,882,300 4.67 % $ 36,707,142 $ 1,651,703 4.50 % $ 34,034,065 $ 1,325,119 3.89 % noninterest-earning assets : cash and due from banks 471,060 445,768 395,092 allowance for loan losses ( 330,125 ) ( 298,600 ) ( 272,765 ) other assets 2,023,146 1,688,259 1,631,221 total assets $ 42,484,885 $ 38,542,569 $ 35,787,613 liabilities and stockholders ' equity interest-bearing liabilities : checking deposits ( 6 ) $ 5,244,867 $ 58,168 1.11 % $ 4,477,793 $ 34,657 0.77 % $ 3,951,930 $ 18,305 0.46 % money market deposits ( 6 ) 8,220,236 111,081 1.35 % 7,985,526 83,696 1.05 % 8,026,347 44,181 0.55 % saving deposits ( 6 ) 2,118,060 9,626 0.45 % 2,245,644 8,621 0.38 % 2,369,398 6,431 0.27 % time deposits ( 6 ) 9,961,289 196,927 1.98 % 7,431,749 107,778 1.45 % 5,838,382 47,474 0.81 % federal funds purchased and other short-term borrowings 44,881 1,763 3.93 % 32,222 1,398 4.34 % 34,546 1,003 2.90 % fhlb advances 592,257 16,697 2.82 % 327,435 10,447 3.19 % 391,480 7,751 1.98 % repurchase agreements ( 1 ) 74,926 13,582 18.13 % 50,000 12,110 24.22 % 140,000 9,476 6.77 % long-term debt and finance lease liabilities 152,445 6,643 4.36 % 159,185 6,488 4.08 % 178,882 5,429 3.03 % total interest-bearing liabilities $ 26,408,961 $ 414,487 1.57 % $ 22,709,554 $ 265,195 1.17 % $ 20,930,965 $ 140,050 0.67 % noninterest-bearing liabilities and stockholders ' equity : demand deposits ( 6 ) 10,502,618 11,089,537 10,627,718 accrued expenses and other liabilities 812,461 612,656 541,717 stockholders ' equity 4,760,845 4,130,822 3,687,213 total liabilities and stockholders ' equity $ 42,484,885 $ 38,542,569 $ 35,787,613 interest rate spread 3.10 % 3.33 % 3.22 % net interest income and net interest margin $ 1,467,813 3.64 % $ 1,386,508 3.78 % $ 1,185,069 3.48 % ( 1 ) average balances of resale and repurchase agreements are reported net , pursuant to accounting standards codification ( “ asc ” ) 210-20-45-11 , balance sheet offsetting : repurchase and reverse repurchase agreements . the weighted-average yields of gross resale agreements were 2.65 % , 2.63 % and 2.19 % for 2019 , 2018 and 2017 , respectively . the weighted-average interest rates of gross repurchase agreements were 4.74 % , 4.46 % and 3.48 % for 2019 , 2018 and 2017 , respectively . ( 2 ) yields on tax-exempt securities are not presented on a tax-equivalent basis . ( 3 ) includes the amortization of premiums on investment securities of $ 10.9 million , $ 16.1 million and $ 21.2 million for 2019 , 2018 and 2017 , respectively . ( 4 ) average balances include nonperforming loans and loans held-for-sale . ( 5 ) includes the accretion of net deferred loan fees , unearned fees , asc 310-30 discounts and amortization of premiums , which totaled $ 36.8 million , $ 39.2 million and $ 30.8 million for 2019 , 2018 and 2017 , respectively .
| 2019 financial highlights noteworthy items about the company 's performance for 2019 included : earnings : 2019 net income was $ 674.0 million and diluted eps was $ 4.61 , compared with 2018 net income of $ 703.7 million and diluted eps of $ 4.81 . this $ 29.7 million or 4 % decrease in net income was primarily due to increases in income tax expense , provision for credit losses and noninterest expense , partially offset by net interest income growth . adjusted earnings : adjusting for non-recurring items , 2019 non-gaap net income and non-gaap diluted eps were $ 707.9 million and $ 4.84 , respectively , compared with $ 681.5 million and $ 4.66 for 2018 , respectively , a year-over-year increase of 4 % . during 2019 , the company recorded a $ 5.4 million net pre-tax impairment charge ( equivalent to $ 3.8 after-tax ) and $ 30.1 million in additional income tax expense to reverse certain previously claimed tax credits related to dc solar . ( refer to item 7. md & a — results of operations — income taxes in this form 10-k for a more detailed discussion related to the company 's investment in dc solar . ) during 2018 , the company recognized a $ 31.5 million pre-tax gain from the sale of its dcb branches , equivalent to $ 22.2 million after-tax . ( see reconciliations of non-gaap measures presented under item 7. md & a — supplemental information — explanation of gaap and non-gaap financial measures in this form 10-k. ) revenue : revenue , or the sum of net interest income before provision for credit losses and noninterest income , was $ 1.68 billion in 2019 , compared with $ 1.60 billion in 2018 , an increase of $ 79.8 million or 5 % . this increase was primarily due to an increase in net interest income . 32 net interest income and net interest margin : 2019 net interest income was $ 1.47
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in addition , certain statements may be contained in the company 's future filings with the sec , in press releases , and in oral and written statements made by or with the approval of the corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the act . examples of forward-looking statements include , but are not limited to : ( i ) projections of revenues , expenses , income or loss , earnings or loss per common share , the payment or nonpayment of dividends , capital structure and other financial items ; ( ii ) statements of plans , objectives and expectations of first defiance or its management or board of directors , including those relating to products or services ; ( iii ) statements of future economic performance ; and ( iv ) statements of assumptions underlying such statements . words such as “ believes ” , “ anticipates ” , “ expects ” , “ intends ” , “ targeted ” , “ continue ” , “ remain ” , “ will ” , “ should ” , “ may ” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements . forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements . factors that could cause actual results to differ from those discussed in the forward-looking statements include , but are not limited to : · local , regional , national and international economic conditions and the impact they may have on the company and its customers and the company 's assessment of that impact . · volatility and disruption in national and international financial markets . · government intervention in the u.s. financial system . · changes in the level of non-performing assets and charge-offs . · changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements . · the effects of and changes in trade and monetary and fiscal policies and laws , including the interest rate policies of the federal reserve board . · inflation , interest rate , securities market and monetary fluctuations . · political instability . · acts of god or of war or terrorism . · the timely development and acceptance of new products and services and perceived overall value of these products and services by users . · changes in consumer spending , borrowing and saving habits . · changes in the financial performance and or condition of the company 's borrowers . · technological changes including core system conversions . · acquisitions and integration of acquired businesses . · the ability to increase market share and control expenses . · changes in the competitive environment among financial holding companies and other financial service providers . · the effect of changes in laws and regulations ( including laws and regulations concerning taxes , banking , securities and insurance ) with which the company and the subsidiaries must comply . - 37 - · the effect of changes in accounting policies and practices , as may be adopted by the regulatory agencies , as well as the public company accounting oversight board , the financial accounting standards board and other accounting standard setters . · the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews . · greater than expected costs or difficulties related to the integration of new products and lines of business . · the company 's success at managing the risks involved in the foregoing items . forward-looking statements speak only as of the date on which such statements are made . the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events . the following section presents information to assess the financial condition and results of operations of first defiance . this section should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this annual report on form 10-k. overview first defiance is a unitary thrift holding company that conducts business through its subsidiaries , first federal , first insurance and first defiance risk management . first federal is a federally chartered stock savings bank that provides financial services to communities based in northwest ohio , northeast indiana , and southeastern michigan where it operates 33 full service banking centers in twelve northwest ohio counties , one northeast indiana county , and one southeastern michigan county . first federal operates one loan production office in one central ohio county . first federal provides a broad range of financial services including checking accounts , savings accounts , certificates of deposit , real estate mortgage loans , commercial loans , consumer loans , home equity loans and trust and wealth management services through its extensive branch network . first insurance sells a variety of property and casualty , group health and life and individual health and life insurance products . first insurance is an insurance agency that does business in the defiance , bryan , bowling green , maumee and oregon , ohio areas . first defiance risk management is a wholly owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . first defiance risk management was incorporated on december 20 , 2012. financial condition assets at december 31 , 2014 totaled $ 2.18 billion compared to $ 2.14 billion at december 31 , 2013 , an increase of $ 41.8 million or 2.0 % . story_separator_special_tag the first federal loan loss reserve committee reviews the amount of each new appraisal and makes any necessary charge off decisions at its meeting prior to the end of each quarter . any partially charged-off collateral dependent loans are considered non-performing , and as such , would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before first federal will consider an upgrade to performing status . first federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance . for loans where first federal determines that an updated appraisal is not necessary , other means are used to verify the value of the real estate , such as recent sales of similar properties on which first federal had loans as well as calls to appraisers , brokers , realtors and investors . first federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge offs . based on these results , changes may occur in the processes used . loan modifications constitute a troubled debt restructuring ( “ tdr ” ) if first federal for economic or legal reasons related to the borrower 's financial difficulties grants a concession to the borrower that it would not otherwise consider . for loans that are considered troubled debt restructurings , first federal either computes the present value of expected future cash flows discounted at the original loan 's effective interest rate or it may measure impairment based on the fair value of the collateral . for those loans measured for impairment utilizing the present value of future cash flows method , any discount is carried as a reserve in the allowance for loan and lease losses . for those loans measured for impairment utilizing the fair value of the collateral , any shortfall is charged off . as of december 31 , 2014 and december 31 , 2013 , first federal bank had $ 24.7 million and $ 27.6 million , respectively , of loans that were still performing and which were classified as tdrs . - 40 - allowance for loan losses the allowance for loan losses represents management 's assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date . management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio . consideration is given to economic conditions , changes in interest rates and the effect of such changes on collateral values and borrower 's ability to pay , changes in the composition of the loan portfolio and trends in past due and non-performing loan balances . the allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management 's evaluation of the inherent risk in the loan portfolio . in addition to extensive in-house loan monitoring procedures , the company utilizes an outside party to conduct an independent loan review of all commercial loan and commercial real estate loan relationships that exceed $ 5.0 million of aggregate exposure and all watchlist relationships that exceed $ 500,000 of aggregate exposure over an annual period . management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the allowance for loan losses associated with these types of loans . the provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which , in management 's best estimate , is necessary to absorb incurred credit losses within the existing loan portfolio in the normal course of business . the allowance for loan loss is made up of two basic components . the first component is the specific allowance in which the company sets aside reserves based on the analysis of individual credits that are cash flow dependent , yet there is a discount between the present value of the future cash flows and the carrying value . this was $ 1.3 million at december 31 , 2014. the second component is the general reserve . the general reserve is used to record loan loss reserves for groups of homogenous loans in which the company estimates the losses incurred in the portfolios based on quantitative and qualitative factors . due to the uncertainty of risks in the loan portfolio , the company 's judgment regarding the amount of the allowance necessary to absorb loans losses is approximate . due to regulatory guidance , the company no longer carries specific reserves on collateral dependent loans , and instead usually charges off any shortfall . first federal analyzes all loans on its classified and special mention lists at least quarterly and makes judgments about the risk of loss based on the cash flow of the borrower , the value of any collateral and the financial strength of any guarantor in determining the amount of impairment of individual loans and the charge off to be taken . for purpose of the general reserve analysis , the loan portfolio is stratified into nine different loan pools based on loan type and by market area to allocate historic loss experience . the loss experience factor applied to the non-impaired loan portfolio was based upon historical losses of the most recent weighted rolling twelve quarters ending december 31 , 2014. the stratification of the loan portfolio resulted in a quantitative general allowance of $ 7.8 million at december 31 , 2014 compared to $ 11.2 million at december 31 , 2013. the decrease in the quantitative allowance was due to a decrease in the historical loss factors relating to commercial , commercial real estate , residential and consumer loans .
| results of operations summary first defiance reported net income of $ 24.3 million for the year ended december 31 , 2014 compared to $ 22.2 million and $ 18.7 million for the years ended december 31 , 2013 and 2012 , respectively . net income applicable to common shares was $ 24.3 million in 2014 compared with $ 22.2 million in 2013 and $ 18.0 million in 2012. on a diluted per common share basis , first defiance earned $ 2.44 in 2014 , $ 2.19 in 2013 and $ 1.81 in 2012. net interest income first defiance 's net interest income is determined by its interest rate spread ( i.e . the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income was $ 69.7 million for the year ended december 31 , 2014 compared to $ 67.6 million and $ 69.0 million for the years ended december 31 , 2013 and 2012 , respectively . the tax-equivalent net interest margin was 3.68 % , 3.76 % and 3.81 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the margin was down slightly between 2013 and 2014. interest-earning asset yields decreased 13 basis points ( to 4.01 % in 2014 from 4.14 % in 2013 ) and the cost of interest bearing liabilities between the two periods decreased 6 basis points ( to 0.43 % in 2014 from 0.49 % in 2013 ) .
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on december 7 , 2012 , the company authorized the sale of convertible notes ( the “ 2012 notes ” ) to related parties in the aggregate principal amount of $ 15.0 million . the 2012 notes accrued interest at a rate of 8 % per annum , with principal plus accrued interest thereon due upon maturity at september 30 , 2013. the initial closing comprised of five individual convertible notes with an aggregate principal balance of $ 3.0 million . as of december 31 , 2012 , $ 12.0 million of 2012 notes were authorized and available for sale . on march 28 , 2013 , may 23 , 2013 and august 9 , 2013 , the company completed the second , third and fourth closing of the 2012 notes , respectively . the closings each comprised of five individual convertible notes with aggregate principal balances of $ 3.0 million , $ 4.5 million , and $ 4.5 million , respectively . on august 9 , 2013 , the company amended the agreements relating to the 2012 notes . the amendment authorized the sale of an additional $ 3.0 million of the 2012 notes , resulting in an aggregate principal amount of $ 18.0 million being authorized . in addition , the amendment extended story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this annual report on form 10-k. this management 's discussion and analysis contains forward-looking statements that involve risks and uncertainties . please see “ special note regarding forward-looking statements ” for additional factors relating to such statements , and see “ risk factors ” in part i , item 1a of this report for a discussion of certain risk factors applicable to our business , financial condition and results of operations . past operating results are not necessarily indicative of operating results in any future periods . overview we are a clinical-stage pharmaceutical company focused on the discovery , development and commercialization of first-in-class therapies for the treatment of patients with glaucoma and other diseases of the eye . our lead product candidate , once-daily , triple-action rhopressa tm , successfully completed a phase 2b clinical trial in patients with open-angle glaucoma and ocular hypertension in may 2013. phase 3 registration trials commenced in july 2014. our phase 3 registration trial ( “ rocket 1 ” ) and a second phase 3 registration trial ( “ rocket 2 ” ) will measure efficacy over three months . rocket 2 is also designed to assess safety over 12 months . in addition , we are conducting a one year , safety-only study in canada , named “ rocket 3. ” pending successful advancement of the phase 3 registration trials , three-month efficacy results are expected in the middle of the second-quarter 2015 for rocket 1 and by mid-2015 for rocket 2. our second product candidate , once-daily , quadruple-action roclatan tm , which is a fixed-dose combination of rhopressa tm and latanoprost , the most commonly prescribed drug for the treatment of patients with glaucoma , successfully completed a phase 2b clinical trial in patients with open-angle glaucoma and ocular hypertension in june 2014. we expect phase 3 registration trials to commence in mid-2015 . preparatory steps for these trials have already commenced . we are developing rhopressa tm as the first of a new class of compounds that is designed to lower intraocular pressure , or iop , through novel biochemical targets . by inhibiting these targets , we believe rhopressa tm reduces iop via three separate mechanisms of action , or moas : ( i ) it increases fluid outflow through the trabecular meshwork , the diseased tissue of the eye , ( ii ) it reduces episcleral venous pressure , which represents the pressure of the blood in the episcleral veins of the eye where eye fluid drains into the bloodstream , and ( iii ) it reduces the production of eye fluid . roclatan tm is a combination of rhopressa tm and latanoprost and is designed to lower iop through the same three moas as rhopressa tm and , with a fourth moa , through the ability of latanoprost to increase fluid outflow through the uveoscleral pathway , the eye 's secondary drain . our mission is to build a major ophthalmic pharmaceutical company . in addition to our primary product candidates , rhopressa tm and roclatan tm , we are also exploring the longer-term impact of rhopressa tm and roclatan tm on the diseased trabecular meshwork and evaluating possible uses of our existing proprietary portfolio of rho kinase inhibitors beyond glaucoma . we recently issued a research update on preclinical results demonstrating the potential for rhopressa tm to have disease-modifying activity in glaucoma by stopping fibrosis in the trabecular meshwork , and also increasing perfusion in the trabecular outflow pathway thus increasing the delivery of nutrients to the diseased tissue . additionally , an early-stage molecule , ar-13154 , has shown the preclinical potential to decrease lesions in wet age-related macular degeneration at numerically higher levels than current market leading products . our strategy includes developing our business outside of north america , including potentially obtaining clinical approval on our own for our lead compounds in europe and possibly japan . regarding commercialization strategy , if our products are successful , we may potentially commercialize ourselves or with a partner in europe , and potentially with a partner in japan . as we prepare for foreign-based activities , we are evaluating optimized supply chain configurations and domicile alternatives for our non-u.s. intellectual property . we may license , acquire or develop additional product candidates to broaden our presence in ophthalmology . we are continuing to explore collaboration opportunities for new ophthalmic products , delivery alternatives and new therapeutic areas , including gene therapy . however , we have no present plans , agreements or commitments with respect to any potential acquisition , investment or license related to such additional product candidates . story_separator_special_tag we expect that our general and administrative expenses will increase with the continued advancement of our product candidates and with our increased management , legal , compliance , accounting and investor relations expenses as we continue to grow . we expect these increases will likely include increased expenses for insurance , expenses related to the hiring of additional personnel and payments to outside service providers , lawyers and accountants . research and development expenses since our inception , we have focused on our development programs . research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense for research and development personnel ; expenses incurred under agreements with contract research organizations ( “ cros ” ) , contract manufacturing organizations and service providers that conduct clinical trials and preclinical studies ; costs associated with preclinical activities and development activities ; costs associated with regulatory operations ; and depreciation expense for assets used in research and development activities . we expense research and development costs to operations as incurred . the costs for certain development activities , such as clinical trials , are recognized based on the terms of underlying agreements as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations along with additional information provided to us by our vendors . expenses relating to activities , such as manufacturing and stability and toxicology studies , that are supportive of the product candidate itself , are classified as direct non-clinical . expenses relating to clinical trials and similar activities , including costs associated with cros , are classified as direct clinical . expenses relating to activities that support more than one development program or activity such as personnel costs , stock-based compensation and depreciation are not allocated to direct clinical or non-clinical expenses and are separately classified as “ unallocated. ” 65 the following table shows our research and development expenses by type of activity for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_5_th for the periods presented , we did not incur any direct non-clinical or direct clinical costs for ar-13533 , exploring the longer-term impact of rhopressa and roclatan on the diseased trabecular meshwork or evaluating possible uses of our existing proprietary portfolio of rho kinase inhibitors beyond glaucoma . costs for these activities were primarily comprised of internal personnel costs and were included in unallocated costs . discontinued product candidates relate to previously developed ar-12286 and related compounds , which did not meet their primary endpoints in clinical trials . we incurred direct non-clinical and direct clinical expenses for these discontinued product candidates in all periods presented . research and development activities associated with the discovery and development of new drugs and products for the treatment of diseases of the eye 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 our research and development expenses to increase as we continue to conduct clinical trials for our product candidates , or if the fda requires us to conduct additional trials for approval . our research and development expenditures are subject to numerous uncertainties in timing and cost to completion . development timelines , the probability of success and development expenses can differ materially from expectations . the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others , the following : number of trials required for approval ; number of sites included in the trials ; length of time required to enroll suitable patients ; number of patients that participate in the trials ; drop-out or discontinuation rates of patients ; duration of patient follow-up ; costs related to compliance with regulatory requirements ; number and complexity of analyses and tests performed during the trial ; phase of development of the product candidate ; and efficacy and safety profile of the product candidate . 66 our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with research institutions , consultants and cros that conduct and manage clinical trials on our behalf . we generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol . if future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . historically , such modifications have not been material . as a result of the uncertainties discussed above , we are unable to determine with certainty the duration and completion costs of our development programs or precisely when and to what extent we will receive revenue from the commercialization and sale of our products . we may never succeed in achieving regulatory approval for one or more 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 preclinical studies and clinical trials , uncertainties in the clinical trial enrollment rate and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including efficacy and tolerability profiles , manufacturing capability , competition , and commercial viability .
| results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes the results of our operations for the years ended december 31 , 2014 and 2013 : replace_table_token_7_th general and administrative expenses general and administrative expenses increased by $ 9.8 million for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . this increase was primarily associated with the expansion of our employee base to support the growth of our operations . personnel costs increased by $ 6.7 million , including employee stock based compensation expense of $ 5.2 million and new salaried employees and related expenses of $ 1.9 million . this increase in personnel costs was partially offset by a decrease in severance expense of $ 0.4 million related to a former employee . as a result of increased audit fees , legal fees , board expenses and other business related activities in connection with operating as a public company , outside professional fees increased by $ 2.8 million and travel expenses increased by $ 0.3 million . research and development expenses for the year ended december 31 , 2014 , our research and development activity was primarily associated with phase 3 registration trials for rhopressa tm , phase 2b clinical trials for roclatan tm and preparatory activities for our phase 3 clinical trials for roclatan tm . research and development expenses increased by $ 18.0 million for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . costs for rhopressa tm increased by $ 14.8 million as direct clinical costs and 70 direct non-clinical costs increased $ 9.4 million and $ 5.4 million , respectively . costs for roclatan tm increased $ 1.9 million as direct clinical costs increased $ 1.6 million and direct non-clinical costs increased $ 0.2 million .
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to date , no bonuses have been paid under the plan and no amounts are accrued as of december 31 , 2011 as payments under the plan were not considered probable . the plan will now automatically expire on june 30 , story_separator_special_tag overview we derive revenues from memberships to our research products and services , performing advisory services and consulting projects , and hosting events . we offer contracts for our research products that are typically 13 renewable annually and payable in advance . research revenues are recognized as revenue ratably over the term of the contract . accordingly , a substantial portion of our billings are initially recorded as deferred revenue . clients purchase advisory services independently and or to supplement their memberships to our research . billings attributable to advisory services and consulting projects are initially recorded as deferred revenue . advisory service revenues are recognized when the customer receives the agreed upon deliverable . consulting project revenues , which generally are short-term in nature and based upon fixed-fee agreements , are recognized as the services are provided . event billings are also initially recorded as deferred revenue and are recognized as revenue upon completion of each event . our primary operating expenses consist of cost of services and fulfillment , selling and marketing expenses and general and administrative expenses . cost of services and fulfillment represents the costs associated with the production and delivery of our products and services , including salaries , bonuses , employee benefits and stock-based compensation expense for research personnel and all associated editorial , travel , and support services . selling and marketing expenses include salaries , sales commissions , bonuses , employee benefits , stock-based compensation expense , travel expenses , promotional costs and other costs incurred in marketing and selling our products and services . general and administrative expenses include the costs of the technology , operations , finance , and human resources groups and our other administrative functions , including salaries , bonuses , employee benefits , and stock-based compensation expense . overhead costs such as facilities are allocated to these categories according to the number of employees in each group . deferred revenue , agreement value , client retention , dollar retention and enrichment are metrics we believe are important to understanding our business . we believe that the amount of deferred revenue , along with the agreement value of contracts to purchase research and advisory services , provide a significant measure of our business activity . we define these metrics as follows : deferred revenue billings in advance of revenue recognition as of the measurement date . agreement value the total revenues recognizable from all research and advisory service contracts in force at a given time ( but not including advisory-only contracts ) , without regard to how much revenue has already been recognized . no single client accounted for more than 2 % of agreement value at december 31 , 2011. client retention the percentage of client companies with memberships expiring during the most recent twelve-month period that renewed one or more of those memberships during that same period . dollar retention the percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month period to the total dollar value of all client membership contracts that expired during the period . enrichment the percentage of the dollar value of client membership contracts renewed during the most recent twelve-month period to the dollar value of the corresponding expiring contracts . 14 client retention , dollar retention , and enrichment are not necessarily indicative of the rate of future retention of our revenue base . a summary of our key metrics is as follows ( dollars in millions ) : replace_table_token_3_th replace_table_token_4_th deferred revenue and agreement value have increased consistently on an annual basis during 2010 and 2011 due to increased demand for our products and services as the economy has improved during those periods and as we have increased the number of sales personnel during both 2010 and 2011. the increase in agreement value during 2010 was partially offset by a change in the calculation to exclude agreement value in excess of the first year for multiple year contracts signed in 2009 and beyond , which reduced the growth rate in 2010 by approximately 6 % . client retention , dollar retention , enrichment , and the number of clients have all increased from 2009 levels , which is consistent with an improved economic environment , and our retention metrics are near historic highs at december 31 , 2011. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our policies and estimates , including but not limited to , those related to our revenue recognition , stock-based compensation , non-marketable investments , goodwill and intangible assets , income taxes , and valuation and impairment of marketable investments . management bases its estimates on historical experience , data available at the time the estimates are made and various 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 . we consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements . story_separator_special_tag expected volatility is based , in part , on the historical volatility of our common stock as well as management 's expectations of future volatility over the expected term of the awards granted . the development of an expected life assumption involves projecting employee exercise behaviors ( expected period between stock option vesting dates and stock option exercise dates ) . we are also required to estimate future forfeitures of stock-based awards for recognition of compensation expense . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior recognized expense if the actual forfeitures are higher than estimated . in addition , for our performance-vested restricted stock units , we make estimates of the performance outcome at each period end in order to estimate the actual number of shares that will be earned . the actual expense recognized over the vesting period will only be for those awards that vest . if our actual forfeiture rate or performance outcomes are materially different from our estimates , or if our estimates of forfeitures or performance outcomes are modified in a future period , the actual stock-based compensation expense could be significantly different from what we have recorded in the current period . for example , during 2011 we modified our estimates of the performance outcome for rsus issued during 2009 and 2010 that resulted in a credit of $ 0.9 million being recorded in 2011 related to expense recognized in prior periods related to these rsus . non-marketable investments . we hold minority interests in technology-related investment funds with a book value of $ 7.9 million at december 31 , 2011. these investment funds are not publicly traded , and , therefore , because no established market for these securities exists , the estimate of the fair value of our investments requires significant judgment . investments that are accounted for using the cost method are valued at cost unless an other-than-temporary impairment in their value occurs . for investments that are accounted for using the equity method , we record our share of the investee 's operating results each period . we review the fair value of our investments on a regular basis to evaluate whether an other-than-temporary impairment in the investment has occurred . we record impairment charges when we believe that an investment has experienced a decline in value that is other-than-temporary . future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring an impairment charge in the future . goodwill , intangible assets and other long-lived assets . as of december 31 , 2011 , we had $ 81.9 million of goodwill and intangible assets with finite lives recorded on our consolidated balance sheet . goodwill is required to be measured for impairment at least annually or whenever events indicate that there may be an impairment . in order to determine if an impairment exists , we compare each of our reporting unit 's carrying value to the reporting unit 's fair value . determining the reporting unit 's fair value requires us to make estimates of market conditions and operational performance . absent an event that indicates a specific impairment may exist , we have selected november 30 as the date to perform the annual goodwill impairment test . we completed the annual goodwill impairment testing as of november 30 , 2011 and concluded that the fair values of each of our reporting units substantially exceeded their respective carrying values . future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired . any resulting impairment loss could have a material adverse impact on our results of operations . intangible assets with finite lives consist of acquired customer relationships , technology , research content , and trademarks , and are valued according to the future cash flows they are estimated to produce . these assigned values are amortized on a basis which best matches the periods in which the economic benefits are expected to be realized . tangible assets with finite lives consist of property and equipment , which are depreciated and amortized over their estimated useful lives . we continually evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of our intangible and long-lived tangible assets may warrant revision or that the carrying value of these assets may be impaired . to compute whether intangible assets have been impaired , the estimated undiscounted future cash flows 17 for the estimated remaining useful life of the assets are compared to the carrying value . to the extent that the future cash flows are less than the carrying value , the assets are written down to their estimated fair value . income taxes . we recognize deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax bases of assets and liabilities as well as operating loss carryforwards ( from acquisitions ) . such amounts are adjusted as appropriate to reflect changes in the tax rates expected to be in effect when the temporary differences reverse . we record a valuation allowance to reduce our deferred taxes to an amount we believe is more likely than not to be realized . we consider future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance . as a global company , we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate . in the ordinary course of our business , there are transactions and calculations undertaken whose ultimate tax outcome can not be certain . some of these uncertainties arise as a consequence of transfer pricing for transactions with our subsidiaries and potential challenges to nexus and credit estimates .
| general and administrative replace_table_token_18_th 24 the increase in general and administrative expenses in dollars and as a percentage of total revenues during 2010 is primarily due to an increase in compensation and benefits costs resulting from an increase in the number of general and administrative employees to support our growth plan , and to an increase in bonuses . the increase is also attributable to increased investments in customer facing technology . depreciation replace_table_token_19_th the decrease in depreciation expense during 2010 is primarily due to lower amortization of leasehold improvements due to facility consolidations in 2009. amortization of intangible assets replace_table_token_20_th the increase in amortization expense during 2010 is primarily due to the amortization of intangible assets from the acquisition of strategic oxygen in december 2009. reorganization costs replace_table_token_21_th reorganization costs in 2009 consist of $ 3.1 million incurred in the first quarter of 2009 primarily for severance and related benefit costs in connection with the termination of approximately 50 positions and approximately $ 2.3 million incurred in the fourth quarter of 2009 for costs related to facility consolidations primarily in cambridge , massachusetts . other income , net replace_table_token_22_th the decrease in other income , net during 2010 is primarily due to lower interest income resulting from lower returns on invested capital . gains ( losses ) on investments , net replace_table_token_23_th 25 gains ( losses ) on investments primarily represent our share of equity method investment gains and losses from our technology-related investment funds .
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these matters include ( i ) earnings , ( ii ) production , ( iii ) `` operating cash costs '' as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . 70 earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2017 ( in millions , except copper price and per share amounts ) : replace_table_token_35_th net sales in 2017 were higher than in 2016 by $ 1,274.7 million . this increase was mainly the result of higher metal prices and slightly higher sales volumes of copper ( +1.8 % ) and zinc ( +2.0 % ) , partially offset by lower sales volumes of silver ( 2.1 % ) and molybdenum ( 1.7 % ) . net sales in 2016 were higher than in 2015 , mainly as a result of higher sales volume of copper ( +18.3 % ) , silver ( +18.9 % ) and zinc ( +4.6 % ) , partially offset by lower prices for copper and molybdenum . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , both of which increased in each of the years in the periods above . in 2017 , cost of sales increased by $ 218.7 million and depreciation , amortization and depletion increased by $ 24.0 million . the increase in cost of sales in 2017 was mainly due to inventory consumption , foreign currency effect and higher workers ' participation expense . in 2016 , cost of sales increased by $ 106.5 million and depreciation , amortization and depletion increased by $ 136.4 million . the increase in cost of sales in 2016 was due to higher copper sales volume , which increased by 18.3 % . the increase in depreciation was mainly due to investment and maintenance capital acquisitions at most of our operations . net income attributable to scc in 2017 was 6.2 % lower than in 2016 mainly due to the one-time , non-cash income tax adjustment of $ 785.9 million as a result of the us income tax legislation enacted in the fourth quarter of 2017. see note 7 `` income taxes '' , of our consolidated financial statements . income before income taxes in 2017 was $ 2,302.7 million or 83.3 % higher than 2016 income before taxes of $ 1,256.0 million . this improvement resulted from higher sales and cost reductions achieved in electricity ( 8.0 % ) , tires ( 9.4 % ) , and other cost elements . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2017 : replace_table_token_36_th 71 the table below highlights copper production data at each of our mines for the three years ended december 31 , 2017 : replace_table_token_37_th 2017 compared to 2016 : copper mine production in 2017 decreased 2.6 % to 1,933.4 million pounds from 1,984.1 million pounds in 2016. this decrease was due to : lower production at the cuajone mine due to lower ore grades and recoveries . lower production at our mexican mines , principally lower sx-ew production at the buenavista mine due to lower pls processed with a lower copper content . the decrease in production was partially offset by higher production at the toquepala mine due to higher ore grades and recoveries . molybdenum production slightly decreased 1.9 % in 2017 compared to 2016 , principally due to lower production at our peruvian operations as a result of lower grades and recoveries . this decrease was partially offset by the additional production from the buenavista molybdenum plant at the second concentrator which started production in july 2016. silver mine production decreased 1.5 % in 2017 as a result of lower production at our immsa mines partially offset by higher production at our open-pit mines in mexico and peru . zinc production decreased 7.2 % in 2017 principally due to lower production at our santa eulalia and santa barbara mines due to lower mineral milled and lower grades . 2016 compared to 2015 : mined copper in 2016 increased 346.1 million pounds , compared to 2015 production . this increase was due to : higher production at our buenavista mine due to the ramping up of the new concentrator and better concentrate grades and recoveries . higher production at the la caridad mine due to higher concentrate grades , partially offset by lower production at the cuajone and toquepala mines due to lower ore grades and concentrate recoveries . molybdenum production decreased 3.6 million pounds in 2016 , compared to 2015 , principally due to lower production at our peruvian mines because of lower grades . silver production increased 2.9 million ounces in 2016 due to higher production at our buenavista and immsa mines . zinc production increased by 26.6 million pounds in 2016 due to a year of full production without the flooding problems that we encountered in prior years . 72 operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound of copper produced to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , `` non-gaap information reconciliation '' on page 87. we disclose operating cash cost per pound of copper produced , both before and net of by-product revenues . story_separator_special_tag metal prices historically have been subject to wide fluctuations and are affected by numerous factors beyond our control . these factors , which affect each commodity to varying degrees , include international economic and political conditions , levels of supply and demand , the availability and cost of substitutes , 74 inventory levels maintained by producers and others and , to a lesser degree , inventory carrying costs and currency exchange rates . in addition , the market prices of certain metals have on occasion been subject to rapid short-term changes due to economic concerns and financial investments . for 2018 , assuming that expected metal production and sales are achieved , that 2017 tax rates are unchanged and giving no effect to potential hedging programs , metal price sensitivity factors would indicate the following change in estimated annual net income attributable to scc resulting from metal price changes : replace_table_token_39_th business segments : we view our company as having three reportable segments and manage it on the basis of these segments . these segments are ( 1 ) our peruvian operations , ( 2 ) our mexican open-pit operations and ( 3 ) our mexican underground operations , known as our immsa unit . our peruvian operations include the toquepala and cuajone mine complexes and the smelting and refining plants , industrial railroad and port facilities that service both mines . our mexican open-pit operations include la caridad and buenavista mine complexes , the smelting and refining plants and support facilities , which service both mines . our immsa unit includes five underground mines , a coal mine , and several industrial processing facilities . segment information is included in our review of `` results of operations '' in this item and also in note 17 `` segment and related information '' of our consolidated financial statements . inflation and exchange rate effect of the peruvian sol and the mexican peso : our functional currency is the u.s. dollar and our revenues are primarily denominated in u.s. dollars . significant portions of our operating costs are denominated in peruvian sol and mexican pesos . accordingly , when inflation and currency devaluation/appreciation of the peruvian and mexican currency occur , our operating results can be affected . in recent years , we do believe such changes have not had a material effect on our results and financial position . please see item 7a `` quantitative and qualitative disclosures about market risk '' for more detailed information . capital investment program : we made capital investments of $ 1,023.5 million in 2017 , $ 1,118.5 million in 2016 ( including the el pilar acquisition ) and $ 1,250.0 million in 2015 ( including the el pilar acquisition ) . in general , the capital investments and projects described below are intended to increase production , decrease costs or address social and environmental commitments . 75 the table below sets forth our capital investments for the three years ended december 31 , 2017 ( in millions ) : replace_table_token_40_th in 2018 , we plan to invest $ 1,748.2 million in capital projects . in addition to our ongoing capital maintenance and replacement spending , our principal capital programs include the following : projects in mexico : buenavista zincsonora : this project is located within the buenavista facility and contemplates the development of a new concentrator to produce approximately 80,000 tons of zinc and 20,000 tons of additional copper per year that will allow us to double our current zinc production capacity . we have concluded the basic engineering and we are working on the purchasing process for the main project components . we estimate an investment of $ 413 million for this project and expect to initiate operations in 2020. pilaressonora : this project , located six kilometers from la caridad , will be developed as an open-pit mine operation . the ore will be transported by truck from the pit to the primary crushers of the la caridad copper concentrator , significantly improving the over-all mineral ore grade ( from 0.34 % at la caridad to 0.78 % expected from pilares ) . currently , we continue with the mine plan preparation , including the final outline design for the road through which the ore will be transported to the la caridad mill . an investment of $ 159 million is estimated to produce 35,000 tons of copper in concentrates per year . we expect this project to start operations in 2019 . 76 projects in peru : we currently have a portfolio of projects in peru , with a total capital budget of $ 2,900 million , out of which $ 1,620 million have already been invested . toquepala expansion projecttacna : this $ 1.2 billion project includes a new state-of-the-art concentrator which will increase toquepala 's annual copper production by 100,000 tons to reach 245,000 tons in 2019 , a 69 % production increase . through december 31 , 2017 , we have invested $ 892.9 million in this expansion . the project has reached 87 % progress and is expected to initiate production in june 2018. the project to improve the crushing process at toquepala with the installation of a high pressure grinding roll ( hpgr ) system , has as its main objective , to ensure that our existing concentrator will operate at its maximum annual production capacity of 117,000 tons of copper while reducing operating costs through ore crushing efficiencies , even with an increase of the ore material hardness index . the budget for this project is $ 50 million and as of december 31 , 2017 , we have invested $ 38.9 million in this project . we expect that it will be completed by the first quarter of 2018. cuajone projectsmoquegua : the mineral crushing and hauling project consisted of replacing rail haulage at the cuajone mine by an in-pit primary crusher with a 7 km overland conveyor belt system to move ore to the concentrator . operating savings are estimated at $ 23 million annually .
| executive summary this management 's discussion and analysis of financial condition and results of operations relates to and should be read together with our audited consolidated financial statements as of and for each of the years in the three-year period ended december 31 , 2017. therefore , unless otherwise noted , the discussion below of our financial condition and results of operations is for southern copper corporation and its subsidiaries ( collectively , `` scc , '' the '' company , '' `` our , '' and `` we '' ) on a consolidated basis for all periods . our financial results may not be indicative of our future results . this discussion contains forward-looking statements that are based on management 's current expectations , estimates and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in the forward-looking statements as a result of a number of factors . see item 1 `` businesscautionary statement . '' executive overview business : our business is primarily the production and sale of copper . in the process of producing copper , a number of valuable metallurgical by-products are recovered , which we also produce and sell . market forces outside of our control largely determine the sale prices for our products . our management , therefore , focuses on value creation through copper production , cost control , production enhancement and maintaining a prudent capital structure to remain profitable . we endeavor to achieve these goals through capital spending programs , exploration efforts and cost reduction programs . our aim is to remain profitable during periods of low copper prices and to maximize financial performance in periods of high copper prices . we are one of the world 's largest copper mining companies in terms of production and sales with our principal operations in peru and mexico . we also have an active ongoing exploration program in chile , argentina and ecuador .
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these awards have a provision for the acceleration of vesting based on achievement of performance targets established by the board . if the established targets are met for a fiscal year , up to one-third of the award may vest . if all the targets are met for three consecutive years , the award will be fully vested . beginning in july 2010 , time-vested restricted stock awards were granted to officers , which vest one-third per annum over three years . for grants to outside story_separator_special_tag management 's discussion and analysis of financial condition and results of operations reviews the operating results of paychex , inc. and its wholly owned subsidiaries ( “ paychex , ” “ we , ” “ our , ” or “ us ” ) for each of the three fiscal years ended may 31 , 2013 ( “ fiscal 2013 ” ) , may 31 , 2012 ( “ fiscal 2012 ” ) , and may 31 , 2011 ( “ fiscal 2011 ” ) , and our financial condition as of may 31 , 2013 . this review should be read in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements contained in item 8 of this annual report on form 10-k ( “ form 10-k ” ) and the “ risk factors ” discussed in item 1a of this form 10-k. forward-looking statements in this review are qualified by the cautionary statement under the heading “ cautionary note regarding forward-looking statements pursuant to the united states private securities litigation reform act of 1995 ” contained at the beginning of part i of this form 10-k. overview we are a leading provider of payroll , human resource , insurance , and benefits outsourcing solutions for small- to medium-sized businesses . our payroll and human resource services ( “ hrs ” ) offer a portfolio of services and products that allow our clients to meet their diverse payroll and human resource needs . our payroll services are the foundation of our service portfolio and include : payroll processing ; payroll tax administration services ; employee payment services ; and regulatory compliance services ( new-hire reporting and garnishment processing ) . we support small market companies through our core payroll and surepayroll , inc. ( “ surepayroll ” ) product lines . mid-market companies typically have more sophisticated payroll and benefits needs , and are primarily serviced through our major market services ( “ mms ” ) . our software-as-a-service ( “ saas ” ) solution through our mms platform provides human resource management , employee benefits management , time and attendance systems , online expense reporting , and applicant tracking . our hrs products include : paychex hr solutions , under which we offer our administrative services organization ( “ aso ” ) and our professional employer organization ( “ peo ” ) . we also offer paychex hr essentials , an aso product that provides support to our clients over the phone or online to help manage employee-related topics ; retirement services administration ; insurance services ; eservices ; and other human resource services and products . our primary goal is to transform the way businesses do business . we strive to achieve this goal by leveraging our industry-leading technology to provide outstanding customer service . our business strategy is focused on strong long-term financial performance by providing high-quality , timely , accurate , and affordable services ; growing our client base ; increasing utilization of our ancillary services ; leveraging our technology through our service organization ; and expanding our product offerings . we continue to focus on driving growth in clients , revenue , and profits . we are managing our personnel costs and expenses while continuing to invest in our business , particularly in leading-edge technology . we believe these investments are critical to our success . looking to the future , we continue to focus on investing in our products , people , and service capabilities , positioning ourselves to capitalize on opportunities for long-term growth . our financial results for fiscal 2013 reflected sustained growth in our business . checks per payroll and revenue per check continued to show improvement . checks per payroll grew 1.6 % for fiscal 2013 , slightly less than the 2.0 % growth experienced for fiscal 2012 . our service execution was strong as we achieved our highest levels of customer satisfaction in our history and record levels of client retention . 13 our financial results continue to be adversely impacted by the interest rate environment as interest rates available on high quality financial instruments remain low . the federal funds rate has been at a range of zero to 0.25 % since december 2008. our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.0 % for fiscal 2013 , compared to 1.1 % for fiscal 2012 and 1.3 % for fiscal 2011 . highlights of our financial results for fiscal 2013 , compared to fiscal 2012 , are as follows : payroll service revenue increased 2 % to $ 1.5 billion . hrs revenue increased 10 % to $ 746.0 million . interest on funds held for clients decreased 6 % to $ 41.0 million . total revenue increased 4 % to $ 2.3 billion . operating income increased 6 % to $ 904.8 million , and operating income , net of certain items , increased 7 % to $ 863.8 million . refer to the “ non-gaap financial measure ” discussion below for further information on operating income , net of certain items . net income increased 4 % to $ 569.0 million and diluted earnings per share increased 3 % to $ 1.56 per share . net income and diluted earnings per share were impacted by the settlement of a state income tax matter , which reduced diluted earnings per share by approximately $ 0.04 per share . dividends of $ 476.7 million were paid to stockholders , representing 84 % of net income . story_separator_special_tag the paychex insurance agency , inc. website , www.paychexinsurance.com , helps small business owners navigate the area of insurance coverage and both this website and www.paychex.com have sections dedicated to the topic of health care reform . financial position and liquidity the supply of high credit quality securities has been limited with the continued volatility in the global financial markets , thereby limiting our investment choices . despite this macroeconomic environment , our financial position as of may 31 , 2013 remained strong with cash and total corporate investments of $ 874.6 million and no debt . our investment strategy focuses on protecting principal and optimizing liquidity . yields on high quality financial instruments remain low , negatively impacting our income earned on funds held for clients and corporate investments . we invest predominately in municipal bonds including general obligation bonds , pre-refunded bonds that are secured by a u.s. government escrow , and essential services revenue bonds . during fiscal 2013 , our primary short-term investment vehicles were high quality variable rate demand notes ( “ vrdns ” ) and bank demand deposit accounts . a substantial portion of our portfolio is invested in high credit quality securities with aaa and aa ratings and a-1/p-1 ratings on short-term securities . we limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes . we believe that our investments as of may 31 , 2013 were not other-than-temporarily impaired , nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment . our primary source of cash is our ongoing operations . cash flow from operations was $ 675.3 million for fiscal 2013 . historically , we have funded our operations , capital purchases , business acquisitions , and dividend payments from our operating activities . our positive cash flows in fiscal 2013 allowed us to support our business growth and to pay substantial dividends to our stockholders . during fiscal 2013 , dividends paid to stockholders were 84 % of net income . it is anticipated that cash and total 15 corporate investments as of may 31 , 2013 , along with projected operating cash flows , will support our normal business operations , capital purchases , and dividend payments for the foreseeable future . for further analysis of our results of operations for fiscal years 2013 , 2012 , and 2011 , and our financial position as of may 31 , 2013 , refer to the tables and analysis in the “ results of operations ” and “ liquidity and capital resources ” sections of this item 7 and the discussion in the “ critical accounting policies ” section of this item 7. outlook our outlook for the fiscal year ending may 31 , 2014 ( “ fiscal 2014 ” ) is based upon current economic and interest rate conditions continuing with no significant changes . our expected fiscal 2014 payroll revenue growth rate is based upon anticipated client base growth and increases in revenue per check . hrs revenue growth is expected to remain in line with our recent organic experience . our fiscal 2014 guidance is as follows : replace_table_token_6_th we believe that net income growth for fiscal 2014 is expected to benefit from a strong comparison mainly due to results in the fourth quarter of fiscal 2013 . in the fourth quarter of fiscal 2013 , we settled a state income tax matter which reduced diluted earnings per share by approximately $ 0.04 per share . operating income , net of certain items , as a percent of service revenue , is expected to be approximately 38 % for fiscal 2014 . the effective income tax rate for fiscal 2014 is expected to be in the range of 36 % to 37 % . the settlement of a state income tax matter in fiscal 2013 is not expected to have an impact on the effective income tax rate for fiscal 2014 . interest on funds held for clients and investment income for fiscal 2014 are expected to continue to be impacted by the low interest rate environment . the average rate of return on our combined funds held for clients and corporate investment portfolios is expected to remain at 1.0 % for fiscal 2014 . as of may 31 , 2013 , the long-term investment portfolio had an average yield-to-maturity of 1.8 % and an average duration of 3.1 years . in the next twelve months , slightly less than 15 % of this portfolio will mature , and it is currently anticipated that these proceeds will be reinvested at a lower average interest rate of approximately 1.1 % . investment income is expected to benefit from ongoing investment of cash generated from operations . purchases of property and equipment for fiscal 2014 are expected to be in the range of $ 100 million to $ 110 million . this includes costs for internally developed software as we continue to invest in our service supporting technology . fiscal 2014 depreciation expense is projected to be in the range of $ 85 million to $ 90 million , and we project amortization of intangible assets for fiscal 2014 to be approximately $ 15 million . 16 story_separator_special_tag insurance rates , and the increase in checks per payroll . 18 refer to the “ market risk factors ” section , contained in item 7a of this form 10-k , for more information on changing interest rates . combined operating and sg & a expenses : the following table summarizes total combined operating and selling , general and administrative ( “ sg & a ” ) expenses for fiscal years : replace_table_token_11_th a significant portion of the increases in expenses for fiscal 2012 was driven by our acquisitions during fiscal 2011. organic growth in combined operating and sg & a expenses was approximately 3 % for fiscal 2012 .
| results of operations summary of results of operations for the fiscal years ended may 31 : replace_table_token_7_th we invest in highly liquid , investment-grade fixed income securities and do not utilize derivative instruments to manage interest rate risk . as of may 31 , 2013 , we had no exposure to high-risk or illiquid investments and had insignificant exposure to european investments . details regarding our combined funds held for clients and corporate investment portfolios are as follows : replace_table_token_8_th replace_table_token_9_th ( 1 ) the net unrealized gain on our investment portfolios was approximately $ 2.7 million as of july 15 , 2013 . ( 2 ) the federal funds rate was a range of zero to 0.25 % as of may 31 , 2013 , 2012 , and 2011 . ( 3 ) these items exclude the impact of vrdns , as they are tied to short-term interest rates . 17 payroll service revenue : payroll service revenue increased 2 % for fiscal 2013 and 5 % for fiscal 2012 to $ 1.5 billion for both periods . organic growth in payroll service revenue for fiscal 2012 , which excludes the impact of acquisitions during fiscal 2011 , was approximately 4 % . both fiscal 2013 and fiscal 2012 revenue benefited from increases in checks per payroll and revenue per check . checks per payroll increased 1.6 % and 2.0 % for fiscal 2013 and fiscal 2012 , respectively . revenue per check in both periods was positively impacted by price increases , partially offset by discounting . payroll service revenue for fiscal 2013 was modestly affected by the impact of hurricane sandy in the fall of 2012 and one less payroll processing day overall due to the leap year in fiscal 2012 . our client base growth was approximately 1 % for both fiscal 2013 and fiscal 2012 . client retention reached record levels for fiscal 2013 , following a year of further improvement .
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this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . you should review the “ risk factors ” and “ cautionary note concerning forward-looking statements ” sections of this annual report for a discussion of certain of the important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis . certain amounts and percentages in this discussion and analysis have been rounded for convenience of presentation . overview we are a medical device company focused on the design , development and commercialization of musculoskeletal implants . we are currently focused on implants that promote healing in patients with spine disorders . we are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures that assist surgeons in effectively treating their patients , respond to evolving surgeon needs and address new treatment options . since our inception in 2003 , we have launched over 170 products and offer a comprehensive product portfolio of innovative and differentiated products addressing a broad array of spinal pathologies , anatomies and surgical approaches . we have also recently begun to develop a robotic surgical navigation device and products to treat patients who have experienced orthopedic traumas , although those development efforts are still ongoing and we currently have no robotic or orthopedic trauma products that are cleared by the fda for sale . we sell implants and related disposables to our customers , primarily hospitals , for use by surgeons to treat spine disorders . all of our current products fall into one of two categories : innovative fusion or disruptive technologies . spinal fusion is a surgical procedure to correct problems with the individual vertebrae , the interlocking bones making up the spine , by preventing movement of the affected bones . our innovative fusion products are used in cervical , thoracolumbar , sacral , and interbody/corpectomy fusion procedures to treat degenerative , deformity , tumor , and trauma conditions . we define disruptive technologies as those that represent a significant shift in the treatment of spine disorders by allowing for novel surgical procedures , improvements to existing surgical procedures , the treatment of spine disorders by new physician specialties , and surgical intervention earlier in the continuum of care . our current portfolio of approved and pipeline products includes a variety of disruptive technology products , which we believe offer material improvements to fusion procedures , such as minimally invasive surgical techniques , as well as new treatment alternatives including motion preservation technologies , such as dynamic stabilization , total disc replacement and interspinous process spacer products , and regenerative biologics technologies , as well as interventional pain management solutions , including treatments for vertebral compression fractures . to date , the primary market for our products has been the united states , where we sell our products through a combination of direct sales representatives employed by us and distributor sales representatives employed by our exclusive independent distributors , who distribute our products on our behalf for a commission that is generally based on a percentage of sales . we believe there is significant opportunity to strengthen our position in the u.s. market by increasing the size of our u.s. sales force and we intend to add additional direct and distributor sales representatives in the future . during the year ended december 31 , 2016 , ( which includes the results since the acquisition date of the international operations and distribution channel of alphatec holdings , inc. ( “ alphatec international , ” 49 see recent developments below ) ) , our international sales accounted for approximately 11 % of our total sales . we sell our products in 49 countries outside the united states through a combination of direct sales representatives employed by us and international distributors . we believe there are significant opportunities for us to increase our presence in both existing and new international markets through the continued expansion of our direct and distributor sales forces and the commercialization of additional products . recent developments on september 1 , 2016 , we acquired the international operations and distribution channel of alphatec holdings , inc. , a publicly traded orthopedic company ( nasdaq : atec ) for $ 80.1 million in cash , subject to certain closing adjustments ( see “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” ) . on january 13 , 2016 , we entered into a settlement agreement providing for the settlement of four patent infringement lawsuits concerning spinal implant technologies between globus medical , inc. and depuy synthes ( the “ settlement agreement ” ) . pursuant to the terms of the settlement agreement , we were required to make a $ 7.9 million payment to depuy synthes . the settlement agreement also provides for covenants not to sue relating to certain of the products sold by each of the parties and cross-licenses of all of the patents asserted in each of the settled lawsuits and each of the patents in those respective patent families . the company does not expect the settlement agreement to impact its ability to conduct its business or have any impact on its future revenues . the settlement resulted in one-time financial benefits reflecting the difference from previously established provisions and the final settlement amount through a one-time net income benefit of approximately $ 7.6 million , recognized during the fourth quarter of 2015 , and a one-time transfer of approximately $ 8.4 million from restricted cash account into the cash account , which we recognized during the first quarter of 2016. the consolidated appropriations act of 2016 , which was signed into law in december 2015 , includes a two-year suspension on the medical device excise tax , effective january 1 , 2016. the 2.3 % tax on sales in the united states of certain medical devices by a manufacturer , producer or importer was enacted as part of the story_separator_special_tag provision for litigation we record a provision for litigation settlements when a loss is known or considered probable and the amount can be reasonably estimated and in the case of a favorable settlement , income when realized . amortization of intangibles we amortize finite lived intangible assets over the period of estimated benefit using the straight-line method and estimated lives ranging from one to seventeen years . intangible assets are tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the asset ( asset group ) may not be recoverable . if impairment is indicated , we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset . fair value is generally determined using a discounted future cash flow analysis . acquisition related costs acquisition related costs represent : the change in fair value of business-acquisition-related contingent consideration ; costs related to integrating recently acquired businesses , including but not limited to costs to exit or convert contractual obligations , severance , and information system conversion ; and specific costs related to the consummation of the acquisition process such as banker fees , legal fees , and other acquisition related professional fees . income tax provision we are taxed at the rates applicable within each jurisdiction . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and liabilities , and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . 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 sales and expenses during the reporting periods . certain of our more critical accounting policies require the application 52 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 inventories , recoverability of long-lived assets and the fair value of our common stock . 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 . while our significant accounting policies are more fully described in “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies ” below in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . the critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements . we have reviewed these critical accounting policies with the audit committee of our board . revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , product delivery has occurred , pricing is fixed or determinable , and collection is reasonably assured . we generate a significant portion of our revenue from consigned inventory maintained at hospitals or with sales representatives . for these products , we recognize revenue at the time we are notified the product has been used or implanted . for all other transactions , we recognize revenue when title to the goods and risk of loss transfer to customers , provided there are no remaining performance obligations that will affect the customer 's final acceptance of the sale . our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold . in general , our customers do not have any rights of return or exchange . accounts receivable and allowance for doubtful accounts . the majority of our accounts receivable is composed of amounts due from hospitals . accounts receivable is carried at cost less an allowance for doubtful accounts . on a regular basis , we evaluate accounts receivable and estimate an allowance for doubtful accounts , as needed , based on various factors such as customers ' current credit conditions , length of time past due , and the general economy as a whole . receivables are written off against the allowance when they are deemed uncollectible . excess and obsolete inventory . we state inventories at the lower of cost or market . we determine cost on a first-in , first-out basis . the majority of our inventory is finished goods , because we primarily utilize third-party suppliers to source our products . we periodically evaluate the carrying value of our inventories in relation to the estimated forecast of product demand , which takes into consideration the estimated life cycle of product releases . when quantities on hand exceed estimated sales forecasts , we record a write-down for excess inventories , which results in a corresponding charge to cost of goods sold . charges incurred for excess and obsolete inventory were $ 12.8 million , $ 9.9
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 sales the following table sets forth , for the periods indicated , our sales by product category and geography expressed as dollar amounts and the changes in sales between the specified periods expressed in dollar amounts and as percentages : replace_table_token_5_th product launches continue to be a driving force in our sales growth , particularly from products launched during the last three years . the growth in disruptive technology of $ 19.7 million was due primarily to sales of regenerative biologics , expandable interbody and minimally invasive products launched during the past three years , including sales from ttot since the acquisition in late 2014. innovative fusion sales decreased by $ 0.5 million due to sales declines of pedicle screw systems , which were partially offset by increases from alphatec international sales . replace_table_token_6_th in the united states , the increase in sales of $ 2.0 million was due primarily to expansion into new territories and increased penetration in existing territories . the region experienced strong sales in disruptive technology products , led by sales of expandable interbody products and regenerative biologics , which were partially offset by declines in innovative fusion products , primarily pedicle screw systems . internationally , the increase in sales of $ 17.2 million was primarily due to incremental sales from the alphatec international acquisition . on a constant currency basis , our international sales grew $ 18.8 million , or by 40.4 % , due to expansion into new international territories . our worldwide sales increased 3.8 % on a constant currency basis . for additional information regarding the alphatec international acquisition , please refer to “ part ii ; item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 2. acquisitions ” and for additional information regarding constant currency , please refer to “ non-gaap financial measures ” below .
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actual results and the timing of the events may differ materially from those contained in these forward-looking statements due to many factors , including those discussed in the “ forward-looking statements ” set forth elsewhere in this report . overview the registrant was incorporated on december 28 , 2017 as a british virgin islands company with limited liability . the registrant was incorporated as a blank check company for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , recapitalization , reorganization or similar business combination with one or more target businesses . following the business combination ( as described and defined below ) in october 2019 , the registrant changed its name from greenland acquisition corporation to greenland technologies holding corporation ( “ greenland ” ) . on july 27 , 2018 , we consummated our initial public offering of 4,400,000 units , including a partial exercise by the underwriters of their over-allotment option in the amount of 400,000 units . each unit consists of one ordinary share , no par value , one warrant to purchase one-half of one ordinary share , and one right to receive one-tenth of one ordinary share upon the consummation of our initial business combination , pursuant to a registration statement on form s-1 . warrants must be exercised in multiples of two warrants , and each two warrants are exercisable for one ordinary share at an exercise price of $ 11.50 per share . the units were sold in our initial public offering at an offering price of $ 10.00 per unit , generated $ 44,000,000 ( before underwriting discounts and offering expenses ) in gross proceeds . simultaneously with the consummation of our initial public offering , we completed a private placement of 282,000 units , issued to greenland asset management corporation ( the “ sponsor ” ) and chardan capital markets , llc , generated $ 2,820,000 in gross proceeds . on october 24 , 2019 , we consummated our business combination with zhongchai holding ( the “ business combination ” ) following a special meeting , where the shareholders of greenland considered and approved , among other matters , a proposal to adopt and entered into the share exchange agreement that allowed greenland to acquire from the seller all of the issued and outstanding equity interests of zhongchai holding in exchange for 7,500,000 newly issued ordinary shares , no par value of greenland , issued to the seller . as a result , the seller became the controlling shareholder of greenland , and zhongchai holding became a directly and wholly owned subsidiary of greenland . the business combination was accounted for as a reverse merger effected by a share exchange , wherein zhongchai holding is considered the acquirer for accounting and financial reporting purposes . in connection with the business combination , all the outstanding rights of the company were converted into 468,200 ordinary shares on a one-tenth ( 1/10 ) ordinary share per right basis if holders of the rights elected to convert their rights into the underlying ordinary shares . 17 on december 17 , 2019 , the company 's warrants , which were trading under the ticker symbol “ gtecw , ” were delisted from the nasdaq capital market by the nasdaq listing qualifications staff . on january 14 , 2020 , greenland technologies corp. was incorporated under the laws of the state of delaware ( “ greenland tech ” ) . greenland tech is the 100 % owned subsidiary of the registrant . we aim to use it as the us operation site of the company and promote sales of our robotic products for the north american market in the near future . greenland serves as the parent company for the primary operating company , zhongchai holding ( hong kong ) limited , a holding company formed under the laws of hong kong on april 23 , 2009 ( “ zhongchai holding ” ) . through zhongchai holding and other subsidiaries , greenland develops and manufactures traditional transmission products for material handling machineries in the people 's republic of china ( prc ) , as well as develops electric industrial vehicles , which are expected to be produced in the near future . greenland , through its subsidiaries , is : ● a leading developer and manufacturer of transmission products for material handling machineries in china ; and ● a developer of electric industrial vehicles , which is expected to be available in the third or fourth quarter of 2021. greenland 's transmission products are key components for forklift trucks , used in manufacturing and logistic applications such as factories , workshops , warehouses , fulfilment centers , shipyards , and seaports . forklifts play an important role in logistics for many enterprises across different industries in the prc and around the globe . generally , industries with the largest demand for forklifts are transportation , warehousing logistics , electrical machinery , and automobile . greenland has experienced increased demand for forklifts in the manufacturing industry in the prc , as its revenue increased from approximately $ 52.40 million in the fiscal year 2019 to approximately $ 66.86 million in the fiscal year 2020. based on revenues in the fiscal year ended december 31 , 2020 and 2019 , greenland believes that it is one of the major developers and manufacturers of transmission products for small and medium-sized forklift trucks in prc . greenland 's transmission products are used in 1-ton to 15-tons forklift trucks , some with mechanical shift and some with automatic shift . greenland sells these transmission products directly to forklift truck manufacturers . in the fiscal year ended december 31 , 2020 and 2019 , greenland sold an aggregate of more than 108,913 and 83,567 sets of transmission products , respectively , to more than 100 forklift manufacturers in the prc . in december 2020 , greenland launched a new division to focus on the electric industrial vehicle market , a market that greenland intends to develop to diversify its product offerings . story_separator_special_tag current prc regulations permit our prc subsidiaries to pay dividends to us only out of their accumulated profits , if any , determined in accordance with prc accounting standards and regulations . in addition , our prc subsidiaries are required to set aside at least 10 % of their respective accumulated profits each year , if any , to fund certain reserve funds until the total amount set aside reaches 50 % of their respective registered capital . our prc subsidiaries may also allocate a portion of their after-tax profits based on prc accounting standards to employee welfare and bonus funds at their discretion . these reserves are not distributable as cash dividends . we have funded working capital and other capital requirements primarily by equity contributions , cash flow from operations , short-term bank loans and bank acceptance notes , and long-term bank loans . cash is required primarily to purchase raw materials , repay debts and pay salaries , office expenses , income taxes and other operating expenses . for the fiscal year ended december 31 , 2020 , our prc subsidiary , zhejiang zhongchai , has paid off approximately $ 21.56 million in bank loan , approximately $ 0.71 million in related parties loan , approximately $ 5.72 million in third parties loan , and maintained $ 9.40 million cash on hand . we plan to maintain the current debt structure and rely on governmentally supported loans with lower cost , if necessary . the government subsidy mainly consists of an incentive granted by the chinese government to encourage transformation of fixed assets in china and other miscellaneous subsidy from the chinese government . government subsidies are recognized when there is reasonable assurance that the subsidy will be received and all conditions be completed . total government subsidies recorded under long-term liabilities were $ 2.34 million and $ 2.18 million at december 31 , 2020 and 2019 , respectively . the company currently plans to fund its operations mainly through cash flow from its operations , renewal of bank borrowings , additional equity financing , and continuation of financial support from its shareholders and affiliates controlled by its principal shareholders , if necessary . the company might implement a stricter policy on sales to less creditworthy customers and plans to continue to improve its collection efforts on accounts with outstanding balances . the company is actively working with customers and suppliers and expects to fully collect the remaining balance . we believe that the company has sufficient cash , even with uncertainty in the company 's manufacturing and sale of electric industrial vehicles in the future and decline on sale of transmission products . however , our capital contribution from existing funding sources , to operate for the next 12 months will be sufficient . we remain confident and are expected to generate positive cash flow from our operations . 22 we may need additional cash resources in the future , if the company experiences failure in collecting account receivables , changes in business condition , changes in financial condition , or other developments . we may also need additional cash resources , if the company wishes to pursue opportunities for investment , acquisition , strategic cooperation , or other similar actions . if the company 's management and its board determine that the cash required for specific corporate activities exceed greenland 's cash and cash equivalents on hand , the company may issue debt or equity securities to raise cash . historically , we have expended considerable resources on building a new factory and paid off a considerable amount of debt , resulting in less available cash . however , we anticipate that our cash flow will continue to improve for the fiscal year 2021. we have completed zhejiang zhongchai 's new factory construction and the prc government has provided subsidies to ease the local business-related financing conditions caused by the covid-19 outbreak . furthermore , we pledged the deed of our new factory as a collateral to banks to obtain additional loans , refinance expiring loans , restructure short-term loans , and fund other working capital needs upon acceptable terms to greenland . cash and cash equivalents cash equivalents refers to all highly liquid investments purchased with original maturity of three months or less . as of december 31 , 2020 , greenland had approximately $ 7.16 million of cash and cash equivalents , an increase of approximately $ 5.04 million , or 237.14 % , as compared to approximately $ 2.12 million as of december 31 , 2019. the increase of cash was mainly due to the increase of accounts payable and short-term bank loans , as compared to that as of december 31 , 2019. restricted cash restricted cash represents the amount held by a bank as security for bank acceptance notes and therefore is not available for use until the bank acceptance notes are fulfilled or expired , which typically takes less than twelve months . as of december 31 , 2020 , greenland had approximately $ 2.24 million of restricted cash , a decrease of approximately $ 1.35 million , or 37.56 % , as compared to approximately $ 3.59 million as of december 31 , 2019. the decrease of restricted cash was due to the increase of mortgaged assets . accounts receivable as of december 31 , 2020 , greenland had approximately $ 12.41 million of accounts receivables , an increase of approximately $ 0.44 million , or 3.65 % , as compared to approximately $ 11.97 million as of december 31 , 2019. the increase in accounts receivable was due to our slowed-down effort in receivables collections due to the covid-19 outbreak . greenland recorded approximately $ 0.99 million of provision for doubtful accounts as of december 31 , 2020. greenland conducted an aging analysis of each customer 's delinquent payments to determine whether allowance for doubtful accounts is adequate . in establishing the allowance for doubtful accounts , greenland considers historical experience , economic environment , and expected collectability of past due receivables .
| components of results of operations replace_table_token_2_th revenue greenland 's revenue increased by approximately $ 14.46 million , or approximately 27.60 % , to approximately $ 66.86 million for the fiscal year ended december 31 , 2020 , compared to approximately $ 52.40 million for the fiscal year ended december 31 , 2019. due to the covid-19 pandemic , the company 's prc subsidiaries were temporary shut down due to local governments ' mandate until the end of february 2020. since late march 2020 , the company 's business operations have gradually recovered from the negative impacts due to lockdown , and the company 's backlogged orders were mostly processed during the rest of fiscal year 2020 , which contributed to an increase in its revenues for the year ended december 31 , 2020 , as compared to fiscal year 2019. on a rmb basis , revenue for the fiscal year ended december 31 , 2020 increased by approximately 32.8 % . cost of goods sold greenland 's cost of goods sold consists primarily of material costs , freight charges , purchasing and receiving costs , inspection costs , warehousing costs , internal transfer costs , wages , employee compensation , amortization , depreciation and related costs , which are directly attributable to the production of products . the write down of inventory using nrv impairment test is also recorded in cost of goods sold . the total cost of goods sold increased by approximately $ 14.03 million , or approximately 35.05 % , to approximately $ 54.05 million for the fiscal year ended december 31 , 2020 , compared to approximately $ 40.02 million for the fiscal year ended december 31 , 2019. cost of goods sold increased due to our increase in sales volume .
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these unobservable inputs are only utilized to the extent that observable inputs are not story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the selected consolidated financial data and the financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . the statements contained in this annual report that are not purely historical are 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. without limiting the foregoing , the words may , will , should , could , expects , plans , intends , anticipates , believes , estimates , predicts , potential and similar expressions are intended to identify forward-looking statements . all forward-looking statements included in this annual report on form 10-k are based on information available to us up to and including the date of this document , and we assume no obligation to update any such forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth in management 's discussion and analysis of financial condition and results of operations and risk factors and elsewhere in this form 10-k. you should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the securities and exchange commission . in the management discussion that follows we have highlighted those changes and operating factors that were the primary factors affecting period to period fluctuations . the remainder of the change in period to period fluctuations from that which is specifically discussed is arising from various individually insignificant items . overview we provide collaborative payment , invoice and document management solutions to corporations , insurance companies , healthcare organizations , financial institutions and banks around the world . our solutions are used to streamline , automate and manage processes and transactions involving global payments , invoice receipt and approval , collections , cash management , risk mitigation , document management , reporting and document 26 archive . we offer hosted or saas solutions , as well as software designed to run on-site at the customer 's location . a growing portion of our offerings are being sold as saas-based and paid for on a subscriptions and transactions basis . historically , however , our software has been sold predominantly on a perpetual license basis . our corporate customers rely on our solutions to automate their payment and accounts payable processes and to streamline and manage the production and retention of electronic documents . we offer saas-based legal spend management solutions that automate receipt and review of legal invoices for insurance companies and other large corporate consumers of outside legal services . we also offer a saas-based offering that facilitates the exchange of electronic payments and invoices between buyers and their suppliers . our offerings also include software solutions that banks use to provide web-based payment and reporting capabilities to their corporate customers . our document automation solutions are used by organizations to automate paper-intensive processes for the generation of transactional and supply chain documents . our solutions complement , leverage and extend our customers ' existing information systems , accounting applications and banking relationships and can be deployed quickly and efficiently . to help our customers receive the maximum value from our products and meet their specific business requirements , we also provide professional services for installation , training , consulting and product enhancement . during the year ended june 30 , 2011 , we acquired sma financial ltd. ( sma ) , direct debit limited ( ddl ) and las holdings , inc. , a delaware corporation doing business as allegient systems , inc. ( allegient ) and we acquired substantially all of the assets and assumed certain liabilities of business information technology group ( bitg ) . sma is a london-based provider of saas connectivity to the society for worldwide interbank financial telecommunication , which is referred to as swift , for the automation of payments and financial messaging . as a result of the sma acquisition , we launched a new product offering , swift access service , and we now offer next generation treasury and cash management solutions to a range of bank and corporate customers . ddl is a london-based provider of payments automation software for direct debits and receivables management for corporations , banks , financial institutions and government organizations . the addition of ddl extends our global payment capabilities and expands our transaction banking portfolio . allegient is a provider of advanced capabilities for legal e-billing , bill review and analytics . allegient 's proprietary saas platform and value-added turnkey solutions complements and extends our legal exchange portfolio , offering the combined customer base of more than 100 leading insurers enhanced capabilities to effectively manage their legal expenses . bitg is a bottomline software distributor and channel partner focused on the corporate market with locations in both australia and new zealand . for fiscal year 2011 , our revenue increased to $ 189.4 million from $ 158.0 million in the prior year . this revenue increase was primarily attributable to revenue increases in our banking solutions segment ( $ 17.1 million ) and our outsourced solutions segment ( $ 10.1 million ) . the banking solutions segment revenue increase was driven by large ongoing banking projects . revenue contributions from our allegient and sma acquisitions and our paymode-x solution accounted for the majority of the revenue increase in the outsourced solutions segment . the increased revenue includes the favorable effect of foreign exchange rates of $ 0.5 million associated with the british pound sterling and the australian dollar , both of which appreciated against the us dollar when compared to the prior fiscal year . story_separator_special_tag restricted stock awards are valued based on the closing price of our common stock on the date of grant ; however , the valuation of employee stock options is a more subjective process , since market values are generally not available for long-term , non-transferable employee stock options . accordingly , we use a black-scholes option pricing model to derive an estimated fair value . the black-scholes pricing model requires the consideration of the following variables for purposes of estimating fair value : the stock option exercise price , the expected term of the option , the grant date price of our common stock , the expected volatility of our common stock , expected dividends on our common stock ( we do not anticipate paying dividends for the foreseeable future ) , and the risk free interest rate for the expected option term . of the variables above , the selection of an expected term and expected stock price volatility are the most subjective . for purposes of estimating the expected option term , we review and consider our historic option activity , particularly the underlying option holding period ( including the holding period inherent in currently vested but unexercised options ) . we believe that each of these estimates , both expected term and volatility , are reasonable in light of the historical data we analyzed . however , as with any estimate , the ultimate accuracy of these estimates is only verifiable over time . while there were no stock options granted in fiscal 2011 , the 2011 results include the expense impact of stock option awards issued in prior years as those awards continued to vest . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is deemed probable . we consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement . delivery is deemed to have occurred upon transfer of the product title to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion 29 basis , extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . our software arrangements may contain multiple revenue elements , such as software licenses , professional services , hardware and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery or completion of professional services . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license according to the residual value method . under the residual value method , revenue equal to vsoe of each undelivered element is deferred and recognized upon delivery of that element . any remaining arrangement fee is then allocated to the software license . this has the effect of allocating any sales discount inherent in the arrangement to the software license fee . certain of our software arrangements require significant customization and modification and involve extended implementation periods . these arrangements do not qualify for separate element revenue recognition treatment as described above , and instead must be accounted for under contract accounting . under contract accounting , companies must select from two generally accepted methods of accounting : the completed contract method and the percentage of completion method . the completed contract method recognizes revenue and costs upon contract completion , and all project costs and revenues are reported as deferred items in the balance sheet until that time . the percentage of completion method recognizes revenue and costs on a contract over time , as the work progresses . we have historically used the percentage of completion method of accounting for our long-term contracts , as we believe that we can make reasonably reliable estimates of progress toward completion . progress is measured based on labor hours , as measured at the end of each reporting period , as a percentage of total expected labor hours . accordingly , the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations . our estimates at the end of any reporting period could prove to be materially different from final project results , as determined only at subsequent stages of project completion .
| results of operations fiscal year ended june 30 , 2011 compared to fiscal year ended june 30 , 2010 segment information we have aggregated similar operating segments into three reportable segments : payments and transactional documents , banking solutions and outsourced solutions . the following table represents our revenues and profits by segment : replace_table_token_10_th a reconciliation of the measure of segment profit to our gaap income for 2011 and 2010 , before the provision for income taxes , is as follows : replace_table_token_11_th 33 payments and transactional documents . the revenue increase for the fiscal year ended june 30 , 2011 compared to the prior fiscal year was primarily attributable to increases in software licenses revenue of $ 2.2 million and increases in subscriptions and transactions revenue of $ 1.9 million . these increases were both primarily attributable to increased european revenue in our payment and document automation products . the revenue increase includes a favorable effect of foreign exchange rates of approximately $ 0.5 million associated with the british pound sterling and the australian dollar , both of which appreciated against the us dollar when compared to the prior fiscal year . the segment profit increase of $ 0.4 million for the fiscal year ended june 30 , 2011 compared to the prior fiscal year was primarily attributable to increased software license and subscriptions and transactions gross margins in our european payment and document automation products . the increased gross margin was offset by increased operating expenses primarily related to increased sales and marketing costs in the us and europe largely associated with our 2011 business acquisitions . we expect revenue and profit for the payments and transactional documents segment to increase in fiscal year 2012 as a result of increased sales of our payment and document automation solutions and expansion of gross margins . banking solutions .
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we have the # 1 market share position in the united states in the performance sport boat category through our malibu and axis brands and the # 1 market share position in the 24'-29 ' segment of the sterndrive category in the united states through our cobalt brand . our product portfolio of premium brands are used for a broad range of recreational boating activities including , among others , water sports such as water skiing , wakeboarding and wake surfing , as well as general recreational boating . our passion for consistent innovation , which has led to propriety technology such as surf gate , has allowed us to expand the market for our products by introducing consumers to new and exciting recreational activities . our flagship malibu boats offer our latest innovations in performance , comfort and convenience , and are designed for consumers seeking a premium performance sport boat experience . . we launched our axis boats in 2009 to appeal to consumers who desire a more affordable performance sport boat product but still demand high performance , functional simplicity and the option to upgrade key features .. our cobalt boats consist of mid to large-sized luxury cruisers and bowriders that we believe offer the ultimate experience in comfort , performance and quality . retail prices for our boats typically range from $ 55,000 to $ 750,000 . we sell our boats through a dealer network that we believe is the strongest in the recreational powerboat category . as of july 1 , 2018 , our worldwide distribution channel consisted of over 300 dealer locations globally . we have undergone significant growth since we were founded in 1982 and began building custom ski boats in a small shop in merced , california . beginning in 2009 , under the leadership of new management , we implemented several measures designed to improve our cost structure , increase our operating leverage , enhance our product offerings and brands , and strengthen our dealer network . we have also continued to build on our legacy of innovation and invested in product development and process improvements from the evolution of our patented power wedge introduced in 2006 , to the release of our patented surf gate technology in 2012 , to the integration of the manufacturing of our towers and trailers and our current initiative to integrate our engine production . we believe our innovative features drive our high average selling prices . as a result of our innovation , process improvements , acquisition strategy and strong dealer network and management team , among other reasons , we have achieved fiscal year 2018 net sales , net income and adjusted ebitda of $ 497.0 million , $ 31.0 million and $ 92.7 million , respectively , compared to $ 281.9 million , $ 31.1 million and $ 55.7 million , respectively , for fiscal year 2017 and $ 253.0 million , $ 20.3 million and $ 48.2 million , respectively , for fiscal year 2016 . for the fiscal year ended june 30 , 2018 , net sales increased 76.3 % , gross margin as a percentage of sales increased to 24.2 % , net income 40 decreased 0.3 % and adjusted ebitda increased 66.4 % compared to the fiscal year ended june 30 , 2017 . our results for fiscal years 2018 include cobalt since our acquisition on july 6 , 2017. for the definition of adjusted ebitda and a reconciliation to net income , see “ gaap reconciliation of non-gaap financial measures. ” beginning in fiscal year 2018 , we report our results of operations under three reportable segments : malibu u.s. , malibu australia , and cobalt , based on our boat manufacturing operations . the malibu u.s. and malibu australia segments participate in the manufacturing , distribution , marketing and sale of malibu and axis performance sport boats . the malibu u.s. segment primarily serves markets in north america , south america , europe , and asia while the malibu australia operating segment principally serves the australian and new zealand markets . our cobalt segment participates in the manufacturing , distribution , marketing and sale of cobalt boats throughout the world . malibu u.s. is our largest segment and represented 59.0 % , 91.8 % and 91.8 % of our net sales for fiscal years 2018 , 2017 , and 2016 respectively . we acquired cobalt in july 2017 and it represented 36.3 % of our net sales for fiscal year 2018. malibu australia represented 4.7 % , 8.2 % and 8.2 % of our net sales for fiscal years 2018 , 2017 and 2016 , respectively . see note 17 to our consolidated financial statements included elsewhere in this annual report on form 10-k for more information about our reporting segments . agreement to acquire pursuit and related financing on august 21 , 2018 , malibu boats , llc , our wholly owned indirect subsidiary , agreed to purchase the assets of pursuit from s2 yachts , inc. for a purchase price of $ 100.0 million . pursuit , located in fort pierce , florida , is a leader in the saltwater outboard fishing boat market through its offering of 15 models of offshore , dual console and center console boats . the purchase price , which is subject to certain customary adjustments , is expected to be financed with malibu 's cash on hand and borrowings under its revolving credit facility . the acquisition is expected to close in the second quarter of fiscal 2019. in connection with entering into the agreement to acquire pursuit , malibu boats , llc , as the borrower , entered into the first incremental facility amendment and first amendment to the second amended and restated credit agreement with suntrust bank , as administrative agent , swingline lender and issuing bank on august 21 , 2018. the amendment increased the amount available for borrowing under our revolving credit facility by $ 50.0 million from $ 35.0 million to $ 85.0 million . story_separator_special_tag other income includes a portion of the amounts received from the settlement of our litigation with mastercraft boat company , llc ( `` mastercraft '' ) entered into on may 2 , 2017 and a fourth quarter of fiscal year 2017 , and first and second quarter of fiscal year 2018 adjustment to our tax receivable agreement liability . income taxes malibu boats , inc. is subject to u.s. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the llc . the llc is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions . the income tax provision reflects a reported effective income tax rate of 65.4 % , 36.2 % and 36.8 % attributable to malibu boats , inc. 's share of income for fiscal years 2018 , 2017 and 2016 , respectively . our blended statutory tax rate for fiscal year 2018 approximated 28 % as a result of the change in u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018 , in accordance with the tax cuts and jobs act of 2017 ( the `` tax act '' ) . the reported effective tax rate for fiscal year 2018 differs from the blended statutory federal income tax rate of approximately 28 % primarily due to the remeasurement of our deferred tax assets as a result of the change in tax law enacted with the tax act , totaling approximately $ 37.2 million . our effective tax rate is also impacted by the addition of new tax jurisdictions as a result of the cobalt acquisition , the impact of the non-controlling interests in the llc , the research and development tax credit , and the benefit of deductions under section 199 of the internal revenue code of 1986 , as amended ( the `` internal revenue code '' ) . 42 net income attributable to non-controlling interest as of june 30 , 2018 and 2017 , we had a 95.2 % and 93.4 % controlling economic interest and 100 % voting interest in the llc . we consolidate the llc 's operating results for financial statement purposes . net income attributable to non-controlling interest represents the portion of net income attributable to the llc members . outlook industry-wide marine retail registrations continue to recover from the years following the global financial crisis . according to statistical surveys , inc. , domestic retail registration volumes of performance sport boats , fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately 6.5 % between 2011 and 2017 , for the 50 reporting states . this has been led by growth in our core market , performance sport boats , having produced a double digit compound annual growth rate over that period . domestic retail demand growth has continued in performance sport boats for calendar year 2018 and , in fact , has accelerated versus 2017. fiberglass sterndrive and outboard boats , the target markets for our cobalt branded product , have seen their combined market grow at a 6.0 % compound annual growth rate between 2011 and 2017. cobalt 's primary market for sterndrive propulsion has been challenged , but their performance has been helped by share gains and the overall market growth has been driven by outboard propulsion , where they are a new entrant . we expect the growing demand for our products to continue , and there are numerous variables that have the potential to impact our volumes , both positively and negatively . for example , we believe the substantial decrease in the price of oil and the broad strength of the u.s. dollar has resulted in reduced demand for our boats in certain markets . to date , growth in our domestic market has offset significantly diminished demand from economies that are driven by the oil industry and international markets . consumer confidence , expanded or eroded , is a variable that could also impact demand in both directions . other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product , the availability of credit to our dealers and retail consumers , fuel costs , the continued acceptance of our new products in the recreational boating market , our ability to compete in the competitive power boating industry , and the costs of labor and certain of our raw materials and key components . since 2008 , we have increased our market share among manufacturers of performance sport boats due to new product development , improved distribution , new models , and innovative features . as the market for our product has recovered our competitors have become more aggressive in their product introductions , increased their distribution and begun to compete with our patented surf gate system . this competitive environment has continued throughout the past few years while we have once again achieved market share approaching 33 % based on unit volume in the united states among manufacturers of performance sport boats . we continue to maintain a strong lead over our nearest competitor in terms of market position and believe that we are well positioned to maintain our industry leading position given our strong dealer network and new product pipeline . in addition , we continue to be the market share leader in both the premium and value-oriented product sub-categories . we believe our track record of expanding our market share due to new product development , improved distribution , new models , and innovative features is directly transferable to our cobalt acquisition . while cobalt is the market share leader in the 24'-29 ' sterndrive market , we believe our experience positions us to execute a strategy to drive enhanced share in that core foot length segment as well as in other areas of opportunity with different foot lengths and different propulsion technologies , namely outboard boats .
| results of operations the table below sets forth our consolidated results of operations , expressed in thousands ( except unit volume and net sales per unit ) and as a percentage of net sales , for the periods presented . our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . certain totals for the table below will not sum to exactly 100 % due to rounding . 45 replace_table_token_4_th comparison of the fiscal year ended june 30 , 2018 to the fiscal year ended june 30 , 2017 net sales net sales for fiscal year 2018 increased $ 215.1 million , or 76.3 % , to $ 497.0 million , compared to fiscal year 2017 . unit volume for fiscal year 2018 increased 2,477 units , or 64.9 % , to 6,292 units compared to fiscal year 2017 . the increase in net sales and unit volumes was driven primarily by our acquisition of cobalt in july 2017. net sales and unit volumes attributable to cobalt were $ 180.3 million and 2,232 units , respectively , for fiscal year 2018. net sales attributable to our malibu u.s. segment increased $ 34.3 million , or 13.2 % , to $ 293.2 million for fiscal year 2018 compared to fiscal year 2017. unit volumes attributable to our malibu u.s. segment increased 252 units for fiscal year 2018 compared to fiscal year 2017. the increase in net sales and unit volume for our malibu u.s. segment was driven primarily by continued strong demand for our new and larger models such as the malibu wakesetter 23 lsv and axis a24 .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. our actual results could differ significantly from those anticipated in these estimates and in the forward-looking statements as a result of certain factors , including those discussed in the section of this form 10-k captioned “ risk factors , ” and elsewhere in this form 10-k. company overview we are a financial holding company headquartered in dallas , texas . we provide a wide array of financial products and services including banking , trust , investment advisory , securities brokerage , third party administration , recordkeeping and insurance to individuals , small businesses and institutions in all 50 states . in january 2019 , the bank acquired nolan , a tpa based in overland park , kansas . founded in 1979 , nolan provides clients with retirement plan design and administrative services , specializing in ministerial recordkeeping , administration , actuarial and design services for retirement plans of small businesses and professional practices . nolan has clients in 50 states and is the administrator for over 900 retirement plans , 649 of which are also clients of the bank , which is over 57 % of the retirement plans we service in our trust department . we believe that the addition of tpa services allows us to serve our clients more fully and to attract new clients to our trust platform . please see note 18 , nolan acquisition , to consolidated financial statements included in the form 10-k for more information . on may 13 , 2019 , we completed a merger with tectonic holdings , through which we expanded our financial services to include investment advisory , securities brokerage and insurance services . pursuant to the merger agreement , as amended and restated , dated march 28 , 2019 , by and between the company and tectonic holdings , tectonic holdings merged with and into the company , with the company as the surviving institution . immediately after the completion of the tectonic merger , the company completed a 1-for-2 reverse stock split with respect to the outstanding shares of its common stock . the computations of all share and per share amounts in this form 10-q have been adjusted retroactively to reflect the reverse stock split . following the tectonic merger , we operate through four main direct and indirect subsidiaries : ( i ) t bancshares , which was incorporated under the laws of the state of texas on december 23 , 2002 to serve as the bank holding company for the bank , ( ii ) sanders morris , a registered broker-dealer with finra , and registered investment advisor with the sec , ( iii ) tectonic advisors , a registered investment advisor registered with the sec focused generally on managing money for relatively large , affiliated institutions , and ( iv ) hwg , an insurance agency registered with the tdi . the company completed the underwritten initial public offering of its series b preferred stock on may 14 , 2019. in connection with the initial public offering , the company issued and sold 1,725,000 shares of its series b preferred stock , including 225,000 shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , at an offering price of $ 10.00 per share , for aggregate gross proceeds of $ 17.25 million before deducting underwriting discounts and offering expenses , and aggregate net proceeds of $ 15.5 million after deducting underwriting discounts and offering expenses . prior to the tectonic merger , sanders morris and tectonic advisors were wholly owned subsidiaries of tectonic holdings , which was under common control with the company . the tectonic merger has been accounted for as a combination of businesses under common control in accordance with asc topic 805 . under topic 805 , all the assets and liabilities of tectonic holdings are carried over to the books of the company at their then current carrying amounts , and the consolidated financial statements have been retrospectively adjusted to reflect the acquisition of sanders morris , hwg and tectonic advisors for all periods subsequent to the date at which the entities were under common control , may 15 , 2017. all intercompany transactions and balances are eliminated in consolidation . critical accounting policies and estimates we prepare consolidated financial statements based on gaap and to customary practices within the financial services industry . these policies , in certain areas , require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . 50 we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain at the time we make the accounting estimate and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on the financial statements . accounting policies related to the allowance for loan losses are considered to be critical as these policies involve considerable subjective judgment and estimation by management . a discussion of our allowance for loan losses is included in note 1 to our consolidated financial statements . story_separator_special_tag was $ 12.1 million and $ 10.6 million , respectively , an increase of $ 1.5 million , or 14.2 % , due primarily to an increase in the average volume of loans and average yields on loans , partially offset by an increase in the average volume of interest-bearing deposits and average rates paid on interest-bearing deposits . story_separator_special_tag brokerage revenue is dependent on the volume of trading , cash held in brokerage accounts which funds margin lending , and on private placement and syndication activity during the period . brokerage income for the year ended december 31 , 2019 increased $ 882,000 , or 10.1 % , compared to the year ended december 31 , 2018. these increases are primarily due to increased private placement activity and increases in interest earned on margin lending , offset by the planned termination of an agreement with a former affiliate to assist with transition of its business and decreases in certain segments of traditional brokerage activity . 54 the chart below reflects our advisory and brokerage assets as of december 31 , 2019 and 2018. replace_table_token_5_th service fees and other income . service fees includes fees for deposit-related services , and beginning in january 2019 , third party administrative fees related to the acquisition of nolan . for the year ended december 31 , 2019 , service fees and other income increased $ 2.0 million , or 82.6 % , compared to the year ended december 31 , 2018 , which was primarily due to the administrative fees recorded for services provided by nolan of $ 4.3 million , offset by bargain purchase gain of $ 1.7 million that occurred during the first quarter 2018. net loan servicing fees decreased $ 148,000 , income from securities not readily marketable decreased $ 150,000 , and the remaining $ 302,000 decrease is attributable to decreases in other income . rental income . the company receives monthly rental income from tenants leasing space in the bank building . rental income for the year ended december 31 , 2019 increased $ 33,000 , or 10.9 % , compared to the year ended december 31 , 2018. non-interest expense the components of non-interest expense were as follows : replace_table_token_6_th total non-interest expense for the year ended december 31 , 2019 increased $ 6.0 million , or 24.5 % , compared to the year ended december 31 , 2018. changes in the various components of non-interest income are discussed below . salaries and employee benefits . salaries and employee benefits include employee payroll expense , incentive compensation , health insurance , benefit plans and payroll taxes . salaries and employee benefits increased $ 4.0 million , or 27.7 % , from $ 14.5 million for the year ended december 31 , 2018 to $ 18.5 million for the year ended december 31 , 2019. the acquisition of nolan accounted for $ 3.0 million of this increase . the remaining increase was due to an increase in the number of employees in loan production and operation support areas of the company , and in the trust area related to the addition of participant directed plan services , combined with increases in commissions and incentive bonuses related to increases in brokerage activity , the majority of which was related to the increase private placement activity , and annual merit increases and rate increases for medical benefits . occupancy and equipment expense . occupancy and equipment expense include building , furniture , fixtures and equipment depreciation and maintenance costs . occupancy and equipment expense increased $ 757,000 , or 39.3 % , from $ 1.9 million for the year ended december 31 , 2018 to $ 2.7 million for the year ended december 31 , 2019. the acquisition of nolan accounted for $ 349,000 of the increase . the remaining increase is related to increased rent and utilities expense at tectonic advisors and sanders morris , and an increase in depreciation expense related to improvements to our houston office . 55 trust expenses . trust expenses include advisory fees paid on the common trust funds managed by the company based on the value of the assets held in custody . the volatility of the bond and equity markets impacts the market value of trust assets and the related expenses . the monthly advisory fees are assessed based on the market value of assets at month-end . trust expenses increased by an immaterial amount for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. brokerage and advisory direct costs . brokerage and advisory direct costs increased $ 206,000 , or 13.2 % , from $ 1.6 million for the year ended december 31 , 2018 to $ 1.8 million for the year ended december 31 , 2019 , related to increases in brokerage activity and related clearing firm service fees , execution charges and referral fees . professional fees . professional fees , which include legal , consulting , audit and professional fees , increased $ 639,000 , or 60.2 % , from $ 1.1 million for the year ended december 31 , 2018 to $ 1.7 million for the year ended december 31 , 2019. the increases included $ 312,000 related to the consulting arrangement with the previous owner of nolan ( see note 18 , nolan acquisition , to the consolidated financial statements included in this form 10-k for more information ) , and other consulting and professional expenses incurred at nolan of $ 67,000 , and an increase of $ 193,000 for consulting expense related to the implementation of the participant directed retirement plan platform for trust clients , which was partially offset by a decrease in professional fees of $ 134,000 in other areas in the business . legal fees increased $ 135,000 related to legal and regulatory matters at sanders morris , offset by a decrease of $ 40,000 in legal fees elsewhere in the business . audit and tax consulting fees increased by $ 105,000 during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 related to reviews of our public filings in 2019. data processing . data processing includes costs related to the company 's operating systems .
| performance summary net income available to common shareholders totaled $ 6.5 million , or $ 0.98 per diluted common share for the year ended december 31 , 2019 , compared to $ 8.8 million , or $ 1.34 per diluted common share for the year ended december 31 , 2018 , a decrease of $ 2.3 million or 26.1 % . the decrease in net income available to common shareholders for the year ended december 31 , 2019 was the result of a $ 6.0 million increase in non-interest expense , a $ 830,000 increase in the provision for loan losses , a $ 891,000 increase in income tax expense and a $ 618,000 increase in preferred stock dividends paid , partially offset by a $ 1.5 million increase in net interest income and a $ 4.5 million increase in non-interest income . we calculate return on average tangible common equity as net income available to common shareholders ( net income less dividends paid on preferred stock ) divided by average tangible common equity . average tangible common equity is a non-gaap financial measure . the most directly comparable gaap financial measure for average tangible common equity is average total common equity . the following table reconciles net income to income available to common shareholders and presents the calculation of return on average tangible common equity : replace_table_token_1_th for the year ended december 31 , 2019 , return on average assets was 2.33 % , compared to 3.33 % for the prior year , and return on average tangible common equity was 34.80 % , compared to 54.99 % for the prior year .
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the company evaluates its investments for possible impairment or a decline in fair value below cost basis that is deemed to be other-than-temporary on a periodic basis . it considers such factors as the length of time and extent to which the fair value has been below the cost basis , the financial condition of the investee , and its ability and intent to hold the investment for a period of time that may be sufficient for an anticipated full recovery in market story_separator_special_tag executive summary the following discussion is designed to provide a better understanding of our audited consolidated financial statements and notes thereto , including a brief discussion of our business and products , key factors that impacted our performance and a summary of our operating results . the following discussion should be read in conjunction with our consolidated financial statements included in item 8 of this annual report . historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . overview cree , inc. ( cree , we , our , or us ) is a leading innovator of lighting-class light emitting diode ( led ) products , lighting products and wide bandgap semiconductor products for power and radio-frequency ( rf ) applications . our products are targeted for applications such as indoor and outdoor lighting , video displays , transportation , electronic signs and signals , power supplies , inverters and wireless systems . our lighting products primarily consist of led lighting systems and bulbs . we design , manufacture and sell lighting fixtures and lamps for the commercial , industrial and consumer markets . our led products consist of led components , led chips , and silicon carbide ( sic ) materials . our led products enable our customers to develop and market led-based products for lighting , video screens and other industrial applications . in addition , we develop , manufacture and sell power and rf devices based on wide bandgap semiconductor materials such as sic and gallium nitride ( gan ) . our power products are made from sic and provide increased efficiency , faster switching speeds and reduced system size and weight over comparable silicon-based power devices . our rf devices are made from gan and provide improved efficiency , bandwidth and frequency of operation as compared to silicon or gallium arsenide ( gaas ) . as discussed more fully below in “ business outlook , ” on july 13 , 2016 , we executed a definitive agreement to sell our power and rf products segment and certain related portions of our sic materials and gemstones business included within our led products segment ( which we collectively also refer to as our wolfspeed business ) to infineon technologies ag ( infineon ) . the majority of our products are manufactured at our production facilities located in north carolina , wisconsin , and china . we also use contract manufacturers for certain products and aspects of product fabrication , assembly and packaging . we operate research and development facilities in north carolina , california , wisconsin , india , italy and china ( including hong kong ) . cree , inc. is a north carolina corporation established in 1987 , and our headquarters are in durham , north carolina . for further information about our consolidated revenue and earnings , please see our consolidated financial statements included in item 8 of this annual report . reportable segments our three reportable segments are : lighting products led products power and rf products reportable segments are components of an entity that have separate financial data that the entity 's chief operating decision maker ( codm ) regularly reviews when allocating resources and assessing performance . our codm is the chief executive officer . our codm does not review inter-segment transactions when evaluating segment performance and allocating resources to each segment , and inter-segment transactions are not included in our segment revenue disclosure . as such , total segment revenue is equal to our consolidated revenue . our codm reviews gross profit as the lowest and only level of segment profit . as such , all items below gross profit in the consolidated statements of income must be included to reconcile the consolidated gross profit to our consolidated ( loss ) income before income taxes . for financial results by reportable segment , please refer to note 14 , “ reportable segments , ” in our consolidated financial statements included in item 8 of this annual report . 28 industry dynamics and trends there are a number of industry factors that affect our business which include , among others : overall demand for products and applications using leds . our potential for growth depends significantly on the continued adoption of leds within the general lighting market and our ability to affect this rate of adoption . demand also fluctuates based on various market cycles , a continuously evolving led industry supply chain , and evolving competitive dynamics in the market . these uncertainties make demand difficult to forecast for us and our customers . intense and constantly evolving competitive environment . competition in the led and lighting industries is intense . many companies have made significant investments in led development and production equipment . product pricing pressures exist as market participants often undertake pricing strategies to gain or protect market share , increase the utilization of their production capacity and open new applications to led-based solutions . to remain competitive , market participants must continuously increase product performance and reduce costs . to address these competitive pressures , we have invested in research and development activities to support new product development and to deliver higher levels of performance and lower costs to differentiate our products in the market . lighting sales channel development . commercial lighting is usually sold through lighting agents and distributors in the north american lighting market . story_separator_special_tag the overall number of units sold decreased 14 % in fiscal 2015 compared to fiscal 2014 and the asp decreased 15 % in fiscal 2015 compared to fiscal 2014 . power and rf products segment revenue power and rf products revenue represented approximately 7 % , 8 % , and 6 % of our total revenue for fiscal 2016 , 2015 , and 2014 , respectively . power and rf products revenue was $ 116.7 million , $ 123.9 million , and $ 107.5 million for fiscal 2016 , 2015 , and 2014 , respectively . 32 power and rf products revenue decreased 6 % to $ 116.7 million in fiscal 2016 from $ 123.9 million in fiscal 2015 . this decrease was primarily the result of a 17 % decrease in the number of units sold , partially offset by a 4 % increase in the asp in fiscal 2016 compared to fiscal 2015 . the decrease in units sold was primarily the result of lower rf units sold . the increase in asp was due to an increase in both power and rf product asp resulting from a greater mix of higher priced power and rf products . power and rf products revenue increased 15 % to $ 123.9 million in fiscal 2015 from $ 107.5 million in fiscal 2014 . this increase was primarily the result of increased market adoption of power products that resulted in an overall increase in the number of units sold due to increased demand for sic based devices . the overall number of units sold increased 21 % in fiscal 2015 compared to fiscal 2014 . gross profit and gross margin gross profit and gross margin were as follows ( in thousands , except percentages ) : replace_table_token_6_th our consolidated gross profit increased 3 % to $ 487.1 million in fiscal 2016 from $ 473.9 million in fiscal 2015 . our consolidated gross margin increased to 30 % in fiscal 2016 from 29 % in fiscal 2015 . our consolidated gross profit decreased 23 % to $ 473.9 million in fiscal 2015 from $ 617.8 million in fiscal 2014 . our consolidated gross margin decreased to 29 % in fiscal 2015 from 37 % in fiscal 2014 . lighting products segment gross profit and gross margin lighting products gross profit was $ 238.2 million , $ 235.5 million , and $ 197.3 million in fiscal 2016 , 2015 , and 2014 , respectively . lighting products gross margin was 27 % , 26 % , and 28 % in fiscal 2016 , 2015 , and 2014 , respectively . lighting products gross profit increased 1 % to $ 238.2 million in fiscal 2016 from $ 235.5 million in fiscal 2015 . lighting products gross margin increased to 27 % in fiscal 2016 from 26 % in fiscal 2015 . lighting products gross profit and gross margin increased due to a more favorable mix of commercial lighting fixtures and the benefit of factory cost reductions . lighting products gross profit increased 19 % to $ 235.5 million in fiscal 2015 from $ 197.3 million in fiscal 2014 , due to growth in led lighting products sales as discussed above . lighting products gross margin decreased to 26 % in fiscal 2015 from 28 % in fiscal 2014 , primarily due to lower led bulb margins resulting from a more competitive pricing environment . led products segment gross profit and gross margin our led products gross profit was $ 212.4 million , $ 190.9 million , and $ 381.0 million in fiscal 2016 , 2015 , and 2014 , respectively . led products gross margin was 35 % , 32 % , and 46 % in fiscal 2016 , 2015 , and 2014 , respectively . led products gross profit increased 11 % to $ 212.4 million in fiscal 2016 from $ 190.9 million in fiscal 2015 , and led products gross margin increased to 35 % in fiscal 2016 from 32 % in fiscal 2015 . led products gross profit and gross margin increased due to higher license revenue and higher units sold , partially offset by lower pricing . in fiscal 2015 , led products gross profit and gross margin were negatively impacted by increases in channel inventory reserves and inventory reserves pursuant to our restructuring plan , as well as lower factory utilization resulting from lower demand and our targeted actions in the latter half of fiscal 2015 to reduce inventory balances for our led products segment . led products gross profit decreased 50 % to $ 190.9 million in fiscal 2015 from $ 381.0 million in fiscal 2014 , and led products gross margin decreased to 32 % in fiscal 2015 from 46 % in fiscal 2014 . led products gross profit and gross margin decreased during fiscal 2015 due to lower units sold , lower pricing , increases in channel inventory reserves and inventory reserves pursuant 33 to our restructuring plan , as well as lower factory utilization resulting from lower demand and our targeted actions in the latter half of fiscal 2015 to reduce inventory balances for our led products segment . power and rf products segment gross profit and gross margin power and rf products gross profit was $ 56.1 million , $ 67.8 million , and $ 60.7 million in fiscal 2016 , 2015 , and 2014 , respectively . power and rf products gross margin was 48 % , 55 % , and 56 % in fiscal 2016 , 2015 , and 2014 , respectively . power and rf products gross profit decreased 17 % to $ 56.1 million in fiscal 2016 from $ 67.8 million in fiscal 2015 . power and rf products gross margin decreased to 48 % in fiscal 2016 from 55 % in fiscal 2015 . power and rf products gross profit and gross margin decreased primarily due to costs associated with new product ramp ups related to new customer sales and changes in product mix .
| results of operations the following table sets forth certain consolidated statement of ( loss ) income data for the periods indicated ( in thousands , except per share amounts and percentages ) : replace_table_token_4_th led business restructuring in june 2015 , our board of directors approved a plan to restructure the led products business . the restructuring reduced excess capacity and overhead in order to improve the cost structure moving forward . the primary components of the restructuring include the planned sale or abandonment of certain manufacturing equipment , facility consolidation and the elimination of certain positions . the restructuring activity ended in the second quarter of fiscal 2016. during fiscal 2016 , we realized $ 18.8 million in led restructuring charges , which were partially offset by a $ 1.1 million gain on the sale of long-lived assets related to the restructuring which were sold for a value in excess of their estimated net realizable value during fiscal 2016. the following table summarizes the actual charges incurred ( in thousands ) : capacity and overhead cost reductions amounts incurred through june 28 , 2015 amounts incurred during fiscal year 2016 cumulative amounts incurred through june 26 , 2016 affected line item in the consolidated statements of ( loss ) income loss on disposal or impairment of long-lived assets $ 42,716 $ 15,506 $ 58,222 loss on disposal or impairment of long-lived assets severance expense 2,019 264 2,283 sales , general and administrative expenses lease termination and facility consolidation costs 1,246 3,079 4,325 sales , general and administrative expenses increase in channel inventory reserves 26,479 — 26,479 revenue , net increase in inventory reserves 11,091 — 11,091 cost of revenue , net total restructuring charges $ 83,551 $ 18,849 $ 102,400 31 revenue revenue was comprised of the following ( in thousands , except percentages ) : replace_table_token_5_th our consolidated revenue remained flat at $ 1.6 billion in fiscal 2016 compared to fiscal 2015 .
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these consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern . basis of presentation the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) and in u.s. dollars . principles of consolidation the consolidated financial statements include the accounts of the company and its wholly-owned subsidiary . all intercompany transactions and balances have been eliminated in consolidation . foreign currency translation and comprehensive income ( loss ) the company 's functional currency is the euro . for financial reporting purposes , the euro has been translated into united states dollars ( $ ) and or usd as the reporting currency . assets and liabilities are translated at the exchange rate in effect at the balance sheet date . revenues and expenses are translated at the average rate of exchange prevailing during the reporting period . equity transactions are translated at each historical transaction date spot rate . translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders ' equity ( deficit ) as “ accumulated other comprehensive income ( loss ) . ” gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income ( expense ) . there have been no significant fluctuations in the exchange rate for the conversion of euros to usd after the latest balance sheet date . comprehensive loss from january 1 , 2012 through december 31 , 2013 , includes only foreign currency translation gains ( losses ) . changes in accumulated other comprehensive income ( loss ) by component during 2013 and 2012 was as follows : foreign currency balance , december 31 , 2011 $ - translation rate gain ( loss ) ( 6,252 ) balance , december 31 , 2012 $ ( 6,252 ) translation rate gain ( loss ) ( 13,955 ) balance , december 31 , 2013 $ ( 20,207 ) f- 8 arrow cars international inc. and subsidiary notes to consolidated financial statements december 31 , 2013 and 2012 use of estimates in presenting the consolidated financial statements in accordance with accounting principles generally accepted in the united states , management makes estimates and assumptions that affect the amounts reported and related disclosures . estimates , by their nature , are based on judgment and available information . accordingly , actual results could differ from those estimates . significant estimates during the periods presented include allowances on receivables , depreciation life on revenue earning equipment-cars , unearned interest on sales type capital leases and valuation allowances on deferred tax assets . fair value measurements and fair value of financial instruments fair value is the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants . the company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques . observable inputs ( highest level ) reflect market data obtained from independent sources , while unobservable inputs ( lowest level ) reflect internally developed market assumptions . the fair value measurements are classified under the following hierarchy : ● level 1—observable inputs that reflect quoted market prices ( unadjusted ) for identical assets and liabilities in active markets ; ● level 2—observable inputs , other than quoted market prices , that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities , quoted prices in markets that are not active , or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities ; and ● level 3—unobservable inputs that are supported by little or no market activity that is significant to the fair value of assets or liabilities . the estimated fair value of certain financial instruments , including cash and cash equivalents , accounts receivable , accounts payable and accrued expenses are carried at historical cost basis , which approximates their fair values because of the short-term nature of these instruments . cash equivalents cash equivalents include all highly liquid investments with an original maturity of three months or less . we maintain cash and cash equivalents at several spanish financial institutions whereby the balances are insured under spanish law up to 100,000 euros . however , we have not experienced any losses in such accounts and believe we are not exposed to any significant credit risks on such accounts . as of december 31 , 2013 and , 2012 , there were no cash equivalents . restricted cash - bank compensating balances story_separator_special_tag arrow cars international inc. ( “ company ” , or “ aci ” ) , a private company , was organized under the laws of florida on march 8 , 2012. arrow cars sl ( “ acsl ” ) , a private limited company , was organized under the laws of spain on january 21 , 2008. on april , 4 , 2012 , arrow cars sl executed a reverse recapitalization with arrow cars international inc. aci is a holding company that conducts operations through its wholly-owned subsidiary acsl . story_separator_special_tag these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . the following table provides selected financial data about our company as of december 31 , 2013. for detailed financial information , see the financial statements included in this prospectus . balance sheet data : cash $ 3,366 total assets $ 775,858 total liabilities $ 1,206,847 shareholders ' deficit $ 430,989 story_separator_special_tag employing foreigners on a temporary basis . we believe we can increase our client base here by a minimum of 200 % ; however , there is no guarantee that we will be able to increase our client base by a minimum of 200 % . we intend to increase our client base in gibraltar by : 1 ) employing the services of an independent sales company to sell our service directly to these potential clients . 2 ) collaborating with the companies directly to introduce our services as part of a “ welcome package ” to new arrivals to ensure their arrival in new country is a more relaxed process . 23 during the second quarter of 2015 , we intend to : spain improve existing premises . costs : $ 2,000 to help maximize efficiency , we intend to improve our existing premises with the addition of wheel and chassis alignment equipment . begin negotiations for the 2015/2016 fleet of vehicles . once peak holiday season is finished , new or nearly new vehicles offers are extremely attractive . we intend to have our initial batch of vehicles for the first and second quarter of 2016 , sourced and assigned for delivery before the end of the second quarter 2015. critical accounting policies our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . these estimates and assumptions are affected by management 's applications of accounting policies . the company has elected a december 31 fiscal year end . revenue earning equipment revenue earning equipment is carried at cost , net of accumulated depreciation . depreciation for vehicles is calculated on a straight line basis and assumes a residual salvage value of 85 % of the purchase price based on typical sales prices in the rent-to-own program . revenue recognition revenues from our easy car leasing program are recognized after the lease agreement is executed by both parties in conjunction with the following : ● persuasive evidence of an arrangement exists . ● delivery has occurred or services have been rendered . ● the seller 's price to the buyer is fixed or determinable . collectability is reasonably assured using management´s estimates and empirical evidence through various years of experience . specifically we recognize revenues from the leases pro rata as earned over the lease term . payments received in advance of the lease period are recorded as “ payments made in advance-easy car leasing ” a liability , and recognized as revenue when earned . revenues from ancillary services such as car repairs upon lease termination are recognized as the services are provided . the company reports revenues net of any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer . accounts receivable-trade accounts receivable trade reflect the amounts due from easy car lease customers which have not been paid in advance . 24 recognition of gains on sales-type leases under rent-to-own leasing program in connection with our rent-to-own leasing program the leases are treated as sales type capital leases in accordance with asc 840 “ leases ” . accordingly , we recognize an initial gain on the sales-type capital leases , as other income upon execution of the agreement which provides for non-refundable lease terms generally for thirty-six months . the customer has the right to acquire title through payment of all required lease payments . unearned interest income , which is measured as the difference between the future minimum lease payments and the present value of those lease payments , on the capital lease is recorded as a liability upon execution of the lease and recognized as part of the gains prospectively over the lease term . sales type capital lease receivables and allowance for doubtful accounts the company records accounts receivable at the rent-to-own lease execution date . such accounts receivables reflect the gross payments ( aggregate future minimum lease payments to be received ) net of the down payment due under the lease . the accounts receivable is reflected as a current or non-current asset based upon the due dates of the lease payments . the company maintains a provision for possible non-collectability of the sales-type capital lease receivables . any receivables that are deemed not collectible would either be written off or removed as a offset to the repossessed car . we are an “ emerging growth company , ” as defined in the jobs act . for so long as we are an “ emerging growth company , ” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies , ” including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements , and exemptions from the requirements of holding advisory “ say-on-pay ” votes on executive compensation and shareholder advisory votes on golden parachute compensation . under the jobs act , we will remain an “ emerging growth company ” until the earliest of : ● the last day of the fiscal year during which we have total annual
| proposed milestones to implement our business operation we intend to use best efforts to raise $ 1,000,000 and use the revenue generated from our future business operations to accomplish the milestones . the amount of revenue from future business operations necessary to accomplish our plan of operation during the first 12 months is $ 1,750,000 our specific plan of operations and milestones for september 2014 through september 2015 are as follows : during the fourth quarter of 2014 , we intend to : spain source , order and coordinate delivery of the initial batch of our extended vehicle fleet . costs : $ 950,000. for the purchase of 88 vehicles outright . we intend delivery of the new fleet of vehicles to be staggered over the year to help maximize fleet utilization by replacing many of our existing fleet already on long term hire . the older fleet will be transferred to “ rent to own ” clients . open a new autooasis “ sub hub ” facility close to gibralter in october 2014 , we intend to begin to offering our services from a small , fully equipped premises close to gibraltar , on the south western most tip of spain . much of our current business originates from this region . we believe this auto oasis “ sub hub ” will improve our customer satisfaction level for this customer base . costs ; $ 40,000 – for equipment , staffing and branding . continue to develop our relationship with finance and fleet providers . we intend to use a substantial amount of the net proceeds of this offering to purchase our fleet outright . however , we will continue to develop relationships with current and potential finance providers to assist future growth , if needed . our current vehicle finance in spain is provided by bank inter and banco popular . 22 1 ) wells fargo provides banking services for our company in the usa .
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we continued to focus on elevating those experiences through our concerts , sponsorship & advertising and ticketing businesses to maximize benefits to the fans , to the many artists and teams with whom we work , and to our stockholders . we entered new markets 26 during the year and introduced new ticketing products that we believe will reap rewards for years to come . despite a competitive technological landscape that evolved more rapidly than ever , we achieved record levels in our key financial and operational metrics . our total revenue for the year was $ 10.3 billion , making this our twelfth consecutive year of revenue growth and giving us , once again , our highest revenue year ever . our concerts , sponsorship & advertising and ticketing segments all reported double-digit revenue growth as a result of both record attendance at our concerts and record ticket sales in our ticketing business . our focus on amplifying and growing our concert flywheel continues to deliver benefits ; the unique power of the live concert experience enables fans around the world to connect with artists and each other and provides us the platform to do the same . our overall revenue in 2017 increased by $ 2.0 billion on a reported and constant currency basis as compared to last year , a 23 % increase without the impact of changes in foreign exchange rates . the increase was largely driven by growth in our concerts segment with an increase in the number of events , fans , and the revenue we are generating onsite at the events . ticketing increased as well , with strong growth in concert event sales both in north america and our international markets as well as the continued expansion of our resale business . sponsorship & advertising again delivered strong growth over 2016 due to a number of new strategic multi-year deals and market expansion in europe . our operating results declined this year , due to a $ 110.0 million legal accrual to resolve a dispute that had been ongoing for two years and we are pleased to have the matter resolved . as the leading global live event and ticketing company , we believe that we are well-positioned to provide the best service to artists , teams , fans and venues and therefore drive growth across all our businesses . we believe that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience , we will sell more tickets and uniquely engage more advertising partners . by advancing innovation in ticketing technology , we will continue to improve the fan experience by offering increased and more diversified secure choices in an expanded ticketing marketplace . this gives us a compelling opportunity to grow our fan base and our results . our concerts segment was the largest contributor to our overall revenue growth , with an increase of $ 1.6 billion on a reported and constant currency basis as compared to last year , a 25 % increase without the impact of changes in foreign exchange rates . this higher revenue was partially due to additional arena shows in the united states , stadium events internationally , and growth in our theater and club business worldwide . some of the biggest tours in 2017 featured u2 , coldplay , guns n ' roses , depeche mode and bruno mars . overall , concert attendance grew by nearly 15 million to nearly 86 million fans , a record for the company , and an increase of 21 % over 2016. we continued to expand our global festival portfolio in 2017 , adding brands like bottlerock to our leading roster and growing total festival attendance by 14 % . nearly 16 million fans attended our amphitheater shows throughout the year , with florida georgia line , future , luke bryan , and zac brown all playing to sold out audiences over the summer . the growth of our amphitheater onsite business continued in 2017 , particularly with our enhanced beer and wine programs , expansion of our specialty spirits points of sale , and introduction of unique branded food concepts . these programs helped grow our ancillary revenue per fan by 9 % in 2017. as pointed out in the third quarter of 2017 , another one of our ongoing priorities is to grow our ticket revenue by optimizing ticket pricing . we saw success in this area in the united states , improving the price on our best available seats in the amphitheaters and expanding our premium ticket offerings . in our international business , our promotions business in germany continued its strong growth , doubling its number of fans to over 1.6 million . our concert teams abroad also made progress on our ticket pricing initiative , broadening our platinum and vip pricing programs in both the united kingdom and mainland europe . our concerts operating results for the year improved over 2016 largely due to the impact of these business improvements and strategic initiatives mentioned above . we will continue to look for expansion opportunities , both domestically and internationally , as well as ways to market our events more effectively , in order to continue to expand our fan base and geographic reach and to sell more tickets and onsite products . our sponsorship & advertising segment revenue for the year was up $ 67.5 million on a reported basis as compared to last year , or $ 66.4 million , an 18 % increase , without the impact of changes in foreign exchange rates . higher revenue resulted from new clients and increased international sponsorship resulting from the opening of the royal arena in copenhagen , the expansion of our germany business , and the acquisition of prominent festivals in sweden and australia . in 2017 , we continued to build new venue products across our portfolio in the united states , as well as new festival products . we also saw growth through category expansion . story_separator_special_tag 28 ticketing our ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients and retains a portion of the service charges as our fee . gross transaction value ( “ gtv ” ) represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge . service charges are generally based on a percentage of the face value or a fixed fee . we sell tickets through websites , mobile apps , ticket outlets and telephone call centers . our ticketing sales are impacted by fluctuations in the availability of events for sale to the public , which may vary depending upon scheduling by our clients . we also offer ticket resale services , sometimes referred to as secondary ticketing , principally through our integrated inventory platform , league/team platforms and other platforms internationally . our ticketing segment manages our online activities including enhancements to our ticketing websites and product offerings . through our websites , we sell tickets to our own events as well as tickets for our clients and provide event information . revenue related to ticketing service charges is recognized when the ticket is sold for our outside clients . for our own events , where our concert promoters control ticketing , revenue is deferred and recognized as the event occurs . to judge the health of our ticketing segment , we primarily review the gtv and the number of tickets sold through our primary and secondary ticketing operations , the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , the purchase conversion rate , the overall number of customers in our database , the number and percentage of tickets sold via mobile and the number of app installs . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . key operating metrics replace_table_token_6_th _ ( 1 ) events generally represent a single performance by an artist . fans generally represent the number of people who attend an event . festivals are counted as one event in the quarter in which the festival begins , but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters . events and fan attendance metrics are estimated each quarter . ( 2 ) the number of fee-bearing tickets sold includes primary and secondary tickets that are sold using our ticketmaster systems or that we issue through affiliates . this metric includes primary tickets sold during the year regardless of event timing , except for our own events where our concert promoters control ticketing and which are reported as the events occur . the non-fee-bearing tickets sold reported above includes primary tickets sold using our ticketmaster systems , through season seat packages and our venue clients ' box offices , along with tickets sold on our ‘ do it yourself ' platform . 29 non-gaap measures reconciliation of adjusted operating income ( loss ) aoi is a non-gaap financial measure that we define as operating income ( loss ) before acquisition expenses ( including transaction costs , changes in the fair value of accrued acquisition-related contingent consideration obligations , and acquisition-related severance and compensation ) , depreciation and amortization ( including goodwill impairment ) , loss ( gain ) on disposal of operating assets and certain stock-based compensation expense . we use aoi to evaluate the performance of our operating segments . we believe that information about aoi assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi is not calculated or presented in accordance with gaap . a limitation of the use of aoi as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi should be considered in addition to , and not as a substitute for , operating income ( loss ) , net income ( loss ) , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi as presented herein may not be comparable to similarly titled measures of other companies . 30 the following table sets forth the reconciliation of aoi to operating income ( loss ) : replace_table_token_7_th aoi margin aoi margin is a non-gaap financial measure that we calculate by dividing aoi by revenue . we use aoi margin to evaluate the performance of our operating segments . we believe that information about aoi margin assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi margin is not calculated or presented in accordance with gaap . a limitation of the use of aoi margin as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi margin should be considered in addition to , and not as a substitute for , operating income ( loss ) margin , net income ( loss ) margin , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi margin as presented herein may not be comparable to similarly titled measures of other companies .
| consolidated results of operations replace_table_token_11_th 35 replace_table_token_12_th * percentages are not meaningful . * * see “ —non-gaap measures ” above for definition of constant currency . * * * in accounting for the merger between live nation and ticketmaster entertainment llc in january 2010 , the nonrecoupable ticketing contract advances that existed at the date of the merger were written off in acquisition accounting in accordance with gaap . had we continued amortizing the net book value of these nonrecoupable ticketing contract advances , the amortization above would have been $ 1.5 million , $ 1.3 million and $ 1.7 million higher for the years ended december 31 , 2017 , 2016 and 2015 , respectively . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2017 include a $ 110.0 million legal settlement entered into in january 2018 , which was accrued in the company 's ticketing segment . see—item 8. financial statements and supplementary data—note 6 —commitments and contingent liabilities for further discussion . corporate corporate expenses increased $ 17.1 million , or 16 % , during the year ended december 31 , 2016 as compared to the prior year primarily due to costs incurred during 2016 associated with the relocation of an office and higher compensation costs driven by higher headcount .
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on may 28 , 2015 , we sold the 450,000 shares to the underwriters pursuant to the over-allotment option and received additional net proceeds of $ 3,225,866 after deducting underwriting discounts , commissions and other offering expenses of $ 374,134. on april 13 , 2016 , we completed an underwritten public offering of our common stock and warrants to purchase shares of our common stock , or the offering , pursuant to a registration statement on form s-1 ( file no . 333-208182 ) that was declared effective on april 7 , 2016 , and a registration statement on form s-1mef ( file no . 333-210650 ) filed pursuant to rule 462 ( b ) of the securities act . in the offering , we sold 7,500,000 shares of our common stock and warrants to purchase up to 7,500,000 shares of our common stock at a public offering price of $ 1.25 per share of common stock and related warrant . the warrants have an exercise price of $ 1.50 per share of common stock , were immediately exercisable upon issuance and will expire on april 13 , 2021. we granted the underwriters for the offering a 45-day option to purchase up to an additional 1,125,000 shares of our common stock and or warrants to purchase up to an additional 1,125,000 shares of our common stock to cover over-allotments , if any . on april 13 , 2016 , the underwriters partially exercised the over-allotment option for warrants to purchase an additional 1,125,000 shares of our common stock at a public offering price of $ 0.01 per warrant to purchase a share of our common stock . upon the closing of the offering on april 13 , 2016 , we received net proceeds of $ 7,754,286 , after deducting underwriting discounts , commissions and other offering expenses of $ 1,631,964. on april 27 , 2016 , the underwriters for the offering exercised their over-allotment option to purchase 1,125,000 shares of our common stock at a public offering price of $ 1.24 per share . on april 29 , 2016 , we sold the 1,125,000 shares to the underwriters pursuant to the over-allotment option and received additional net proceeds of $ 1,283,400 , after deducting underwriting discounts , commissions and other offering expenses of $ 111,600. on april 13 , 2016 , pursuant to the terms of the loan and security agreement , we repaid $ 1,500,000 of the secured convertible promissory note issued to ligand on may 21 , 2014 , or the ligand note , with $ 300,000 paid in cash and $ 1,200,000 paid in the form of 960,000 shares of our common stock and a warrant to purchase up to 960,000 shares of company 's common stock , or the ligand warrant . the ligand warrant has an exercise price of $ 1.50 per share of common stock , was immediately exercisable upon issuance and will expire on april 13 , 2021. on june 20 , 2016 , we entered into an equity distribution agreement , or the distribution agreement , with maxim group llc , as sales agent , or maxim , pursuant to which we may offer and sell , from time to time , through maxim , or the maxim offering , up to 3,748,726 shares of our common stock . any shares of our common stock offered and sold in the maxim offering will be issued pursuant to our registration statement on form s-3 ( file no . 333-212134 ) filed with the sec on june 20 , 2016 and the prospectus relating to the maxim offering that forms a part of the registration statement on form s-3 . the registration statement on form s-3 was declared effective by the sec on july 26 , 2016. the number of shares of our common stock eligible for sale under the distribution agreement will be subject to the limitations of general instruction i.b.6 of form s-3 . during the year ended december 31 , 2016 , we sold 778,849 shares of our common stock under the distribution agreement , resulting in net proceeds to us of $ 956,518 , after deducting the sales agent 's commission . on august 24 , 2016 , we entered into a common stock purchase agreement , or the purchase agreement , with aspire capital fund , llc , or aspire capital , pursuant to which aspire capital is committed to purchase up to an aggregate of $ 12.5 million of shares of our common stock over the 30-month term of the purchase agreement . upon execution of the purchase agreement , we issued and sold to aspire capital under the purchase agreement 333,333 shares of common stock , or the initial shares , at a price per share of $ 1.50 , for an aggregate purchase price of $ 500,000. concurrently with the execution of the purchase agreement , and as consideration for aspire capital entering into the purchase agreement , we issued to aspire capital 336,116 shares of common stock as a commitment fee , or the commitment shares . pursuant to the terms of the purchase agreement , we may , from time to time and subject to certain limitations , direct aspire capital to purchase shares of our common stock using pricing formulas based on average prevailing market prices around the time of each sale . during the year ended december 31 , 2016 , 150,000 shares were issued pursuant to the purchase agreement resulting in net proceeds to us of $ 173,250 , in addition to the initial shares and the commitment shares . although it is difficult to predict our liquidity requirements , as of december 31 , 2016 , and based upon our current operating plan , we do not believe that we will have sufficient cash to meet our projected operating requirements for at least the next 12 months unless we raise additional capital . story_separator_special_tag upon the consummation of the ipo , the convertible notes , and the accrued interest and related debt conversion feature liability under the convertible notes , and the accrued license fees payable to ligand under the master license agreement were converted to equity and , therefore , changes in their fair values are no longer recorded as expense . jobs act we are an “ emerging growth company ” within the meaning of the rules under the securities act , and we utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . for example , as an emerging growth company , we are not required to provide an auditor 's attestation report on our internal control over financial reporting in this and future annual reports on form 10-k as otherwise required by section 404 ( b ) of the sarbanes-oxley act of 2002 , as amended . in addition , section 107 of the jumpstart our business startups act of 2012 , or the jobs act , provides that an emerging growth company can utilize the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . thus , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have irrevocably elected to “ opt out ” of the extended transition period for complying with new or revised accounting standards pursuant to section 107 ( b ) of the jobs act . as a result , we are complying with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . critical accounting policies and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments related to the fair value of the debt conversion liability , preclinical , nonclinical and clinical development costs and drug manufacturing costs . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies will be critical to understanding our historical and future performance , as these policies relate to the significant areas involving management 's judgments and estimates in the preparation of our financial statements . revenue recognition we have not recorded any revenues since our inception . however , in the future , we may enter into collaborative research and licensing agreements , under which we could be eligible for payments made in the form of upfront license fees , research funding , cost reimbursement , contingent event-based payments and royalties . revenue from upfront , nonrefundable license fees is recognized over the period that any related services are provided by us . amounts received for research funding are recognized as revenue as the research services that are the subject of such funding are performed . revenue derived from reimbursement of research and development costs in transactions where we act as a principal are recorded as revenue for the gross amount of the reimbursement , and the costs associated with these reimbursements are reflected as a component of research and development expense in the statements of operations . the financial accounting standards board 's , or fasb , accounting standards codification , or asc , topic 605-28 , revenue recognition – milestone method , or asc 605-28 , established the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements . under the milestone method , a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is 63 achieved . a milestone is an event ( 1 ) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance , ( 2 ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , and ( 3 ) that would result in additional payments being due to us . the determination that a milestone is substantive is subject to management 's judgment and is made at the inception of the arrangement . milestones are considered substantive when the consideration earned from the achievement of the milestone is ( a ) commensurate with either our performance to achieve the milestone or the enhanceme nt of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone , ( b ) relates solely to past performance , and ( c ) is reasonable relative to all deliverables and payment terms in the arrangement .
| financial condition and results of operations . you should read the following discussion and analysis in conjunction with part ii , “ item 8. financial statements and supplementary data ” included below in this annual report on form 10-k. operating results are not necessarily indicative of results that may occur in future periods . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual events or results may differ materially from our expectations . important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in part i , “ item 1a . risk factors ” in this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based on information available to us as of the time we file this annual report on form 10-k and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview we are a clinical-stage biopharmaceutical company focused on the development of novel , first-in-class or best-in-class therapies for metabolic and endocrine disorders . we have exclusive worldwide rights to a portfolio of five drug candidates in clinical trials or preclinical studies , which are based on small molecules licensed from ligand pharmaceuticals incorporated , or ligand . our lead clinical program is vk5211 , an orally available drug candidate , currently in a phase 2 clinical trial for acute rehabilitation following non-elective hip fracture surgery . vk5211 is a non-steroidal selective androgen receptor modulator , or sarm . a sarm is designed to selectively interact with a subset of receptors that have a normal physiologic role of interacting with naturally-occurring hormones called androgens .
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for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business – forward-looking statements. ” critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses willamette valley vineyards ' financial statements , which have been prepared in accordance with generally accepted accounting principles . as such , management is required to make certain estimates , judgments and assumptions that are believed to be reasonable based upon the information available . on an on-going basis , management evaluates its estimates and judgments , including those related to product returns , bad debts , inventories , investments , income taxes , financing operations , and contingencies and litigation . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 21 revenue - the company 's principal sources of revenue are derived from sales and distribution of wine . distributor sales are recognized from wine sales at the time of shipment and passage of title . the company 's payment arrangements with customers provide primarily 30-day terms and , to a limited extent , 45-day , 60-day or longer terms for some international customers . direct sales from items sold through the company 's retail locations are recognized at the time of sale . inventory - the company values inventories at the lower of actual cost to produce the inventory or net realizable value . the company regularly reviews inventory quantities on hand and adjusts its production requirements for the next twelve months based on estimated forecasts of product demand . a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand . in the future , if the company 's inventory cost is determined to be greater than the net realizable value of the inventory upon sale , the company would be required to recognize such excess costs in its cost of goods sold at the time of such determination . therefore , although the company makes every effort to ensure the accuracy of its forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the ultimate selling price and cases sold and , therefore , the carrying value of the company 's inventory and its reported operating results . additionally , the company regularly evaluates inventory for obsolescence and marketability and if it determines that the inventory is obsolete , or no longer suitable for use or marketable , the cost of that inventory is recognized in its cost of sales at the time of such determination . vineyard development - the company capitalizes internal vineyard development costs prior to the vineyard land becoming fully productive . these costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine trellises . amortization of such costs as annual crop costs is done on a straight-line basis for the estimated economic useful life of the vineyard , which is estimated to be 30 years . the company regularly evaluates the recoverability of capitalized costs . amortization of vineyard development costs are included in capitalized crop costs that in turn are included in inventory costs and ultimately become a component of cost of goods sold . depletions - the company pays depletion allowances to the company 's distributors based on their sales to their customers . the company sets these allowances on a monthly basis and the company 's distributors bill them back on a monthly basis . all depletion expenses associated with a given month are recognized in that month as a reduction of revenues . the company also reimburses for samples used by distributors up to 1.5 % of product sold to the distributors . sample expenses are recognized at the time the company is billed by the distributor as a selling , general and administrative expense . shipping - amounts paid by customers to the company for shipping and handling expenses are included in the net revenue . expenses incurred for outbound shipping and handling charges are included in selling , general and administrative expense . the company 's gross margins may not be comparable to other companies in the same industry as other companies may include shipping and handling expenses as a cost of goods sold . income taxes – the company accounts for income taxes using the asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and the tax basis of assets and liabilities at the applicable tax rates . the company evaluates deferred tax assets , and records a valuation allowance against those assets , if available evidence suggests that some of those assets will not be realized . the effect of uncertain tax positions would be recorded in the financial statements only after determining a more likely than not probability that the uncertain tax positions would withstand an examination by tax authorities based on the technical merits of the position . the tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement . as facts and circumstances change , management reassesses these probabilities and would record any changes in the financial statements as appropriate . 22 overview the company generates revenue from the sales of wine to wholesalers and direct to consumers . story_separator_special_tag during 2017 , the company did not choose to utilize the wine production facilities at the tualatin winery but did utilize it for wine storage . the tualatin winery has capacity to produce approximately 25,000 cases of wine . the facility is maintained in good condition and is occasionally used by other local wineries . management intends to fully utilize the production capacity at the estate winery before expanding into the tualatin winery . grape supply for the 2017 and 2016 vintages , the company grew approximately 50 % and 47 % of all grapes harvested , respectively . the remaining grapes harvested were purchased from other growers . in 2017 and 2016 , 45 % and 32 % of grapes harvested were purchased under short-term contracts , and 5 % and 21 % of grapes harvested were purchased under long-term contracts , respectively . the company considers short-term contracts to be for single vintage years and long-term contracts to cover multiple vintage years . grapes are typically harvested and received in october of the vintage year . upon receipt , the grapes are weighed , and a quality analysis is performed to ensure the grapes meet the standards set forth in the purchase contract . based on the quantity of qualifying grapes received , the full amount payable to the grower is recorded to the grapes payable liability account . approximately 50 % of the grapes payable amount is due in november of the vintage year . the remaining amount is due in march of the following year . the grapes are processed into wine , which is typically bottled and available for sale between five months and two years from date of harvest . the company received $ 1,126,326 and $ 525,118 worth of grapes from long-term contracts during the years ended december 31 , 2017 and 2016 , respectively . the company received $ 2,047,616 and $ 1,258,642 worth of grapes from short-term contracts during the years ended december 31 , 2017 and 2016 , respectively . the increase in grape purchases contracts was primarily the result of purchases made to increase the stock of bulk wine available for anticipated bottling needs . total grapes payable were $ 1,455,569 and $ 693,666 as of december 31 , 2017 and 2016 , respectively . grapes payable includes $ 205,475 and $ 225,118 of grapes payable from long-term contracts as of december 31 , 2017 and 2016 , respectively . the company plans to address long-term grape supply needs by developing new vineyards on properties currently owned or secured by lease . the company has approximately 178 acres of vineyards that have been planted but are in the pre-productive stage . we anticipate that these vineyards will begin bearing fruit in the next one to three years . the company has approximately 168 acres of land that is suitable for future vineyard development . management currently has plans to plant approximately 42 acres and 10 acres in the years 2018 and 2019 , which we anticipate will begin bearing fruit in years 2022 and 2023 , respectively . additionally , the company intends to seek out opportunities to acquire land for future grape plantings in order to continue to increase available quantities , maintain control over farming practices , more effectively manage grape costs and mitigate uncertainty associated with long-term contracts . wine quality continued awareness of the willamette valley vineyards brand and the quality of its wines , was enhanced by national and regional media coverage throughout 2017. wine spectator magazine rated the company 's 2015 estate pinot noir a 91 point score and included it in an article titled , `` 12 polished oregon pinot noirs . '' they also rated the company 's inaugural 2014 vintage of the brut méthode champenoise sparkling wine a 92 point score , 2015 tualatin estate pinot noir a 92 point score , 2015 bernau block pinot noir a 91 point score , 2015 ribbon ridge ava series pinot noir a 91 point score , and 2015 chehalem mountains ava series pinot noir a 91 point score . 26 wine enthusiast magazine rated the company 's 2015 bernau block chardonnay with a 92 point score , 2015 estate chardonnay a 91 point score , 2014 hannah pinot noir a 91 point score , 2014 bernau block pinot noir a 91 point score , and 2014 tualatin estate pinot noir a 90 point score . they also rated company 's 2015 vintage 42 chardonnay a 92 point score and featured it in an article titled , `` the old vines of oregon wine . '' robert parker 's wine advocate rated the company 's 2015 vintage 42 chardonnay with a 92 point score , 2015 bernau block chardonnay with a 90+ point score , and 2015 estate chardonnay with a 90 point score . wine & spirits magazine rate the company 's 2014 brut methode champenoise sparkling wine a 93 point score . vinous rated the company 's 2015 hannah pinot noir with a 92 point score , 2015 bernau block pinot noir with a 92 point score , 2015 vintage 42 pinot noir a 92 point score , and 2015 tualatin estate pinot noir with a 91 point score . the inaugural 2015 vintage of the elton pinot noir received a 94 point score from vinous . the company 's 2015 estate pinot noir earned a double gold medal and 95 point score and 2016 whole cluster rose of pinot noir earned a gold medal and 91 point score at the san francisco chronicle wine competition , the largest wine competition in north america . the company was selected as a 2016 impact hot prospect brand by m. shanken communications , inc. , the parent company of wine spectator magazine .
| results of operations the company had net sales of $ 20,853,527 and $ 19,425,412 for the years december 31 , 2017 and 2016 , respectively , an increase of $ 1,428,115 or 7.4 % , for the year ended december 31 , 2017 over the prior year period . the reasons for this increase include increased sales in all categories ; retail sales ( 17.5 % ) , in-state sales ( 2.7 % ) , out-of-state sales ( 0.4 % ) and sales of bulk products ( 43.1 % ) . gross profit was $ 12,881,851 and $ 12,220,528 for the years ended december 31 , 2017 and 2016 , respectively , an increase of $ 661,323 , or 5.4 % , for the year ended december 31 , 2017 over the prior year period . this increase was generally driven by an increase in sales partially offset by a higher cost of sales percentage . the gross margin percentage was 61.8 % and 62.9 % for the years ended december 31 , 2017 and 2016 , respectively , a decrease of 1.8 % , for the year ended december 31 , 2017 over the prior year period . this decrease in the gross profit percentage was primarily the result of an overall decrease in per case margins due to the release of wines from vintages produced from lower grape harvest yields as well as the write down of obsolete inventory . margins on sales through distributors were also reduced as a result of large retailers purchasing and warehousing a higher percentage of wine that is promotionally discounted . selling , general and administrative expenses were $ 9,245,807 and $ 8,053,127 for the years ended december 31 , 2017 and 2016 , respectively , an increase of $ 1,192,680 , or 14.8 % , for the year ended december 31 , 2017 over the prior year period .
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new hire and refresh grants generally vest over four years at the rate of 50 percent two years from the date of grant and 1/16 th quarterly thereafter . there were 800,000 shares initially reserved for issuance under the 2004 plan . the 2004 plan provides for annual increases in the number of shares available for issuance beginning on january 1 , 2005 equal to the least of : 5 % of the story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this annual report on form 10-k. overview we are a fabless semiconductor company that designs , develops , and markets proprietary , advanced analog and mixed-signal semiconductors . we currently offer products that serve multiple markets , including consumer electronics , communications , computing ( which includes storage ) and industrial markets . we believe that we differentiate ourselves by offering solutions that are more highly integrated , smaller in size , more energy efficient , more accurate with respect to performance specifications and , consequently , more cost-effective than many competing solutions . we plan to continue to introduce additional new products within our existing product families , as well as in new product categories . we operate in the cyclical semiconductor industry where there is seasonal demand for certain of our products . we are not and will not be immune from current and future industry downturns , but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term . we work with third parties to manufacture and assemble our integrated circuits ( “ ics ” ) . this has enabled us to limit our capital expenditures and fixed costs , while focusing our engineering and design resources on our core strengths . following the introduction of a product , our sales cycle generally takes a number of quarters to achieve revenue and volume production is usually achieved several months after we receive an initial customer order for a new product . typical lead time for orders is fewer than 90 days . these factors , combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer , make the forecasting of our orders and revenue difficult . we derive most of our revenue from sales through distribution arrangements or direct sales to customers in asia , where the components we produce are incorporated into an end-user product . for the years ended december 31 , 2012 and 2011 , 89 % and 90 % , respectively , of our revenue was attributable to direct or indirect sales to customers in asia . we derive a majority of our revenue from the sales of our dc to dc converter product family which services the consumer electronics , communications , computing ( which includes storage ) and industrial markets . we believe our ability to achieve revenue growth will depend , in part , on our ability to develop new products , enter new market segments , gain market share , manage litigation risk , diversify our customer base and successfully secure manufacturing capacity . 33 critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an on-going basis , including those related to revenue recognition , stock-based compensation , long-term investments , short-term investments , inventories , income taxes , warranty obligations and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ , perhaps significantly , from these estimates . we believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue in accordance with financial accounting standards board ( “ fasb ” ) – accounting standards codification ( “ asc ” ) 605-10-s25 revenue recognition – overall – recognition . asc 605-10-s25 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgment regarding the fixed nature of the fee charged for products delivered and the collectability of those fees . the application of these criteria has resulted in our generally recognizing revenue upon shipment ( when title passes ) to customers . should changes in conditions cause management to determine these criteria are not met for certain future transactions , revenue recognized for any reporting period could be adversely impacted . approximately 91 % of our distributor sales , including sales to our value-added resellers , for the year ended december 31 , 2012 were made through distribution arrangements with third parties . story_separator_special_tag in addition , we recognize liabilities for potential u.s. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50 % likelihood of being sustained . if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made . we have calculated our uncertain tax positions which were attributable to certain estimates and judgments primarily related to transfer pricing , cost sharing and our international tax structure exposure . 35 as of december 31 , 2012 and 2011 , we had a valuation allowance of $ 12.5 million and $ 14.6 million , respectively , attributable to management 's determination that it is more likely than not that most of the deferred tax assets in the united states will not be realized . should it be determined that additional amounts of the net deferred tax asset will not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance will be charged to income in the period such determination is made . likewise , in the event we were to determine that it is more likely than not that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount , an adjustment to the valuation allowance for the deferred tax asset would increase income in the period such determination was made . as a result of the cost sharing arrangements with the company 's international subsidiaries ( cost share arrangements ) , relatively small changes in costs that are not subject to sharing under the cost share arrangements can significantly impact the overall profitability of the u.s. entity . because of the u.s. entity 's inconsistent earnings history and uncertainty of future earnings , the company has determined that it is more likely than not that the u.s. deferred tax benefits will not be realized . in november 2012 , california taxpayers voted in favor of mandating the use of a single sales factor for california state apportionment , effective for tax years beginning on or after january 1 , 2012. as a result of this law change that happened , our california deferred tax assets were revalued down . as we have a valuation allowance against our u.s. deferred tax assets , this revaluation of our california deferred tax assets did not impact income tax expense . the company incurred significant stock-based compensation expense , some of which related to incentive stock options for which no corresponding tax benefit will be recognized unless a disqualifying disposition occurs . disqualifying dispositions result in a reduction of income tax expense in the period when the disqualifying disposition occurs . tax benefits related to realized tax deductions in excess of previously expensed stock compensation are recorded as an addition to paid-in-capital . contingencies . we and certain of our subsidiaries are parties to actions and proceedings incident to our business in the ordinary course of business , including litigation regarding our intellectual property , challenges to the enforceability or validity of our intellectual property and claims that our products infringe on the intellectual property rights of others . the pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend . in addition , from time to time , we become aware that we are subject to other contingent liabilities . when this occurs , we will evaluate the appropriate accounting for the potential contingent liabilities using asc 450-20-25-2 contingencies – loss contingencies - recognition to determine whether a contingent liability should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . based on the facts and circumstances in each matter , we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated . if we determine a loss is probable and estimable , we record a contingent loss in accordance with asc 450-20-25-2. in determining the amount of a contingent loss , we take into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations ( which may be ongoing ) , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , we may need to record additional contingent losses that could materially and adversely impact our results of operations . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations . accounting for stock-based compensation . we account for stock-based compensation under the provisions of asc 718-10-30 compensation – stock compensation – overall – initial measurement . this standard requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award . we currently use the black-scholes option-pricing model to estimate the fair value of our share-based payments . the black-scholes option-pricing model is based on a number of assumptions , including historical volatility , expected life , risk-free interest rate and expected dividends . the fair value for time-based stock awards and stock awards that are contingent upon the achievement of financial performance metrics is based on the grant date share price . 36 we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest .
| results of operations the table below shows the consolidated statements of operations amounts ( in thousands ) and shows each as a percentage of revenue . replace_table_token_5_th 38 the following table shows our revenue by product family ( amounts in thousands , except percentages ) : replace_table_token_6_th * 2011 and 2010 revenue associated with audio amplifiers has been included with dc to dc converters to conform with current year presentation . revenue revenue for the year ended december 31 , 2012 was $ 213.8 million , an increase of $ 17.3 million , or 8.8 % , from $ 196.5 million for the year ended december 31 , 2011. this increase was primarily due to increased demand for our dc to dc converters . revenue from our dc to dc converters was $ 188.7 million , an increase of $ 18.7 million , or 11.0 % , over the same period in 2011 primarily due to increased demand for our dc to dc converters , mini-monster and cls products . sales of our lighting control products for the year ended december 31 , 2012 were down by 5.3 % compared to the same period in 2011 primarily due to reductions in demand for our ccfl and wled products .
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a call notice may not be given within 30 days of the expiration of the term of the warrants . in addition , a call notice may be given not sooner than 15 trading days after the warrant call delivery date of the immediately preceding call notice . f- 12 the company may give a call notice only within 10 trading days after any 20-consecutive trading day period during which the volume weighted average price ( “ vwap ” ) of our common stock is not less than 250 % of the exercise price for the warrants in effect for 10 out of such 20-consecutive trading day period . the exercise price of the warrants at december 31 , 2015 , is $ 3.40 per share , and accordingly 250 % of such exercise price is $ 8.50 per share . the maximum amount of warrant shares that may be included in a call notice will be reduced for the holder to the extent necessary so as to prevent the holder from exceeding the beneficial ownership limitation described in the warrants . in addition , a call notice may not be given after the occurrence of an event of default . subject to the foregoing , a holder must exercise the warrant and purchase the called warrant shares within 14 trading days after the call date , or the warrant will be cancelled with respect to the unexercised portion of the warrant that was subject to the call notice . call notices generally must be given to all warrant holders . the warrants with the embedded call option at issuance were valued using the binomial option pricing model . the average fair value of a single warrant , including the call option , was $ 2.329 per share and the average value of the warrant anti-dilution reset feature was $ 1.2002 per share at the grant date . as a result , the company recorded a discount to the notes for the warrant derivative and warrant down-round protection derivative totaling $ 2,398,280 . the warrant and warrant derivative liabilities were revalued at december 31 , 2015 , see note 9. notes payable on may 1 , 2011 , the company entered into a non-interest bearing note payable with a drug wholesaler related to sales returns in the amount of $ 147,866 . the note required monthly payments of $ 10,000 with a final payment of $ 7,866 due on july 15 , 2012. after july 2012 , the note was due on demand and incurred interest at 12 % per annum . the note was paid in full during the transition period ended december 31 , 2014. notes payable to related parties the company had notes payable to a related party amounting to $ 97,122 , which was repaid as of march 31 , 2014. the notes bore interest at 10 % per annum . accrued interest , included in accrued story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes of the company appearing elsewhere in this report . this discussion of our financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements 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 that exist in our operations , development efforts and business environment , including those set forth in this item 7 , and in the sections entitled “ 1a . risk factors ” and “ 1 . business ” in this report and uncertainties described elsewhere in this report . all forward-looking statements included in this report are based on information available to the company as of the date hereof . general company overview we are an emerging pharmaceutical company focused on combining specialty pharmaceuticals and biotechnology to provide innovative medicines for patients and physicians . we are currently primarily focused on our specialty pharmaceutical products . we are currently developing several products in the allergy and respiratory markets , including a dry powder inhaler technology that we acquired from 3m company . our goal is to create low cost therapeutic alternatives to existing treatments . consistent across all specialty pharmaceuticals product lines , we intend to pursue section 505 ( b ) ( 2 ) new drug application , or nda , or section 505 ( j ) abbreviated new drug application , or anda , regulatory approval filings with the u.s. food and drug administration , or fda , whenever possible in order to potentially reduce the time to market and to save on costs , compared to those associated with section 505 ( b ) ( 1 ) ndas for new drug products . we also have a number of biotechnology product candidates and technologies , including therapeutic vaccine and cancer product candidates and technologies for patients with unmet medical needs in the global cancer market . nda filing regarding epinephrine pfs product on may 28 , 2014 , we submitted a section 505 ( b ) ( 2 ) nda application to the fda for approval for sale of our epinephrine pfs product , for the emergency treatment of acute allergic reactions , including anaphylaxis . we received a complete response letter ( crl ) from fda on march 27 , 2015 and resubmitted the application on december 4 , 2015. the fda subsequently confirmed that it considered the resubmission to be a complete class 2 response to the crl and provided a pdufa target response date of june 4 , 2016. private placement in january 2016 on january 26 , 2016 , we completed a private placement transaction with a small number of accredited investors pursuant to which we issued 1,183,432 shares of series a-1 convertible preferred stock and warrants to purchase up to story_separator_special_tag funding that we may receive during fiscal 2016 is expected to be used to satisfy existing obligations and liabilities and working capital needs , to begin building working capital reserves and to fund a number of projects , which may include , without limitation , some or all of the following : ● continue development and commercialization of our epinephrine pfs product ; ● continue development of our allergy and respiratory product candidates ; ● continue development of the apc-5000 dpi product candidate ; ● pursue the development of other product candidates that we may develop or acquire ; ● fund clinical trials and seek regulatory approvals ; ● expand research and development activities ; ● access manufacturing , commercialization and sales capabilities ; ● implement additional internal systems and infrastructure ; ● maintain , defend and expand the scope of our intellectual property portfolio ; ● acquire products , technologies , intellectual property or companies and support continued development and funding thereof ; and ● hire additional management , sales , research , development and clinical personnel . story_separator_special_tag text-align : justify ; text-indent : 24.5pt ; font : 10pt times new roman , times , serif ; '' > we had no investing activities for the year ended december 31 , 2015 and the transition 2014 period . net cash provided by financing activities from continuing operations was approximately $ 10.6 million in the year ended december 31 , 2015 and approximately $ 4.8 million for the transition 2014 period . during the transition 2014 period , we repaid outstanding promissory notes . the primary sources of cash provided by financing activities in the year ended december 31 , 2015 and in the transition 2014 period were from the issuance of common stock with net proceeds of approximately $ 10.6 million and the issuance of series a convertible preferred stock with net proceeds of approximately $ 4.9 million , respectively . 35 on december 31 , 2012 , we issued a convertible promissory note in the principal amount of $ 600,000 and 35,294 shares of common stock to a private investor , and received gross proceeds of $ 600,000 , excluding transaction costs and expenses . interest on the outstanding principal balance of the note accrues at a rate of 10 % per annum compounded monthly and is payable monthly commencing february 1 , 2013. as amended , all unpaid and unconverted principal and interest on the note was due and payable on june 30 , 2014. at any time on or before the maturity date , the investor had the right to convert part or all of the principal and interest owed under the note into common stock at a conversion price , as amended , equal to $ 6.00 per share ( subject to adjustment for stock dividends , stock splits , reverse stock splits , reclassifications or other similar events affecting the number of outstanding shares of common stock ) . the note was repaid in june 2014. for additional information concerning our debt and equity financing transactions , see notes 8 , 9 , 13 and 14 accompanying our financial statements included elsewhere herein . as noted above under the heading “ going concern and management plan , ” at december 31 , 2015 , adamis had incurred substantial losses . the availability of any required additional funding can not be assured . even taking into account the net proceeds from the transactions described above , if we do not obtain additional equity or debt funding in the near future , our cash resources would become depleted and we will be required to materially reduce or suspend operations . even if we are successful in obtaining additional funding to permit us to continue operations at the levels that we desire , substantial time may pass before we obtain regulatory marketing approval for any products and begin to realize revenues from product sales , and we will require additional funds . no assurance can be given as to the timing or ultimate success of obtaining future funding . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our audited financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . we base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following accounting policies and estimates are most critical to aid you in understanding and evaluating our reported financial results . for further discussion of our accounting policies , see note 3 in the accompanying notes to our financial statements appearing elsewhere in this annual report on form 10-k. stock-based compensation . we account for stock-based compensation transactions in which we receive employee services in exchange for options to purchase common stock . stock-based compensation cost for restricted stock units ( “ rsus ” ) is measured based on the closing fair market value of our common stock on the date of grant . stock-based compensation cost for stock options is estimated at the grant date based on each option 's fair-value as calculated by the black-scholes option-pricing model . we recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period . derivative financial instruments .
| results of operations our consolidated results of operations are presented for the year ended december 31 , 2015 and for the nine-month transition 2014 period ended december 31 , 2014. we changed our fiscal year to the calendar twelve months ending december 31 , effective beginning after our previous fiscal year ended march 31 , 2014. as a result , our prior fiscal period was shortened from twelve months to a nine-month transition period ended on december 31 , 2014. unless otherwise indicated , comparisons below are based on results for the 12-month year ended december 31 , 2015 , to the nine-month transition 2014 period from april 1 , 2014 through december 31 , 2014 , and accordingly are not comparing results for comparable periods of time . 34 twelve months ended december 31 , 2015 and nine months ended december 31 , 2014 selling , general and administrative expenses . selling , general and administrative expenses for the year ended december 31 , 2015 and transition 2014 period were approximately $ 9.0 million and $ 4.6 million , respectively . selling , general and administrative expenses consist primarily of depreciation and amortization , legal fees , accounting and audit fees , consulting , professional fees , stock based compensation , and employee compensation . the higher expenses in 2015 was due in part to the results of operations for the longer 12-month period ending december 31 , 2015 compared to the nine months ending december 31 , 2014. the increase in expense was also primarily due to activities related to the anticipated commercialization of epinephrine pfs product , including approximately $ 980,000 of expenses relating to market research , training , branding , marketing and distribution strategies and payments to third party consultants and contractors pursuant to agreements relating to the foregoing , and approximately $ 1,310,000 increase in compensation expense for 2015 for sales and marketing employees , primarily due to salaries , stock options and employee benefits and bonus accrual .
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the following table presents the calculation of basic and diluted net loss per share of common stock attributable to amyris , inc. common stockholders ( in thousands , except share and per share amounts ) : replace_table_token_26_th the following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive : replace_table_token_27_th the convertible preferred stock and convertible preferred stock warrants were computed on an as converted basis using the conversion 76 ratios in effect as of september 30 , 2010 , the date of the ipo closing , for all periods presented in 2009 and 2010. the common stock warrants at december 31 , 2011 includes 21,087 warrants issued in 2011 and 5,136 common stock warrants converted from preferred stock warrants computed on an as converted basis using the conversion ratios in effect as of september 30 , 2010 , the date of the ipo closing . recent accounting pronouncements in story_separator_special_tag overview we are building an integrated renewable products company to provide sustainable alternatives to a broad range of petroleum-sourced products used in specialty chemical and transportation fuel markets worldwide . we do this by applying our industrial synthetic biology technology platform to modify microorganisms , primarily yeast , to function as living factories in established fermentation processes to convert plant-sourced sugars into a variety of hydrocarbon molecules that can serve as flexible building blocks to be used in a wide range of products . we were incorporated in 2003 and commenced research , development , marketing and administrative activities in 2005. to further develop our business we have established two subsidiaries , amyris brasil ltda . ( formerly amyris brasil s.a. ) , which oversees the establishment and expansion of our production in brazil , and amyris fuels llc , which we believe will help us develop fuel distribution capabilities in the u.s. amyris fuels currently generates revenue from the sale of ethanol and ethanol blended gasoline to wholesale customers through a network of terminals primarily in the southeastern u.s. while our technology enables us to design yeast and other microorganisms to produce many different kinds of molecules , our current priority is the commercialization and production of biofene , and its derivatives for sale in a range of specialty chemical applications within the following six identified markets : cosmetics , lubricants , flavors and fragrances , polymers , consumer products and transportation fuels . in april 2010 we entered into a definitive agreement with usina são martinho , one of the largest sugar and ethanol producers in brazil , to establish a joint venture entity that intends to construct and operate the first commercial plant dedicated to the production of amyris renewable products . usina são martinho will share a portion of the costs associated with this construction . in march 2011 , we entered into an agreement with paraíso bioenergia headquartered in são paulo state , brazil where we will construct a fermentation and separation facility to produce our products and paraíso bioenergia will supply sugar cane juice and certain utilities . in addition to these agreements , we have entered into non-binding letters of intent with various other brazilian sugar and ethanol producers , including alvorada , cosan , eth and açúcar guarani , to produce our products . usina são martinho also has the right to produce amyris products at a second facility . we expect to work with these producers to build new , “ bolt-on ” facilities adjacent to their existing mills instead of building entirely new “ greenfield ” facilities , thereby reducing the capital required to establish and scale our production . in june 2010 , we entered into a collaboration agreement with total . this agreement provides for joint collaboration on the development of products through the use of our synthetic biology platform . in connection with this agreement , total invested $ 133.2 million in our equity , which represented approximately 21.0 % of our outstanding shares as of december 31 , 2011 . in 40 addition , total received the right to appoint a total representative to our board of directors . in november 2010 , philippe boisseau , president of total 's gas & power division , joined our board of directors . at the end of the second quarter of 2010 , we recorded a deferred charge asset of $ 27.9 million associated with the total investment . this deferred charge asset resulted from the difference between a third party valuation of our stock and the price paid by total . this deferred charge asset will be offset against future revenue earned under arrangements with total . as of december 31 , 2011 , we recognized a cumulative reduction of $ 9.1 million against the deferred charge asset . in november 2011 , we entered into an amendment of the collaboration agreement to establish a diesel development program . the amendment provides for an exclusive strategic collaboration for the development of renewable diesel products and contemplates that the parties will establish a joint venture , or jv , for the production and commercialization of such renewable diesel products on an exclusive , worldwide basis . it also provides that commercialization and production of jet fuel , already under development pursuant to the collaboration agreement , would be conducted on an exclusive , worldwide basis through the same jv . in addition , the amendment provides the jv with the right to produce and commercialize certain other chemical products on a non-exclusive basis . the amendment provides that definitive agreements to form the jv must be in place by march 31 , 2012 ( or another date as agreed to by the parties ) or the renewable diesel program , including any further collaboration payments by total related to the renewable diesel program , will terminate . story_separator_special_tag we have also entered into agreements for the sale of biofene and its derivatives directly to customers , including with p & g for use in cleaning products , with m & g for use in plastics , with kuraray for use in production of polymers , with firmenich and givaudan for ingredients for the flavors and fragrances market , with method for use in home and personal care products , and with wilmar for use as a surfactant . production and sale of our products pursuant to any of these relationships will depend on the achievement of contract-specific technical , development and commercial milestones . in december 2011 , we received loans from brazilian banks totaling approximately $ 30.6 million based on the exchange rate at december 31 , 2011 ( r $ 57.4 million reais ) to fund capital and other expenditures relating to the production facilities we are establishing at paraíso bioenergia and biomin . we secured these loans to allow us to continue construction and process development at these plants , and expect to seek additional loans from these banks and others in order to be able to fund the establishment of other plants in brazil and elsewhere . there remains significant uncertainty regarding the timing and availability of such additional loans and , if we are unable to obtain necessary financing in a timely manner , among other things , we may be forced to curtail our operations , including delays or stoppages in construction or process development at production sites . on february 17 , 2012 , we entered into a supplemental agreement with banco pine s.a. under which the parties agreed to extend the maturity date for the repayment of the original loan entered into on december 22 , 2011 ( see note 6 ) from february 17 , 2012 to may 17 , 2012. in connection with the extension , we are obligated to pay r $ 129,150 reais ( approximately us $ 75,000 based on the exchange rate as of february 17 , 2012 ) as tax on the financial transaction as required by brazilian law . on february 23 , 2012 , we sold 10,160,325 shares of our common stock in a private placement for aggregate offering proceeds of $ 58.7 million . on february 24 , 2012 , we entered into a security purchase agreement to sell $ 25.0 million in principal amount of unsecured senior convertible promissory notes due in 2017 . the notes have a 3.0 % annual interest rate and are convertible into shares of the company 's common stock at a conversion price of $ 7.0682 ( an 18.0 % premium to market value determined under the governance rules of the nasdaq stock market ) , subject to adjustment for proportional adjustments to outstanding common stock and anti-dilution provisions in case of dividends and distributions . the note holders have a right to require repayment of 101 % of the principal amount of the notes in an acquisition of the company , and the notes provide for payment of unpaid interest on conversion following such an acquisition if the note holders do not require such repayment . the securities purchase agreement and notes include covenants regarding payment of interest , maintaining our listing status , limitations on debt , maintenance of corporate existence , and filing of sec reports . the notes include standard events of default resulting in acceleration of indebtedness , including failure to pay , bankruptcy and insolvency , cross-defaults , and breaches of the covenants in the securities purchase agreement and notes , with default interest rates and associated cure periods applicable to the covenant regarding sec reporting . since inception through december 31 , 2011 , we have recognized $ 318.8 million in revenue , primarily from the sale of ethanol and reformulated ethanol-blended gasoline by our amyris fuels subsidiary . as of december 31 , 2011 , we had an accumulated deficit of $ 381.2 million . we expect to fund operations for the foreseeable future with cash and investments currently on hand , with cash inflows from collaboration and grant funding and potential cash contributions from product sales , and with new debt and equity financing to provide additional working capital and to cover portions of our capital expenditures . our anticipated working capital needs and our planned operating and capital expenditures for 2012 and 2013 will require significant inflows of cash from credit facilities and similar sources of indebtedness , as well as funding from collaboration partners . some of these necessary financing resources are not yet subject to definitive agreements or have not committed to funding arrangements . in addition , our anticipated working capital needs and strategic plans in 2012 and beyond will depend on our ability to identify and secure additional sources of funding beyond those we have currently identified . such sources of funding may include equity or debt offerings , in addition to collaboration revenue and other forms of debt . if we fail to secure such funding , we may be forced to curtail our operations , which could include reductions or delays of planned capital expenditures or scaling back our operations . we have had to adjust the timing for construction projects relating to the são martinho plant due to financing constraints , and the 42 projected completion date for são martinho is being assessed and could be subject to further delays and adjustment based on the timing and success of our financing activities . if we are forced to curtail our operations , we may be unable to proceed with construction of certain planned production facilities , enter into definitive agreements for supply of feedstock and associated production arrangements that are currently subject to letters of intent , commercialize our products within the timeline we expect , or otherwise continue our business as currently contemplated . if , to support our planned operations , we seek additional types of funding that involve the issuance of equity securities , our existing stockholders would suffer dilution .
| results of operations comparison of year ended december 31 , 2011 to year ended december 31 , 2010 revenues replace_table_token_6_th our total revenue increased by $ 66.7 million to $ 147.0 million in 2011 from $ 80.3 million in 2010 primarily as a result of increases in product sales . revenue from product sales increased by $ 61.2 million to $ 129.8 million primarily from sales of ethanol and reformulated ethanol-blended gasoline purchased from third parties in 2011 , resulting primarily from an increase in average selling price per gallon and an increase in gallons sold over 2010 due primarily to an increase in demand from existing customers . we sold 10.1 million gallons of ethanol and 36.4 million gallons of reformulated ethanol-blended gasoline in the 2011 compared to 20.6 million gallons of ethanol and 12.4 million gallons of reformulated ethanol-blended gasoline sales in the comparable period of the prior year . we recognized product sales from farnesene-derived products for the first time in the quarter ended june 30 , 2011 , which have not been significant to date . the increase of $ 5.5 million in grants and collaborations revenue was primarily the result of higher revenue generated from collaborative research offset in part by lower grant revenue in 2011 compared to the prior year . cost and operating expenses replace_table_token_7_th cost of product sales our cost of product sales increased by $ 85.1 million to $ 155.6 million in 2011 compared to the prior year . the increase was primarily the result of an increase of $ 59.6 million in costs of ethanol and reformulated ethanol-blended gasoline purchased from third parties , which was based on an increase in product cost per gallon and higher product volume .
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for the year ended december 31 , 2017 , we recognized total revenue of $ 102,805,621 as compared to $ 129,492,013 for the year ended december 31 , 2016 , a decrease of $ 26,686,392 , or 20.6 % , primarily due to weak ev parts demand in the first half of 2017 from the jv company and its subsidiaries because of the extended delays of subsidy payments for evs manufactured in previous years and temporary working capital pressure on the jv company to increase production . during the second half of 2017 , we gradually resumed normal production and turned losses in the first six months to profits generated in the second six months . in 2017 , we recorded $ 14,344,189 of gross profit , a decrease of 19.1 % from 2016 , primarily due to the decrease of revenue . gross margin for the year ended december 31 , 2017 was 14.0 % , an increase from 13.7 % for the year ended december 31 , 2016. we recorded a net loss of $ 28,347,474 in 2017 compared to a net loss of $ 6,510,757 in 2016 , largely due to decreased revenue , gross profits and the jv company 's net losses . during the fourth quarter of 2017 , we continued our revenue growth momentum since the third quarter of this year and recognized total revenue of $ 42,851,870 as compared to $ 17,250,372 for the three months ended december 31 , 2016 , an increase of $ 25,601,498 or 148.4 % , primarily due to increased ev parts demand from the jv company and its subsidiaries for their production needs . gross profits for the three months ended december 31 , 2017 was $ 5,088,428 , an increase of $ 3,190,916 or 168.2 % , from $ 1,897,512 for the three months ended december 31 , 2016. gross margin for the three months ended december 31 , 2017 was 11.9 % , an increase from 11.0 % for the three months ended december 31 , 2016. we recorded a net income of $ 5,445,902 in the fourth quarter of 2017 compared to a net loss of $ 8,826,416 in the fourth quarter of 2016 , largely due to increased revenue and gross profits in the fourth quarter of 2017. story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > during the year ended december 31 , 2017 , our revenues from the sale of off-road vehicles including go karts , all-terrain vehicles ( “ atvs ” ) , and others , were $ 5,449,793 , representing a decrease of $ 244,617 or 4.3 % from $ 5,694,410 for the year ended december 31 , 2016 , and an increase of $ 433,678 or 8.6 % from $ 5,016,115 for the year ended december 31 , 2015 . 30 our off-road vehicles business line accounted for approximately 5.3 % of our total net revenue for the fiscal year 2017 , compared to 4.4 % for the fiscal year 2016 and 2.5 % for the fiscal year 2015. of our off-road vehicle revenue , our go-kart business accounted for approximately 3.6 % of our total net revenue for the year ended december 31 , 2017 , representing an increase from 2.8 % and1.6 % for the years ended december 31 , 2016 and 2015 , respectively , and our atv business accounted for approximately 1.6 % of our total net revenue for the year ended december 31 , 2017 , representing an increase from 1.4 % and0.9 % for the years ended december 31 , 2016 and 2015 , respectively . these percentage increases in 2017 were largely due to the decrease of the total revenue in 2017 as compared to that in 2016 and 2015. the following table shows the breakdown of our net revenues from customers by geographic markets : replace_table_token_10_th cost of goods sold cost of goods sold for the year ended december 31 , 2017 was $ 88,461,432 , representing a decrease of $ 23,308,765 , or 20.9 % , from $ 111,770,197 for the year ended december 31 , 2016 and a decrease of $ 84,188,523 , or 48.8 % , from $ 172,649,955 for the year ended december 31 , 2015. these decreases were primarily due to the corresponding decrease in sales resulting from weak demand for our ev parts by the jv company in the first six months of 2017. please refer to the below gross profit section for product margin analysis . gross profit our margins by product for the past three years are as set forth below : replace_table_token_11_th 31 gross profit for the year ended december 31 , 2017 was $ 14,344,189 , as compared to $ 17,721,816 for the year ended december 31 , 2016 , and $ 28,419,218 for year ended december 31 , 2015 , representing a decrease of $ 3,377,627 or 19.1 % from 2016 and a decrease of $ 14,075,029 or 49.5 % from 2015. these decreases were primarily attributable to the decrease in our corresponding revenue driven by weak demand for our ev parts in the first six months of 2017. our gross margin for the year ended december 31 , 2017 , was 14.0 % , compared to 13.7 % for the year ended december 31 , 2016 , and 14.1 % for the year ended december 31 , 2015. the moderate increase in our gross margin as compared to that in 2016 was mainly due to the increased gross margin attributable to off-road vehicle business in the year 2017. we did n't have less profitable ev product business in 2017 also contributed the increase of gross margin on average in 2017. research and development research and development expenses , including materials , labor , equipment depreciation , design , testing , inspection , and other related expenses totaled $ 27,628,085 for the year ended december 31 , 2017 , compared to $ 26,504,650 for the year ended december 31 , 2016 , and $ 3,482,511 for the year ended december 31 , 2015 , story_separator_special_tag 33 government grants government grants totaled $ 5,913,554 for the year ended december 31 , 2017 , compared to $ 25,913,540 for the year ended december 31 , 2016 , and $ 1,645,032 for the year ended december 31 , 2015 , representing a decrease of $ 19,999,986 , or 77.2 % from 2016 and an increase of $ 4,268,522 , or 259.5 % from 2015. the decrease from 2016 and increase from 2015 were mainly due to subsidies we received from the hainan provincial government to assist our development of a new ev model in 2017 and 2016. the total grant amount is rmb 300 million ( approximately usd 45 million ) , of which the initial payment of rmb200 million ( approximately usd30 million ) was received and $ 5,316,964 and $ 24,844,149 was recognized as income in 2017 and 2016. share of profit ( loss ) after tax of the jv company for the year ended december 31 , 2017 , the jv company 's net sales were $ 192,748,328 , gross profits were $ 3,599,634 , and net loss was $ 22,699,965. we accounted for our investments in the jv company under the equity method of accounting because we have a 50 % ownership interest in the jv company . as a result , we recorded 50 % of the jv company 's loss , or $ 11,349,983 for the year ended december 31 , 2017. after eliminating intra-entity profits and losses , our share of the after-tax loss of the jv company was $ 11,555,302 for the year ended december 31 , 2017 , compared to loss of $ 7,307,510 for 2016 , representing an increasing loss of $ 4,247,792 , which was largely due to the decreased ev selling prices on average and increased manufacturing overhead for depreciation of the new production line . during 2017 , the jv company 's revenues were primarily derived from sales of ev products in china , the jv company sold a total of 11,437 units of ev products in the prc as compared to a total of 10,148 units sold in 2016 , an increase of 12.7 % , of which the jv company sold 7,416 units of model k12 , 3,939 units of model k17 and 82 units of other models in 2017. other income ( expense ) , net net other income was $ 123,925 for the year ended december 31 , 2017 , compared to net other income of $ 1,627,933 for the year ended december 31 , 2016 , and net other income of $ 1,814,882 for the year ended december 31 , 2015 , a decrease in net other income of $ 1,504,008 from 2016 and a decrease in net other income of $ 1,690,957 from 2015. the higher other income in 2016 and 2015 as compared to 2017 was primarily due to the receipts of fees for providing technical services for ev technical development in both year 2016 and 2015. income taxes in accordance with the relevant chinese tax laws and regulations , our applicable corporate income tax rate is 25 % . however , kandi vehicle is qualified as a high technology company in china and is therefore entitled to use a reduced income tax rate of 15 % . each of our wholly-owned subsidiaries , kandi new energy , yongkangscrou and kandi hainan , has an applicable corporate income tax rate of 25 % . 34 we have a 50 % ownership interest in the jv company , which has an applicable corporate income tax rate of 25 % . each of the jv company 's subsidiaries has an applicable corporate income tax rate of 25 % as well . our actual effective income tax rate for 2017 was a tax benefit of 10.32 % on a reported loss before taxes of $ 31.3 million , compared to an effective income tax rate with a tax expense of -11.69 % in 2016 on a reported loss before taxes of $ 5.3 million . the change in effective tax rates was largely due to our income tax expense in 2016 as compared to income tax benefit in 2017. net income ( loss ) we recorded net loss of $ 28,347,474 for the year ended december 31 , 2017 , compared to net loss of $ 6,510,757 for the year ended december 31 , 2016 , and net income of $ 14,665,495 for the year ended december 31 , 2015 , an increase of net loss of $ 21,836,717 from the year ended december 31 , 2016 and a decrease of net income of $ 43,012,969 from the year ended december 31 , 2015. the decrease in net income was primarily attributable to decreased revenue and gross profits , r & d expenses of $ 27.6 million to develop new ev model and related new product and the increased jv company 's net losses partially due to increased product r & d expenses of $ 6.9 million , of which we recorded 50 % of the jv company 's loss . excluding ( i ) the effects of stock award expenses , which were $ 5,191,307 , $ 14,959,687 and $ 22,379,220 for the years ended december 31 , 2017 , 2016 and 2015 , respectively , and ( ii ) the change in the fair value of financial derivatives , which were gains of $ 0 , $ 3,823,590 and $ 8,519,295 for the years ended december 31 , 2017 , 2016 and 2015 , respectively , our net loss ( non-gaap ) was $ 23,156,167 for the year ended december 31 , 2017 , as compared to net income ( non-gaap ) of $ 4,625,340 for the year ended december 31 , 2016 , a decrease income of $ 27,781,507 , and compared to net income ( non-gaap ) of $ 28,525,420 for the year ended december 31,2015 , a decrease income of $ 51,681,587. the decrease in net income ( non-gaap ) was primarily attributable to the decrease of revenue and gross profits , and jv company 's net losses .
| results of operations comparison of years ended december 31 , 2017 , 2016 and 2015 the following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_8_th 28 revenues for the year ended december 31 , 2017 , we had net revenues of $ 102,805,621 compared to net revenues of $ 129,492,013for the year ended december 31 , 2016 and $ 201,069,173 for the year ended december 31 , 2015 , representing a decrease of $ 26,686,392 , or 20.6 % , from 2016 and a decrease of $ 98,263,552 , or 48.9 % , from 2015 , respectively . the decrease in revenue was primarily due to the decrease of sales volume due to the negative impact of industry-wide subsidy investigation in 2016 and subsidy reduction policies as well as decreased selling prices on average . due to increasing competition in chinese ev industries , the selling prices of our batteries for the year ended december 31 , 2017 decreased from last year . our products include ev parts , ev products , and off-road vehicles , including atvs , utility vehicles ( “ utvs ” ) , go-karts , and others . for the year ended december 31 , 2017 , 2016 and 2015 , 95 % , 96 % and 98 % , respectively , of our revenues were derived from the sales of our products in china . the following table summarizes our revenues by product type for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_9_th 29 ev parts during the year ended december 31 , 2017 , our revenues from the sale of ev parts were $ 97,355,828 , representing a decrease of $ 22,723,484 or 18.9 % from $ 120,079,312 for the year ended december 31 , 2016 and a decrease of $ 98,697,230 or 50.3 % from $ 196,053,058 for the year ended december 31 , 2015 , respectively .
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asset impairment and other charges , net ( continued ) the following represents the detail of asset impairment and exit activity charges ( credits ) , net for the story_separator_special_tag overview we are one of the world 's leading vertically integrated producers , marketers and distributors of high-quality fresh and fresh-cut fruit and vegetables , as well as a leading producer and marketer of prepared fruit and vegetables , juices , beverages and snacks in europe , africa and the middle east . we market our products worldwide under the del monte ® brand , a symbol of product innovation , quality , freshness and reliability since 1892. our global sourcing and logistics system allows us to provide regular delivery of consistently high-quality produce and value-added services to our customers . our major producing operations are located in north , central and south america , asia and africa . production operations are aggregated on the basis of our products : bananas , other fresh produce and prepared foods . other fresh produce includes pineapples , melons , tomatoes , non-tropical fruit ( including grapes , apples , pears , peaches , plums , nectarines , avocados , citrus and kiwis ) , fresh-cut produce and other fruit and vegetables and a plastic product and box manufacturing business and third-party ocean freight services . prepared foods include prepared fruit and vegetables , juices , beverages , snacks , poultry and meat products . strategy our strategy is a combination of maximizing revenues from our existing infrastructure , entering new markets and strict cost control initiatives . we plan to continue to capitalize on the growing global demand for fresh produce and expand our reach into existing and new markets . we expect sales growth of our fresh produce products in key markets by increasing sales volume and per unit sales prices as permitted by market conditions . our strategy includes increasing volumes from existing production and distribution facilities in order to improve operating efficiencies and reduce per unit costs . we plan additional investments in production facilities to expand our product offering in established markets and continue with our recent expansion in growth markets , such as the middle east , africa and countries formerly part of the soviet union . we also plan additional investments in our north america distribution and fresh-cut fruit facilities and production operations to support our planned growth in this market . net sales our net sales are affected by numerous factors , including mainly the balance between the supply of and demand for our produce and competition from other fresh produce companies . our net sales are also dependent on our ability to supply a consistent volume and quality of fresh produce to the markets we serve . for example , seasonal variations in demand for bananas as a result of increased supply and competition from other fruit are reflected in the seasonal fluctuations in banana prices , with the first six months of each year generally exhibiting stronger demand and higher prices , except in those years where an excess supply exists . in 2014 , our overall banana sales volume increased by 5 % and our average per unit sales prices increased by 2 % . our net sales of other fresh produce were positively impacted by higher sales volumes of avocados , pineapples and tomatoes combined with higher sales volume of our fresh-cut products in the middle east and asia . in our prepared food business , we generally realize the largest portion of our net sales and gross profit in the third and fourth quarters of the year . during 2014 , our prepared food net sales increased principally as a result of higher production in our poultry operations in jordan combined with improved pricing and production volume of our industrial products . since our financial reporting currency is the u.s. dollar , our net sales are significantly affected by fluctuations in the value of the currency in which we conduct our sales versus the dollar , with a strong dollar versus such currencies resulting in decreased net sales in dollar terms . including the effect of our foreign currency hedges , net sales for 2014 were positively impacted by $ 18.4 million , as compared to 2013 , principally as a result of a stronger euro and korean won , partially offset by a weaker japanese yen versus the u.s. dollar . during 2014 , our net sales were positively affected by higher sales volumes of bananas and avocados principally sourced from independent growers in costa rica , ecuador , colombia and mexico and by higher sales volume of fresh-cut products in the middle east and asia that resulted from an expanded customer base and improved demand for our products . also , our net sales were positively affected by our expansion into new markets in the middle east . our net sales growth in recent years has been achieved primarily through increased sales volume in existing markets of other fresh produce , primarily pineapples , fresh-cut products and non-tropical fruit and favorable pricing on our del monte gold ® extra sweet pineapple combined with increased sales volume and per unit sales prices of bananas in existing and new markets . our net sales growth in recent years has also been attributable to a broadening of our product line with the expansion of our fresh-cut produce business , specifically increased sales to the foodservice sector and convenience stores combined with our expansion into new markets . we expect our net sales growth to continue to be driven by increased sales volumes across all of our segments . in the middle east , we expect to continue to increase our net sales of our fresh produce and prepared food product offerings as a result of our expansion in various markets in the region 27 such as turkey , qatar and other regional markets . story_separator_special_tag this impairment was principally due to the failure of this business to meet our expectations due to under-performance of the prepared food business in europe combined with the recent cyclical downturn in industrial products . asset impairment and other charges , net in 2014 , we recorded asset impairment and other charges totaling $ 11.2 million principally related to unfavorable litigation in europe , the closure of under-utilized distribution centers in the united kingdom and germany , restructuring activities in chile , germany , france and brazil , and adverse weather conditions in chile . partially offsetting these charges were credits of $ 4.2 million related to our former pineapple operation in kunia , hawaii . in 2013 , we recorded asset impairment and other charges totaling $ 37.1 million principally due to exit activity in brazil related to bananas , pineapples and melons , the closure of under-utilized facilities in germany , poland and the united kingdom , restructuring costs in the united kingdom , france and cameroon , the closure of under-performing banana areas in costa rica and the philippines and the unfavorable settlement of litigation in the united states . partially offsetting these charges was a gain on the sale of a previously impaired facility in the united kingdom . interest expense interest expense consists primarily of interest on borrowings under working capital facilities that we maintain and interest on other long-term debt primarily for capital lease obligations . in 2014 , our interest expense increased primarily due to higher average outstanding debt . other expense ( income ) , net other ( income ) expense , net , primarily consists of currency exchange gains or losses , equity gains and losses in unconsolidated companies and other miscellaneous income and expense items . during 2014 , other ( income ) expense , net principally included higher foreign exchange losses . during 2013 , other ( income ) expense , net , includes a $ 16.6 million gain related to a favorable judgment awarded in litigation combined with lower foreign exchange losses and $ 1.6 million in financial charges as a result of an unfavorable court ruling related to value added tax reporting in south america . provision for income taxes the provision for income taxes in 2014 was $ 14.3 million . income taxes consist of the consolidation of the tax provisions , computed on a separate entity basis , in each country in which we have operations . since we are a non-u.s. company with substantial operations outside the united states , a substantial portion of our results of operations is not subject to u.s. taxation . several of the countries in which we operate have favorable tax rates . we are subject to u.s. taxation on our operations in the united states . from time to time , tax authorities in various jurisdictions in which we operate audit our tax returns and review our tax positions . there are audits presently pending in various countries . there can be no assurance that any tax audits , or changes in existing tax laws or interpretations in countries in which we operate , will not result in an increased effective tax rate for us . 29 story_separator_special_tag roman ; font-size:10pt ; '' > ◦ gross profit on pineapples increased primarily due to higher sales volumes in north america primarily as a result of higher production due to favorable growing conditions in our costa rica operations . also contributing to the increase in gross profit was lower fruit cost as a result of improved yields . worldwide pineapple per unit sales prices decreased 1 % and per unit cost decreased 2 % . ◦ gross profit on melons increased principally due to higher per unit selling prices in north america as a result of lower industry-wide volumes during the offshore melon season combined with lower per unit cost as a result of lower ocean freight and production costs . ◦ gross profit on fresh-cut products decreased principally due to lower sales volumes and higher labor and distribution costs in our north america operations combined with lower sales volume that resulted from the loss of business in our fresh-cut fruit operations in the united kingdom . partially offsetting these decreases in gross profit was higher gross profit in the middle east principally due to higher sales volumes and lower costs . ◦ gross profit on tomatoes decreased due to a labor shortage in florida combined with low yields during our first growing year in our new tomato operations . gross profit in the prepared food segment increased by $ 9.8 million principally as a result of lower production cost and increased sales volumes in our jordanian poultry operations combined with higher sales volume and pricing on our industrial pineapple products and higher per unit sales prices on canned deciduous fruit principally a result of improved market conditions . partially offsetting these increases in gross profit was higher cost for canned pineapples in europe related to additional import duties charged by the european union . these additional import duties charged by the european union are expected to be rescinded during 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased by $ 1.1 million to $ 175.8 million in 2014 compared with $ 176.9 million in 2013 . the decrease was principally due to lower selling , general and administrative expenses in europe as a result of cost reduction initiatives . partially offsetting these decreases were higher excutive compensation and legal expenses combined with higher admistration expenses in the middle east as a result of expansion in the region . loss on disposal of property , plant and equipment . the loss on disposal of property , plant and equipment of $ 4.3 million in 2014 and $ 4.9 million in 2013 related principally to the disposal of low-yield banana plants in costa rica and guatemala in order to replant and improve productivity , partially offset by a gain on sale of shipping-related and other surplus equipment .
| results of operations the following table presents , for each of the periods indicated , certain income statement data expressed as a percentage of net sales : replace_table_token_7_th the following tables present for each of the periods indicated ( i ) net sales by geographic region , ( ii ) net sales by product category and ( iii ) gross profit by product category and , in each case , the percentage of the total represented thereby : replace_table_token_8_th replace_table_token_9_th 30 2014 compared with 2013 net sales . net sales in 2014 were $ 3,927.5 million compared with $ 3,683.7 million in 2013 . the increase in net sales of $ 243.8 million was attributable to higher net sales in all of our segments . net sales of bananas increased by $ 112.5 million principally due to higher sales volume in north america and europe and higher per unit sale prices in europe , asia and the middle east . worldwide banana sales volume increased by 5 % . ◦ europe banana net sales increased due to higher per unit sale prices , principally as a result of lower industry supplies , favorable exchange rates and an increase in sales volume . ◦ north america banana net sales increased due to higher sales volume primarily as a result of an expanded customer base . ◦ middle east banana net sales remained relatively flat as an increase in per unit sale prices due to lower industry volumes were offset by lower sales volumes . shipments from the philippines were reduced principally due to unfavorable growing conditions . ◦ asia banana net sales increased as a result of higher per unit sales prices principally due to lower industry supplies . partially offsetting these increases in net sales was lower sales volumes as a result of reduced shipments from the philippines due to unfavorable growing conditions , and unfavorable yen exchange rates .
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the company recognized a share-based payments charge of $ 4.7 million for the year ended november 30 , 2013 with the majority of the expense recognized for options granted in the previous year and an additional expense of $ 0.8 million for options cancelled in 2013 and $ 9.2 million for the year ended november 30 , 2012 for options granted to directors ( $ 4.1 million ) , employees and services providers ( $ 5.1 million ) , net of forfeitures . on november 22 , 2013 , the company cancelled 5,710,000 story_separator_special_tag novacopper inc. ( an exploration-stage company ) management 's discussion & analysis for the fourth quarter and year ended november 30 , 2013 ( expressed in us dollars ) general this management 's discussion and analysis ( md & a ) of novacopper inc. is dated january 29 , 2014 and provides an analysis of our audited financial results for the year ended november 30 , 2013 compared to the year ended november 30 , 2012. the following information should be read in conjunction with our november 30 , 2013 audited consolidated financial statements and related notes which were prepared in accordance with united states generally accepted accounting principles ( u.s . gaap ) . a summary of the u.s. gaap accounting policies are outlined in note 2 of the audited consolidated financial statements . all amounts are in united states dollars unless otherwise stated . scott petsel , p.geo. , an employee and the upper kobuk mineral projects manager , is a qualified person under ni 43-101 , and has approved the scientific and technical information in this md & a . novacopper 's shares are listed on the tsx and the nyse-mkt under the symbol ncq . additional information related to novacopper , including our annual report on form 10-k , is available on sedar at www.sedar.com and on edgar at www.sec.gov . description of business we are a base metals exploration company focused on exploring and developing the ambler mining district located in alaska , u.s.a. we conduct our operations through a wholly-owned subsidiary , novacopper us . our upper kobuk mineral projects or ukmp projects consist of i ) the 100 % owned ambler lands which host the arctic copper-zinc-lead-gold-silver project ; and ii ) the bornite carbonate-hosted copper project located on the bornite lands being explored under a collaborative long-term agreement with nana , a regional alaska native corporation . we are primarily focused on developing copper properties in the ambler mining district , some of which also have significant zinc , gold and silver resources . our principal properties are located in alaska , a region with low geopolitical risk that has a long history of mining , established permitting standards and state and federal governments supportive of resource development . we draw on the expertise of our management and board of directors who have years of experience in the ambler region from their time at novagold . we are focused on continuing to identify high-grade mineralization with additional exploration executed in 2013. we were formed in 2011 by novagold to hold the ukmp projects , and were spun-out to shareholders of novagold through a plan of arrangement effective april 30 , 2012. novagold shareholders received one novacopper common share for every six common shares of novagold held on the effective date of the plan of arrangement . property review our principal assets , the ukmp projects , are located in the ambler mining district in northwest alaska . our ukmp projects comprise approximately 352,943 acres ( 142,831 hectares ) consisting of the ambler and bornite lands . arctic project the ambler lands , which host a number of deposits , including the high-grade copper-zinc-lead-gold-silver arctic project , and other mineralized targets within a 65 kilometer long vms belt , are owned by novacopper us . the ambler lands are located in northwestern alaska and consist of 112,058 acres ( 45,348 hectares ) of federal patented mining claims and state of alaska mining claims , within which vms mineralization has been found . on january 11 , 2010 , novagold purchased 100 % of the ambler lands . as consideration , novagold issued 931,098 common shares with a fair value of $ 5.0 million and agreed to make two cash payments to the vendor of $ 12.0 million each in january 2011 and january 2012 for total consideration of $ 29.0 million . the january 2011 payment was made by novagold on january 7 , 2011 and the january 2012 payment was made in advance by novagold on august 5 , 2011. total fair value of the consideration was $ 26.5 million , including transaction costs associated with the acquisition of $ 0.1 million . the vendor retained a 1 % net smelter return royalty that the owner of the property can purchase at any time for a one-time payment of $ 10.0 million . 61 we have recorded the ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies . as a result of the spin-out of novacopper from novagold , the interim consolidated financial statements have been presented under the continuity of interest basis of accounting whereby the amounts are based on the amounts originally recorded by novagold as if we had held the property from inception . bornite project on october 19 , 2011 , novacopper us and nana signed a collaborative agreement to explore and develop the ambler mining district . under the nana agreement , novacopper us acquired the exclusive right to explore the bornite property and lands deeded to nana through the ancsa , located adjacent to the arctic project , and the non-exclusive right to access and entry onto nana 's lands . the agreement establishes a framework for any future development of either the bornite project or the arctic project . both projects are included as part of a larger area of interest set forth in the nana agreement . story_separator_special_tag cost savings of $ 1.2 million were realized through increased drill production rates , optimizing schedules to shorten the field season and deferring camp projects . we expended $ 5.4 million on corporate expenses compared to a budget of $ 5.9 million . corporate expenses were under budget by $ 0.5 million or 8.5 % due to cost reductions in general and administrative expenses including less corporate travel and lower office expenditures . we continued to focus our efforts on community relations and workforce development strategies , working closely with nana on these efforts . our nana shareholder hire percentage for project staff was 58 % for the 2013 field season . our community engagement during the summer was in high gear including several visits to the surrounding local communities to conduct open house meetings and facilitate dialog regarding the project . other activities included summer picnics held in local villages , visits from elders in the region for a legacy day celebrating historic workers , and tours conducted for area school children and local community representatives . in early august , we capped the field season off with a successful tour for alaskan state legislators and regulators and various representatives of the nana region . on july 30 , 2013 , we announced the results of our pea study for an open-pit scenario at the arctic deposit . the preliminary economic assessment report on the arctic project , ambler mining district , northwest alaska , dated effective september 12 , 2013 outlines an open-pit scenario of a 12-year mine life supporting a 10,000 tonne-per-day conventional grinding mill-and-flotation circuit at the arctic deposit with a pre-tax npv of $ 927.7 million or 22.8 % irr and an after-tax npv of $ 537.2 million or 17.9 % irr at an 8 % discount rate for the arctic project on a 100 % basis . initial capital expenditures are estimated at $ 717.7 million with sustaining capital expenditures of $ 164.4 million . the pea is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves . there is no certainty that the pea will be realized . the pea is available on sedar , edgar , and our website . see cautionary note to united states investors concerning reserve and resource estimates. on april 30 , 2013 , we announced the signing of a mou with aidea to investigate the viability of permitting and constructing an industrial access road to the ambler mining district and the ukmp projects . the mou formalizes the roles of each party as they relate to advancing the amdiar , which aidea is expected to commence permitting in 2014. the mou also allows aidea to investigate various ways to fund the construction and maintenance of the amdiar . although no specific terms have yet been discussed on payment for usage of the amdiar , the arrangement that aidea entered into with cominco ltd. ( now teck resources limited . ) in 1986 for construction of the red dog road and port facility may serve as a general template for a final financing agreement . this mou is non-exclusive , meaning that other mining and exploration companies or other industrial users may also work in cooperation with aidea to support development of the amdiar by signing their own mous . on february 5 , 2013 , we released an updated resource estimate for the bornite project in a report entitled ni 43-101 technical report resource estimation south reef and ruby creek zones , bornite deposit , upper kobuk mineral projects , northwest alaska. this updated bornite project resource estimation included the newly discovered south reef zone resources in addition to the previously estimated ruby creek zone resources released on july 18 , 2012. the south reef zone which lies roughly 400 to 600 meters southeast of the ruby creek zone reports at a 1.0 % copper cut-off grade , inferred resources of 43.1 million tonnes of 2.54 % cu or 2,409 million pounds of contained copper . resources are stated as potentially being economically viable in an underground mining scenario based on a projected metal price of $ 2.75 per pound copper and total site operating costs of $ 60.00 per tonne . see cautionary note to united states investors concerning reserve and resource estimates. 63 outlook we expect to release an updated resource estimate on the bornite project in late q1/early q2 2014 which will incorporate drilling from the 2013 exploration program as well as the results from the re-sampling and re-assaying program undertaken . we are currently working to develop the 2014 exploration program focus and initiatives . during 2014 , we will also continue to focus efforts on supporting aidea in permitting the amdiar which is expected to provide access to ukmp projects . we continue to work closely with our partner , nana , on community relations and workforce development strategies . we also intend to sign a memorandum of understanding with aidea in the first half of 2014 to explore the feasibility of utilizing liquid natural gas ( lng ) trucked from the north slope lng plant ( or the interior energy project ) to the ukmp projects site to replace diesel as the main source of fuel to operate the arctic processing facility . we do not currently generate operating cash flows . at november 30 , 2013 , we had cash and cash equivalents of $ 6.5 million and working capital of $ 5.4 million . at january 29 , 2014 , we had approximately $ 5.4 million of cash and cash equivalents . at present , we believe that the current cash and cash equivalent balances as of november 30 , 2013 are sufficient to cover the anticipated expenditures relating to fiscal 2014 general and administrative costs and to maintain our properties in good standing .
| fourth quarter results during the fourth quarter of 2013 , we incurred a net loss of $ 4.9 million compared to $ 7.8 million for the comparable period in 2012. the decrease in net loss in 2013 compared to 2012 was a result of reduced activities in the fall of 2013 due to a shortened field season which ended in mid-august 2013 compared with the field season in 2012 which ended in early october 2012 with drilling finished in mid-september 2012. we incurred $ 1.0 million of mineral property expenses in the fourth quarter of 2013 compared to $ 3.1 million in the fourth quarter of 2012. the other item which reflects the decrease in net loss resulted from stock-based compensation of $ 1.4 million in the fourth quarter of 2013 compared to $ 1.9 million in 2012 resulting from the timing of expense due to vesting of stock options and units . selected financial data annual information the following annual information is prepared in accordance with u.s. gaap . replace_table_token_8_th quarterly information the following unaudited quarterly information is prepared in accordance with u.s. gaap . replace_table_token_9_th factors that can cause fluctuations in our quarterly results include the length of the exploration field season at the properties , timing of property acquisition payments , stock option vesting , and issuance of shares . other factors that have caused fluctuations in the quarterly results that would not be expected to re-occur include our incorporation and completion of the spin-out . prior to april 2011 , we had no shares outstanding as it was not yet incorporated . as a result of the spin-out , the loss per common share has been restated as if the distribution of common shares would have occurred at inception .
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these forward-looking statements generally can be identified by use of statements that include phrases such as “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ plan , ” “ foresee , ” “ may , ” “ will , ” “ likely , ” “ estimates , ” “ potential , ” “ continue ” or other similar words or phrases . similarly , statements that describe our objectives , plans or goals also are forward-looking statements . all of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , changes in demand for our services as a result of automation , dependence on attracting and retaining qualified and experienced consultants , maintaining our relationships with customers and suppliers and retaining key employees , maintaining our brand name and professional reputation , the expected timing of the consummation of the plan , the impact of the rebranding on the company 's products and services , the costs of the plan , potential legal liability and regulatory developments , portability of client relationships , global and local political or economic developments in or affecting countries where we have operations , currency fluctuations in our international operations , risks related to growth , restrictions imposed by off-limits agreements , competition , consolidation in industries , reliance on information processing systems , cyber security vulnerabilities , changes to data security , data privacy , and data protection laws , limited protection of our intellectual property ( “ ip ” ) , our ability to enhance and develop new technology , our ability to successfully recover from a disaster or business continuity problems , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , the effects of the tax cuts and jobs act ( the “ tax act ” ) and other future changes in tax laws , treaties , or regulations on our business and our company , deferred tax assets that we may not be able to use , our ability to develop new products and services , the impact of the withdrawal of the united kingdom from the european union , changes in our accounting estimates and assumptions , alignment of our cost structure , the utilization and billing rates of our consultants , seasonality , the phase-out of libor , and the matters disclosed under the heading “ risk factors ” in the company 's exchange act reports , including item 1a included in this annual report on form 10-k. readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. executive summary korn ferry ( referred to herein as the “ company ” or in the first person notations “ we , ” “ our , ” and “ us ” ) is a global organizational consulting firm . we currently operate through three global segments : executive search , korn ferry advisory ( advisory ) and korn ferry rpo and professional search ( “ rpo & professional search ” ) . executive search focuses on recruiting board level , chief executive and other senior executive and general management positions , in addition to research-based interviewing and assessment solutions , for clients predominantly in the consumer goods , financial services , industrial , life sciences/healthcare and technology industries . our advisory segment assists clients to synchronize strategy and talent by addressing four fundamental needs : organizational strategy , assessment and succession , leadership development , and rewards and benefits , all underpinned by a comprehensive array of world-leading intellectual property , products and tools . rpo & professional search uses data-backed insight and ip , matched with strategic collaboration and innovative technology , to meet people challenges head-on—and succeed . solutions span all aspects of recruitment process outsourcing ( “ rpo ” ) , professional search and project recruitment . we also operate a corporate segment to record global expenses of the company . ▪ approximately 71 % of the executive searches we performed in fiscal 2019 were for board level , chief executive and other senior executive and general management positions . our 3,993 search engagement clients in fiscal 2019 included many of the world 's largest and most prestigious public and private companies . ▪ we have built strong client loyalty , with 90 % of the assignments performed during fiscal 2019 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . ▪ approximately 70 % of our revenues were generated from clients that utilize multiple lines of our business . 29 ▪ a pillar of our growth strategy is the products business . in fiscal 2019 , product s ales comprised 31 % of our advisory revenue . our subscription services delivered online help us generate long-term relationships with our clients through large scale and technology-based human resources programs . we continue to seek ways to further scale th ese highly profitable products to our global clients . ▪ in fiscal 2019 , korn ferry was recognized as a top five rpo provider in the baker 's dozen list , marking our 12th consecutive year on the list . through decades of experience , we have enhanced our rpo solution to deliver quality candidates that drive our clients ' business strategies . story_separator_special_tag management further believes that ebitda is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures , effective tax rates and tax attributes and capitalized asset values , all of which can vary substantially from company to company . similarly , adjusted fee revenue , which includes revenue that advisory would have realized over the ensuing year after the acquisition if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue , is a non-gaap financial measure . adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of gaap ; rather , it is an adjustment for a short period of time provides better comparability between fiscal 2017 and subsequent periods . management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the company 's operating results , to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis and provides a higher degree of transparency of information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . fee revenue was $ 1,926.0 million during fiscal 2019 , an increase of $ 158.8 million , or 9 % , compared to $ 1,767.2 million in fiscal 2018 , with increases in fee revenue in all segments . during fiscal 2019 , we recorded operating income of $ 140.8 million with the executive search , advisory and rpo & professional search segments contributing $ 179.1 million , $ 5.6 million ( net of $ 106.6 million impairment charge previously discussed ) and $ 50.9 million , respectively , offset by corporate expenses of $ 94.8 million . net income attributable to korn ferry decreased by $ 31.1 million during fiscal 2019 to $ 102.7 million from $ 133.8 million in fiscal 2018. adjusted ebitda was $ 311.0 million , an increase of $ 33 million during fiscal 2019 , from adjusted ebitda of $ 278.0 million in the year-ago period . during fiscal 2019 , the executive search , advisory and rpo & professional search segments contributed $ 193.8 million , $ 151.0 million and $ 54.4 million , respectively , offset by corporate expenses net of other income of $ 88.2 million . our cash , cash equivalents and marketable securities increased by $ 109.2 million to $ 767.1 million at april 30 , 2019 , compared to $ 657.9 million at april 30 , 2018. this increase was mainly due to proceeds from our revolver of $ 226.9 million and cash provided by operating activities , offset by annual bonuses earned in fiscal 2018 and paid during fiscal 2019 , sign-on and retention payments , $ 238.9 million in principal payments on our term loan , $ 46.7 million in payments for the purchase of property and equipment , $ 37.4 million in stock repurchases in the open market , $ 20.7 million paid in tax withholding on restricted stock vestings and $ 23.5 million in dividends paid during fiscal 2019. as of april 30 , 2019 , we held marketable securities to settle obligations under our executive capital accumulation plan ( “ ecap ” ) with a cost value of $ 135.4 million and a fair value of $ 140.8 million . our vested obligations for which these assets were held in trust totaled $ 122.3 million as of april 30 , 2019 and our unvested obligations totaled $ 24.6 million . our working capital increased by $ 130.1 million to $ 585.9 million in fiscal 2019. we believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital , capital expenditures , general corporate requirements , repayment of our debt obligations and dividend payments under our dividend policy in the next twelve months . we had $ 420.2 million available for borrowing under our revolver at april 30 , 2019. as of april 30 , 2018 , we had no borrowings under our previous revolver . as of april 30 , 2018 , we had a total of $ 122.1 million available under the previous revolver after issued letters of credit . as of april 30 , 2019 and 2018 , there was $ 2.9 million of standby letters of credit issued under our long-term debt arrangements . we had a total of $ 8.5 million and $ 7.4 million of standby letters of credits with other financial institutions as of april 30 , 2019 and 2018 , respectively . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of 31 our financial statements a nd the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable . in preparing our consolidated financial statements and accounting for the underlying transactions and balances , we apply our accounting policies as disclosed in the notes to our consolidated financial statements . we conside r the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management 's judgment and estimates . specific risks for these critical accounting polic ies are described in the following paragraphs .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_3_th ( 1 ) general and administrative expenses for fiscal 2019 includes write-off of tradenames of $ 106.6 million . the following tables summarize the results of our operations by segment : ( numbers may not total exactly due to rounding ) replace_table_token_4_th replace_table_token_5_th ( 1 ) margin calculated as a percentage of fee revenue by segment . 34 replace_table_token_6_th replace_table_token_7_th 35 replace_table_token_8_th fiscal 2019 compared to fiscal 2018 fee revenue fee revenue . fee revenue increased by $ 158.8 million , or 9 % , to $ 1,926.0 million in fiscal 2019 compared to $ 1,767.2 million in fiscal 2018. exchange rates unfavorably impacted fee revenue by $ 48.3 million , or 3 % , in fiscal 2019 compared to the year-ago period . the increase in fee revenue was attributable to organic growth in all solution areas . executive search . executive search reported fee revenue of $ 774.8 million , an increase of $ 65.8 million , or 9 % , in fiscal 2019 compared to $ 709.0 million in the year-ago period . as detailed below , executive search fee revenue was higher in all regions in fiscal 2019 as compared to fiscal 2018. the higher fee revenue in executive search was mainly due to a 6 % increase in the number of engagements billed and a 5 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) in fiscal 2019 compared to the year-ago period . exchange rates unfavorably impacted fee revenue by $ 14.8 million , or 2 % , in fiscal 2019 as compared to the year-ago period . north america reported fee revenue of $ 455.8 million , an increase of $ 47.7 million , or 12 % , in fiscal 2019 compared to $ 408.1 million in the year-ago period .
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please see `` forward-looking statements '' and `` risk factors '' for a discussion of some of the uncertainties , risks and assumptions associated with these statements . overview we are a leading inter-dealer broker specializing in over-the-counter derivatives products and related securities . we provide brokerage services and data and analytics products to institutional clients for a range of credit , financial , equity and commodity instruments . we function as an intermediary on behalf of our brokerage clients by matching their trading needs with counterparties having reciprocal interests . we focus on the more complex , and often less liquid , markets for sophisticated financial instruments , primarily derivatives , where inter-dealer brokers have traditionally been able to provide services to their clients that generate higher brokerage revenues than in the markets for more standardized financial instruments . our principal offices are in new york , london , hong kong , singapore and sydney . our revenues have grown from $ 275.2 million for the year ended december 31 , 2002 to $ 385.0 million for the year ended december 31 , 2004. the main factors contributing to our growth were : the net addition of 36 brokerage desks during the three year period ended december 31 , 2004 , resulting in an increase in brokerage personnel ( consisting of brokers , trainees and clerks ) from 366 brokerage personnel at december 31 , 2002 to 560 brokerage personnel at december 31 , 2004 ; a continued focus on , and investment in , growing and higher margin product areas , as well as product areas that complement our existing brokerage services ; overall volume growth in the markets in which we provide brokerage services ; 31 the introduction and continued expansion of our hybrid brokerage capabilities ; and the development of our data and analytical products . the business that is now gfi was originally formed in 1987 by our chief executive officer and founder , michael gooch . gfi group inc. was incorporated as gfi 's holding company under the laws of the state of delaware in august of 2001. jersey partners , our principal stockholder , is majority owned by michael gooch and certain of our current and former employees . jersey partners owns 51.4 % of our outstanding common stock . financial overview revenues we derive our revenues primarily through our inter-dealer brokerage services and the fees we charge for certain of our data and analytics products . brokerage revenues brokerage revenues represent revenues generated from our brokerage transactions . we provide brokerage services to our clients in the form of either agency or principal transactions . in agency transactions , we charge a commission for connecting buyers and sellers and assisting in the negotiation of the price and other material terms of the transaction . after all material terms of a transaction are agreed upon , we identify the buyer and seller to each other and they then settle the trade directly . commissions charged to our clients in agency transactions vary across the products for which we provide brokerage services . commissions from agency transactions represented approximately 72 % , 74 % , and 77 % of our total brokerage revenue for the years ended december 31 , 2004 , 2003 and 2002 , respectively . commissions from agency transactions are recognized on the date on which the related trade is made . however , we do not receive our commissions until our invoice is paid by the client . clients are invoiced on a monthly basis . we generate revenue from principal transactions on the spread between the buy and sell price of the security that is brokered . our principal transactions revenue is primarily derived from matched principal transactions . in matched principal transactions , we act as a middleman by serving as counterparty for an identified buyer and an identified seller in matching reciprocal back-to-back trades . because the buyer and seller each settle their transactions with us rather than with each other , the parties are able to maintain their anonymity . a very limited number of our brokerage desks are allowed to enter into unmatched principal transactions to facilitate a customer 's execution needs for transactions initiated by such customers . these unmatched positions are intended to be held short term and in liquid markets . revenues from principal transactions are recognized on the date on which the trade is made . generally , we do not receive our net proceeds until the settlement date of the transaction , typically one to three business days after the trade date . revenue from principal transactions has been growing as a percentage of our total brokerage revenue and comprised approximately 28 % , 26 % and 23 % of our total brokerage revenue for the years ended december 31 , 2004 , 2003 and 2002 , respectively . the increase in our revenue from principal transactions has primarily resulted from the development of our brokerage services in new and existing product areas in which principal execution is either required or more common than agency execution . the performance of our brokerage desks is largely dependent on a number of factors , including market developments affecting the products we broker , the size of transactions , the location of the markets , the terms of the instruments brokered , the currency of the instruments brokered , commission structure , competition , recruitment or departure of key brokers or customers , volatility and the level of 32 trading activity in the various products that we broker . additionally , as markets mature and have more participants , the resulting competition generally leads to lower commissions or spreads . accordingly , our strategy is to continually seek new markets in which we can charge higher commissions and increase our market share and trading volumes in existing markets in order to offset this potential downward pressure on our brokerage revenues . we offer our brokerage services in four broad product categories : credit , financial , equity and commodity . story_separator_special_tag for software licenses , we charge our clients up-front , one-time license fees and annual and monthly subscription fees . we also charge upgrade fees that are generally treated as follow-on licenses . we sell our data either on a subscription fee basis or in customized one-time sales . our analytics and market data products are marketed to a broader range of clients than are our brokerage services , including national and regional banks , large corporations and hedge funds . interest income we generate interest income primarily from the investment of our cash balances . we currently invest our cash in highly liquid investments with maturities of three months or less . other income other income primarily consists of transactional gains ( loss ) based on foreign currency fluctuations and gains ( losses ) on foreign exchange derivative contracts . additionally , we have historically included income received by us from non-recurring items such as litigation settlements , insurance settlements , gains on the sale of a non-strategic brokerage desk , and other non-recurring items . other income also includes income recognized from technology hosting services we provide to a third party . expenses compensation and employee benefits our principal operating cost is our compensation and employee benefits expense , which includes salaries , sign-on bonuses , incentive compensation and related employee benefits and taxes . our employees can be allocated into three general categories : brokerage employees , data and analytics products employees and administrative and support employees , which include our executive officers . the most significant component of our overall compensation and employee benefits expense is the employment costs of our brokerage personnel . our compensation and employee benefits expense for all employees has both a fixed and variable component . base salaries and benefit costs are primarily fixed for all employees . employees also receive bonuses , which constitute the variable portion of our compensation and employee benefits expense . bonuses for brokerage personnel are primarily based on the operating results of their related brokerage desk as well as their individual performance . for many of our brokerage employees , their bonus constitutes a significant component of their overall compensation . bonuses for other employees generally are more broadly based on our overall performance . for most of these employees , the bonus is typically a smaller component of their overall compensation than is the case for our brokerage personnel . accordingly , bonus costs , and therefore compensation and employee benefits expense , are variable and normally rise and fall in relation to our brokerage revenues . a significant portion of brokerage bonuses are typically paid semi-annually in march for the six month period ending december 31 of the prior year , and in september , for the six month period ending june 30 of that year . bonuses expensed to all employees represented 53 % , 47 % and 55 % of total compensation and employee benefits expense for the years ended december 31 , 2004 , 2003 and 2002 , respectively . compensation and employee benefits expense also includes sign-on bonuses for some newly-hired brokers or for some of our existing brokers who agree to long-term employment agreements . these sign-on bonuses are typically amortized over the term of the related employment agreement , which is generally two years . these employment agreements typically contain repayment clauses should the employee voluntarily terminate his or her employment during the initial term of the agreement . 35 we believe that in certain situations , we can expand our business into strategic product areas through recruitment of experienced brokers who can build successful brokerage desks . such recruitment may cause us to incur upfront signing bonuses which increase current compensation expense . recently , we have incurred increased expenses for sign-on bonuses in order to recruit key brokers for the strategic expansion of our brokerage operations in the equity and credit product areas . expenses relating to sign-on bonuses have increased in 2004 to a level that is substantially higher than historical levels as we further expanded into new product areas . in future years , we may pursue strategic expansion opportunities by using our common stock in lieu of cash sign-on bonuses or to acquire brokerage businesses . in the past , we compensated the brokerage personnel in our u.k. office in british pounds . as a result , we were exposed to movements in foreign currency exchange rates because most of the revenues associated with our u.k. operations are received in euros and u.s. dollars . we have attempted to mitigate this exposure in 2004 by introducing a policy which provides that bonuses earned for all brokerage personnel in our u.k. office will be paid in u.s. dollars , or foreign currency equivalents . compensation and employee benefits expense also includes expenses related to employee stock options . options issued prior to january 1 , 2003 under our 2000 stock option plan were accounted for using the intrinsic method with compensation expense arising upon issuance of options with exercise prices below the fair market value of the stock at the date of grant and totaling approximately $ 0.03 million , $ 0.04 million and $ 0.3 million , for the years ended december 31 , 2004 , 2003 and 2002 , respectively . the options issued under our 2002 stock option plan were not exercisable until the consummation of the ipo on january 31 , 2005. all options issued prior to january 1 , 2003 under our 2002 stock option plan were modified in the second quarter of 2004 to extend the term of each option . options issued or modified on or after january 1 , 2003 are accounted for using the fair value method provided by statement of financial accounting standards no . 123 , pursuant to which we expense the fair value measured at the date of grant , or incremental fair value measured at the date of modification , over the related vesting period .
| results of operations the following table sets forth our consolidated results of operations for the periods indicated : replace_table_token_5_th 39 the following table sets forth our consolidated results of operations as a percentage of our total revenues for the periods indicated : replace_table_token_6_th year ended december 31 , 2004 compared to the year ended december 31 , 2003 net income for the year ended december 31 , 2004 was $ 23.1 million as compared to net income of $ 14.5 million for the year ended december 31 , 2003 , an increase of $ 8.6 million or approximately 59.3 % . total revenues increased by $ 119.2 million , or 44.8 % , to $ 385.0 million for the year ended december 31 , 2004 from $ 265.8 million for the prior year . our increased revenues were primarily due to increased brokerage revenues across each of our product categories . total expenses increased by $ 103.4 million , or 43.3 % , to $ 341.9 million for the year ended december 31 , 2004 from $ 238.5 million for the prior year . expenses increased primarily because of increased compensation expense , which was attributable to an increase in performance-based bonuses as a result of higher revenues , and higher sign-on bonuses for the year ended december 31 , 2004. revenues brokerage revenues total brokerage revenues increased by $ 113.2 million or 45.2 % , to $ 363.4 for the year ended december 31 , 2004 from $ 250.2 million for the year ended december 31 , 2003. agency commissions increased by $ 77.1 million , or 41.7 % to $ 262.0 million for the year ended december 31 , 2004 as compared to $ 184.9 million for the year ended december 31 , 2003. principal transactions increased by 40 $ 36.1 million , or 55.4 % , to $ 101.3 million for the year ended december 31 , 2004 from $ 65.2 million
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effective december 15 , 2019 , the company terminated its product sales through the 3pl and replaced with the distributors . the company recognizes revenue on sales of its products when a customer obtains control of the products , which occurs at a point in time , typically upon delivery . in addition to distribution agreements with customers , story_separator_special_tag financial condition and results of operations the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , “ risk factors ” , and elsewhere in this report . as previously reported , we changed our fiscal year end to december 31 from june 30 , effective january 1 , 2019 . this annual report on form 10-k is for the twelve month period from january 1 , 2019 through december 31 , 2019. references in this annual report to “ fiscal 2019 ” refer to the year ended december 31 , 2019. references in this report to “ transition period ” refer to the six month period ended december 31 , 2018. references in this report to “ fiscal 2018 ” refer to the year ended june 30 , 2018 and “ fiscal 2017 ” refer to the year ended june 30 , 2017. for comparison purposes , unaudited data is shown for the twelve months ended december 31 , 2018 and the six months ended december 31 , 2017. the following management 's discussion and analysis ( “ md & a ” ) provides a narrative of our results of operations for the year ended december 31 , 2019 and the comparable period ended december 31 , 2018 and the six month transition period ended december 31 , 2018 and the comparable period ended december 31 , 2017 , respectively , and our financial position as of december 31 , 2019 and 2018 , respectively . the md & a should be read together with our consolidated financial statements and related notes included on pages f-1 through f-35 of this annual report on form 10-k. overview we are a pharmaceutical company committed to developing and commercializing innovative ophthalmic products for the treatment of eye diseases . we have two products that were approved by the united states ( “ u.s. ” ) food and drug administration ( “ fda ” ) in 2018 and were commercially launched directly in the u.s. during the first quarter of 2019. dexycu ( dexamethasone intraocular suspension ) 9 % , for intraocular administration , was launched directly in the u.s. in march 2019. indicated for the treatment of post-operative ocular inflammation , dexycu is administered as a single dose at the end of ocular surgery and is the first long-acting intraocular product approved by the fda for this indication . dexycu utilizes our proprietary verisome ® drug-delivery platform , which allows for a single intraocular injection that releases dexamethasone , a corticosteroid , over time . there were approximately 3.8 million cataract surgeries performed during 2018 in the u.s. and we launched dexycu with a primary focus on its use following cataract surgery . we acquired dexycu in connection with its acquisition of icon bioscience , inc. ( “ icon ” ) in march 2018. yutiq ( fluocinolone acetonide intravitreal implant ) 0.18 mg for intravitreal injection , was launched directly in the u.s. in february 2019. yutiq is indicated for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye , which affects between 60,000 to 100,000 people in the u.s. each year and causes approximately 30,000 new cases of blindness every year , making it the third leading cause of blindness . injected into the eye in an office visit , yutiq is a micro-insert that delivers a micro-dose of a corticosteroid to the back of the eye on a sustained constant ( zero order release ) basis for up to 36 months . yutiq is based on our proprietary durasert ® sustained-release drug delivery technology platform , which can deliver drugs for predetermined periods of time ranging from months to years . iluvien ® for diabetic macular edema ( “ dme ” ) , our lead licensed product , is sold directly in the u.s. and several european union ( “ eu ” ) countries by alimera sciences , inc. ( “ alimera ” ) . in july 2017 , we expanded its license agreement with alimera to include the uveitis indication utilizing the durasert technology in europe , the middle east and africa ( “ emea ” ) , which received european regulatory approval in march 2019 and , subject to obtaining pricing and reimbursement in each applicable country , will be marketed as iluvien . retisert ® , one of our earlier generation products , was approved in 2005 by the fda for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye and is sold in the u.s. by bausch & lomb inc. ( “ bausch & lomb ” ) . the patent with which retisert is marked expired in march 2019. as such , bausch & lomb discontinued paying royalties after march 2019. our development programs are focused primarily on developing sustained release products that utilize its durasert and verisome technology platforms to deliver approved drugs to treat chronic diseases . our strategy includes developing products independently while continuing to leverage its technology platforms through collaborations and license agreements . eyp-1901 , 6-month bioerodible durasert ® vorolanib - tki is being advanced as a potential treatment for wet age-related macular degeneration , diabetic retinopathy and retinal vein occlusion . story_separator_special_tag we expect this phase 1 trial to provide data in the second half of 2021. our proven durasert technology provides the unique opportunity to investigate eyp-1901 as a six-month treatment option for patients that also has the potential to avoid the frequent injections required for currently available biologics . positive retrospective case study data supporting dexycu was highlighted in an oral presentation at the 2020 caribbean eye meeting in an oral session entitled , “ drug delivery : real-world experience with dexamethasone intraocular suspension ” . the ongoing retrospective study is designed to provide large-scale , real-world data on early experiences with dexycu from surgeons . interim results presented are from 154 patients administered dexycu with each time point of data based on patient chart data and frequency of measurement by participating physicians . the proportion of patients with complete anterior chamber cell clearing ( cell score=0 ) was 47.5 % , 50.0 % , 84.1 % and 87.5 % at postoperative day 1 , 8 , 14 and 30 , respectively . the proportion of patients with no anterior chamber flares ( flare score=0 ) , another measurement of inflammation , was 77.7 % , 98.5 % , 98.8 % and 99.1 % at postoperative day 1 , 8 , 14 and 30 , respectively . mean intraocular pressure at postoperative day 1 was 17.6mmhg , with levels decreasing through to postoperative day 30. summary of critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , ( “ u.s . gaap ” ) . the preparation of these financial statements requires that we make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base our estimates on historical experience , anticipated results and trends and various other factors believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources . by their nature , these estimates , judgments and assumptions are subject to an inherent degree of uncertainty , and management evaluates them on an ongoing basis for changes in facts and circumstances . changes in estimates are recorded in the period in which they become known . actual results may differ from our estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 in the accompanying notes to the consolidated financial statements contained in this annual report on form 10-k , we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements . it is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below . revenue recognition we adopted accounting standards codification 606 , revenue from contracts with customers ( “ asc 606 ” ) , with a date of initial application of july 1 , 2018. as a result , we updated our accounting policy for revenue recognition to reflect the new standard ( see note 2 in the accompanying notes to the consolidated financial statements contained in this annual report on form 10-k ) . the adoption of asc 606 represents a change in accounting principle that more closely aligns revenue recognition with the delivery of our services and provides financial statement readers with enhanced disclosures . we applied asc 606 using the modified retrospective method . the cumulative effect of initially applying the new revenue standard resulted in a $ 218,000 reduction to the opening balance of accumulated deficit at july 1 , 2018. revenue is recognized when a customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract , determines those that 69 are performance obligations and assesses whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . sales , value add , and other taxes collected on behalf of third parties are excluded from revenue . product sales , net — we began selling yutiq and dexycu in february and march 2019 , respectively , in the u.s. through a single third-party logistics provider ( the “ 3pl ” ) , which takes title and control to the goods . the 3pl distributes the products through a limited number of specialty distributors and specialty pharmacies ( collectively the “ distributors ” ) , with whom we have entered into formal agreements , for delivery to physician practices for yutiq and to hospital outpatient departments and ambulatory surgical centers for dexycu .
| results of operations years ended december 31 , 2019 and 2018 replace_table_token_5_th product sales , net product sales , net represents the gross sales of dexycu and yutiq less provisions for product sales allowances and accruals . we commenced u.s. commercial sales of yutiq in february 2019 and recorded net sales totaled $ 12.0 million for fiscal 2019. we commenced commercial sales of dexycu in march 2019 and recorded net sales totaled $ 4.8 million for fiscal 2019. we had no product revenue during the year ended december 31 , 2018. license and collaboration agreement license and collaboration agreement revenues decreased by $ 1.3 million , or 48 % to $ 1.4 million for fiscal 2019 compared to the prior year . this decrease was attributable primarily to ( i ) the $ 1.7 million payment we received from ocumension in the year ended december 31 , 2018 as initial payment for the yutiq license compared with the $ 1 million payment upon achieving their first development milestone for yutiq in china in fiscal 2019 and ( ii ) $ 540,000 in lower revenue associated with feasibility studies . royalty income royalty income increased by $ 234,000 , or 12 % , to $ 2.2 million in fiscal 2019 compared to $ 1.9 million in the prior year . the increase was attributable primarily to a combination of an increase in the net sales-based royalty rate from 2 % to 4 % ( effective december 2018 ) and higher iluvien net sales under the amended alimera agreement . this increase in iluvien royalties was offset by recognizing revenue during only the first quarter of 2019 for retisert royalty , as the licensee , bausch and lomb informed us that they consider this agreement to have ended due to the expiration of certain patents .
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these forward-looking statements , which include those related to our strategic plans , business outlook , and future business and financial performance , involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated . such risks and uncertainties include , but are not limited to , continued funding of defense programs and the timing of such funding , including the potential for a continuing resolution for the defense budget , the potential for defense budget sequestration , and the budget uncertainty related to the presidential election , general economic and business conditions , including unforeseen economic weakness in our markets , effects of continued geo-political unrest and regional conflicts , competition , changes in technology and methods of marketing , delays in 34 completing various engineering and manufacturing programs , changes in customer order patterns , changes in product mix , continued success in technological advances and delivering technological innovations , changes in the u.s. government 's interpretation of federal procurement rules and regulations , market acceptance of our products , shortages in components , production delays due to performance quality issues with outsourced components , inability to fully realize the expected benefits from acquisitions or divestitures or delays in realizing such benefits , challenges in integrating acquired businesses and achieving anticipated synergies , changes to export regulations , increases in tax rates , changes to generally accepted accounting principles , difficulties in retaining key employees and customers , unanticipated costs under fixed-price service and system integration engagements , and various other factors beyond our control . these risks and uncertainties also include such additional risk factors as set forth under part i-item 1a ( risk factors ) in this annual report on form 10-k. we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made . overview we design , manufacture and market commercially-developed , high-performance embedded , real-time digital signal and image processing sub-systems and software for specialized defense and commercial markets . our solutions play a critical role in a wide range of applications , processing and transforming sensor data to information for storage , analysis and interpretation . our goal is to grow and build on our position as a critical component of the defense and intelligence industrial base and be the leading provider of open and affordable sensor processing subsystems for intelligence , surveillance and reconnaissance ( isr ) , electronic warfare ( ew ) , and missile defense applications . in military reconnaissance and surveillance platforms , our sub-systems receive , process , and store real-time radar , video , sonar and signals intelligence data . we provide radio frequency ( rf ) and microwave products for enhanced signal acquisition and communications in military and commercial applications . additionally , mercury federal systems , our wholly owned subsidiary , focuses on direct and indirect contracts supporting the defense , intelligence , and homeland security agencies . we have growing capabilities in the area of big data processing , analytics and analysis in support of both the u.s. department of defense ( dod ) and to the intelligence community as they enhance their ability to acquire , process and exploit large amounts of data for both real-time analytics and forensic analysis . our products and solutions address mission-critical requirements within the defense industry for c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) and electronic warfare , systems and services , and target several markets including maritime defense , airborne reconnaissance , ballistic missile defense , ground mobile and force protection systems and tactical communications and network systems . our products or solutions have been deployed in more than 300 different programs with over 25 different prime defense contractors . we deliver commercially developed technology and solutions that are based on open system architectures and widely adopted industry standards , and support all of this with services and support capabilities . our revenue , income from continuing operations and adjusted ebitda for fiscal 2012 were $ 244.9 million , $ 22.6 million and $ 48.9 million , respectively . see the non-gaap financial measures section this annual report for a reconciliation of our adjusted ebitda to income from continuing operations . our operations are presently organized in the following two business segments : advanced computing solutions , or acs . this business segment is focused on specialized , high-performance embedded , real-time digital signal and image processing solutions that encompass signal acquisition , including microwave front-end , digitization , digital signal processing , exploitation processing , high capacity digital storage and communications , targeted to key market segments , including defense , communications and other commercial applications . acs 's open system architecture solutions span the full range of embedded technologies from board level products to fully integrated sub-systems . our products utilize leading-edge processor and other technologies 35 architected to address highly data-intensive applications that include signal , sensor and image processing within environmentally challenging and size , weight and power constrained military and commercial applications . in addition , acs has a portfolio of rf and microwave sub-assemblies to address needs in ew , signal intelligence ( sigint ) , electronic intelligence ( elint ) , and high bandwidth communications subsystems . these products are highly optimized for size , weight and power , as well as for the performance and ruggedization requirements of our customers . customized design and sub-systems integration services extend our capabilities to tailor solutions to meet the specialized requirements of our customers . we continue to innovate our technologies around challenging requirements and have technologies available today and planned for the future to address them as they evolve and become increasingly demanding . with the addition of kor electronics ( kor ) in december 2011 , we added a focus on the exploitation of rf signals . story_separator_special_tag we expect to realize approximately $ 5.3 million in annual savings from these activities . f iscal 2011 on january 12 , 2011 , we acquired the outstanding equity interests in lnx corporation . the cash purchase price for the acquisition was approximately $ 31.0 million , subject to post-closing adjustments . we funded the purchase price with cash on hand and assumed no debt . in addition to the $ 31.0 million cash purchase price , we also committed to pay up to $ 5.0 million upon the achievement of financial targets in calendar years 2011 and 2012. during the fourth quarter of fiscal 2012 , we concluded the financial targets which underlie the $ 5.0 million payment of contingent consideration relating to the acquisition of lnx would not be met . on february 16 , 2011 , we completed a follow-on public stock offering of 5,577,500 shares of common stock , which were sold at a price to the public of $ 17.75. the follow-on public stock offering resulted in $ 93.6 million of net proceeds to us . the underwriting discount of $ 5.0 million and other expenses of $ 0.4 million related to the follow-on public stock offering were recorded as an offset to additional paid-in-capital ( see note m to the consolidated financial statements ) . 37 f iscal 2010 on june 28 , 2010 , we repaid the remaining $ 11.3 million principal balance on our line of credit with ubs . as of june 30 , 2010 , there were no borrowings against this line of credit . on july 1 , 2009 , we had $ 50.1 million par value of auction rate securities ( ars ) . during fiscal 2010 , ubs called $ 32.1 million of our ars at par , reducing our balance on june 30 , 2010 to $ 18.0 million . on june 30 , 2010 , we exercised our right to sell the remaining $ 18.0 million ars balance to ubs at par value . the transaction settled on july 1 , 2010 when we received $ 18.0 million in cash . story_separator_special_tag to capital lease obligations . o ther i ncome other income increased $ 0.1 million to $ 1.7 million during fiscal 2012 compared to fiscal 2011. other income primarily consists of $ 1.2 million in amortization of the gain on the sale leaseback of our corporate headquarters located in chelmsford , massachusetts and foreign currency exchange gains and losses . i ncome t axes we recorded a provision for income taxes of $ 9.2 million in fiscal 2012 compared to $ 8.1 million in fiscal 2011. the effective tax rate for fiscal 2012 and fiscal 2011 was 28.8 % and 30.3 % , respectively . the difference in the rates is mainly driven by the change in the fair value of the liability related to the lnx earn-out of $ 4.9 million offset by $ 1.2 million of acquisition costs , both of which are not subject to tax . this decrease in the fiscal 2012 rate was partially offset by a higher tax provision as a result of having a full-year benefit for the federal research and development tax credit in fiscal 2011 compared to only a six-month benefit in fiscal 2012. our effective tax rate for fiscal 2012 differed from the federal statutory rate primarily due to the change in the fair value of the liability related to the lnx earn-out , the impact of research and development tax credits , the impact of the section 199 manufacturing deduction and acquisition costs , . s egment o perating r esults adjusted ebitda for the acs segment increased $ 1.5 million to $ 43.8 million during fiscal 2012 , as compared to $ 42.3 million during fiscal 2011. the increase in adjusted ebitda was mostly driven by higher revenues . acs generated $ 228.1 million in revenues including intersegment revenues in fiscal 2012 compared to $ 223.7 million in fiscal 2011. this improvement was partially offset by an increase in operating expenses as a result of the kor and lnx acquisitions . overall , operating expenses declined as a percent of revenue . 40 adjusted ebitda for the mfs segment increased by $ 5.8 million during fiscal 2012 to $ 4.9 million , as compared to a loss of $ 0.9 million in fiscal 2011. the increase in adjusted ebitda was primarily due to higher revenues from a wide area persistent surveillance contract and revenues contributed by pdi . see note o to our consolidated financial statements for more information regarding our operating segments . f iscal 2011 v s . f iscal 2010 the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_7_th r evenues replace_table_token_8_th total revenues increased $ 28.9 million , or 14 % , to $ 228.7 million during fiscal 2011 compared to fiscal 2010. net acs revenues increased $ 28.5 million , or 15 % , to $ 217.4 million during fiscal 2011 compared to fiscal 2010. revenue from sales to defense customers increased $ 21.1 million , from $ 146.6 million in fiscal 2010 to $ 167.7 million in fiscal 2011. this growth was mostly driven by an increase in the radar market , slightly offset 41 by a decline in service revenues from $ 24.4 million to $ 12.9 million . revenue from sales to commercial customers increased $ 7.2 million , from $ 42.4 million in fiscal 2010 to $ 49.6 million in fiscal 2011. this growth was mostly driven by an increase in the semiconductor market driven by end of life buys , slightly offset by a decrease in sales in the commercial communications market . net mfs revenues increased $ 0.7 million , or 6 % to $ 11.4 million , during fiscal 2011 as compared to fiscal 2010. this increase in revenue was primarily driven by an increase of $ 0.9 million in revenue relating to a persistent isr development program .
| results of operations : f iscal 2012 v s . f iscal 2011 the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_5_th r evenues replace_table_token_6_th 38 total revenues increased $ 16.2 million , or 7 % , to $ 244.9 million during fiscal 2012 compared to $ 228.7 million during fiscal 2011. net acs revenues decreased $ 1.5 million , or 1 % , during fiscal 2012 compared to fiscal 2011. the decrease in net acs revenues was primarily due to lower commercial revenues of $ 33.3 million , partially offset by higher defense revenues of $ 31.8 million , including revenues contributed by kor . defense revenue accounted for 93 % of net acs revenues during fiscal 2012 compared to 78 % in fiscal 2011. net mfs revenues increased $ 17.3 million , or 151 % , during fiscal 2012 compared to fiscal 2011. this increase was driven by revenues from a wide area persistent surveillance program and revenue contributed by pdi . international revenues increased slightly by $ 0.3 million to $ 9.6 million during fiscal 2012 compared to $ 9.3 million during fiscal 2011. the increase was primarily driven by higher defense revenues in the european region , partially offset by lower commercial revenue from the asia pacific region . international revenues represented 4 % of total revenues during fiscal 2012 and 2011. eliminations revenue is attributable to development programs where the revenue is recognized in both segments under contract accounting , and reflects the reconciliation to our consolidated results . g ross m argin gross margin was 55.6 % for fiscal 2012 , a decrease of 120 basis points from the 56.8 % gross margin achieved in fiscal 2011. the decrease in gross margin was driven by product mix and the inclusion of kor and pdi revenues .
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words such as expects , anticipates , intends , plans , believes , seeks , estimates , forecasts , should , and variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict . therefore , actual outcomes and results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of important factors . while it is impossible to identify all such factors , those that could cause actual results to differ materially from those estimated by us include the important factors discussed in part 1item 1a , risk factors. such forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this 2013 form 10-k. if we do update or correct one or more forward-looking statements , investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements . overview we are a leading north american manufacturer of large diameter , high-pressure steel pipeline systems for use in water infrastructure applications , primarily related to drinking water systems , and we also manufacture other welded steel pipe products for use in a wide range of applications , including energy , construction , agriculture , and industrial uses . our pipeline systems are also used for hydroelectric power systems , wastewater systems and other applications . in addition , we make products for industrial plant piping systems and certain structural applications . with a history that dates back more than 100 years , we have become a leading manufacturer in the welded steel pipe industry . these pipeline systems are produced by our water transmission group from six manufacturing facilities located in portland , oregon ; denver , colorado ; adelanto , california ; parkersburg , west virginia ; saginaw , texas ; and monterrey , mexico . we will also produce water transmission products from acquired permalok facilities located in st. louis , missouri and salt lake city , utah beginning in 2014. our water transmission group accounted for approximately 48 % of net sales in 2013. our water infrastructure products are sold generally to installation contractors , who include our products in their bids to municipal agencies or privately-owned water companies for specific projects . we believe our sales are substantially driven by spending on new water infrastructure with a recent trend towards spending on water infrastructure replacement , repair and upgrade . within the total range of pipe products , our products tend to fit the larger diameter , higher-pressure applications . our tubular products group manufactures erw steel pipe in three facilities : atchison , kansas ; houston , texas ; and bossier city , louisiana . we produce a range of products used in several different markets . the tubular products group makes pipe focused on the energy industry . we also produce pipe used in industrial , construction , and agricultural applications . until june 1 , 2011 , we also made pipe for traffic signpost systems . our tubular products group generated approximately 52 % of our net sales in 2013. our tubular products group 's sales volume is typically driven by energy spending , non-residential construction spending and general economic conditions . our current economic environment we are monitoring the current economic environment , and we believe there are growth opportunities based on key factors impacting demand for our products . the price per barrel of crude oil has steadily increased since 2009 and has traded at or slightly above $ 100 per barrel since 2011. natural gas production remained at 23 historically high levels during 2013 according to the united states energy information administration . of the active oil and natural gas rigs , approximately 20 percent of the rigs are drilling for natural gas and the other 80 percent are drilling for oil . rig counts in the united states declined 12 percent from 2011 to 2012 but have held steady since the end of 2012. we believe drilling activity and the demand for energy pipe will remain at relatively strong levels . however , we face increased pressures from foreign product which will continue to put downward pricing pressure on our products within the markets we compete . we also face increased pressures due to recent domestic capacity expansions by our competitors . with regard to our water transmission group , we operate our business with a long-term time horizon . projects are often planned for many years in advance , and are sometimes part of fifty-year build out plans . however , in the near term , we expect strained governmental and water agency budgets will impact the water transmission group . fluctuating steel costs will be a factor in both our tubular products group and our water transmission group , as the ability to adjust our selling prices as steel costs fluctuate will depend on market conditions . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . management estimates the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . on an on-going basis , we evaluate all of our estimates , including those related to revenue recognition , allowance for doubtful accounts , goodwill , property and equipment , including depreciation and amortization , inventories , income taxes , and litigation and other contingencies . story_separator_special_tag if we determine the carrying value of the property and equipment will not be recoverable , we calculate and record an impairment loss . this analysis is performed prior to assessing goodwill for impairment . 25 business combinations and valuation of goodwill and other acquired intangible assets : we allocate the fair value of purchase consideration to the tangible assets acquired , liabilities assumed and intangible assets acquired based on their estimated fair values . goodwill is recorded for the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . contingent consideration is calculated and recorded at the date of the acquisition . during the measurement period , which does not exceed one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed as a result of information received regarding the valuation of assets and liabilities after the acquisition date , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . goodwill is reviewed for impairment annually at december 31 or whenever events occur or circumstances change that indicates goodwill may be impaired . goodwill is tested for impairment at the reporting unit level . a reporting unit is an operating segment or one level below an operating segment ( also known as a component ) . our reporting units are equivalent to our operating segments as the individual components meet the criteria for aggregation . fair value of goodwill is first evaluated under a qualitative approach which takes into account industry and market conditions , cost factors , overall financial performance , and other relevant entity specific events and changes . if this analysis determines that it is more likely than not that the fair value of goodwill is above its carrying value , no further analysis is required . alternatively , we may choose to unconditionally bypass the qualitative analysis in favor of a two-step quantitative impairment test . the first step of this analysis calculates fair value with consideration of the income and market approaches as applicable . the income approach is based upon projected future after-tax cash flows ( less capital expenditures ) discounted to present value using factors that consider the timing and risk associated with the future after-tax cash flows . the key assumptions in the discounted cash flow analysis are the long-term growth rate , the discount rate , and the annual free cash flow . the market approach is based upon forward-looking measures using multiples of earnings before interest , taxes , depreciation and amortization ( ebitda ) . we utilize a weighted average of the income and market approaches , with a heavier weighting on the income approach because of the relatively limited number of comparable entities for which relevant multiples are available . we also utilize a sensitivity analysis to determine the impact of changes in discount rates and cash flow forecasts on the valuation of the tubular operating segment . if the carrying value of the reporting unit exceeds its fair value , the implied fair value of goodwill is calculated and compared to the carrying value . the difference between the implied fair value of goodwill and the carrying value is recorded as an impairment loss . goodwill related to the acquisition of permalok of $ 5.3 million was quantitatively determined as part of the purchase price allocations as of december 30 , 2013. due to the limited time between the acquisition date and the annual impairment testing date , no additional procedures were deemed necessary . goodwill related to the company 's tubular products group of $ 20.5 million was evaluated using a quantitative impairment test described above . we concluded that the fair value of the tubular products group is greater than its carrying amount at december 31 and no impairment was recorded . if our assumptions about goodwill change as a result of events or circumstances , and management believes the assets may have declined in value , then impairment charges will be recorded , resulting in lower profits . the operations of the tubular products group and the water transmission group are cyclical and sales and profitability may fluctuate from year to year . in the evaluation of our operating segment , we look at the long-term prospects for the reporting unit and recognize that current performance may not be the best indicator of future prospects or value , which requires management judgment . 26 stock-based compensation : we recognize the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards . share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award , and as forfeitures occur , the associated compensation cost recognized to date is reversed . share-based compensation cost related to awards with a performance-based condition is recognized based on the probable outcome of the performance conditions , which requires judgment . we estimate the fair value of stock options using the black-scholes-merton option pricing model . the black-scholes-merton option pricing model requires the company to estimate key assumptions such as expected term , volatility , risk-free interest rates and dividend yield to determine the fair value of stock options , based on both historical information and management judgment regarding market factors and trends . we estimate the fair value of restricted stock units ( rsus ) and performance stock awards ( psas ) using the value of the company 's stock on the date of grant , with the exception of market-based psas , for which a monte carlo simulation model is used . the monte carlo simulation model calculates many potential outcomes for an award and estimates fair value based on the most likely outcome .
| results of operations the following table sets forth , for the periods indicated , certain financial information regarding costs and expenses expressed in dollars ( in thousands ) and as a percentage of total net sales and net sales of our business segments . replace_table_token_6_th year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales . net sales decreased by $ 48.9 million to $ 475.6 million in 2013 from $ 524.5 million in 2012. one customer accounted for 12 % of net sales in 2013. one customer also accounted for 12 % of net sales in 2012. water transmission sales decreased 15.9 % to $ 226.4 million in 2013 from $ 269.2 million in 2012. the decrease in net sales was due to a 39.4 % decrease in tons produced . the decrease in tons produced was impacted by continued weakness in municipal markets . this was partially offset by positive impacts due to the timing of production and mix of projects produced during the year , as well as a 21 % increase in materials cost per ton including steel . higher steel costs generally lead to higher contract values , and therefore higher net sales as contractors and municipalities are aware of the widely available steel costs and market conditions . bidding activity , backlog and production levels may vary significantly from period to period affecting sales volumes . tubular products sales decreased 2.4 % to $ 249.1 million in 2013 from $ 255.3 million in 2012 . the sales decrease was due to a 10 % decrease in the average selling price per ton partially offset by a 9 % increase in tons sold from 206,195 tons to 224,280 tons . the decrease in average selling price was due to a 6 % decrease in steel cost per ton along with the downward pricing pressure from imported pipe .
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accordingly , assets and liabilities are translated story_separator_special_tag this financial review presents our operating results for each of our three most recent fiscal years and our financial condition as of december 28 , 2020. except for historical information contained herein , the following discussion contains forward-looking statements which are subject to known and unknown risks , uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements . we discuss such risks , uncertainties and other factors throughout this report and specifically under item 1a of part i of this report , risk factors . in addition , the following discussion should be read in connection with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements . company overview we are a leading global printed circuit board ( pcb ) manufacturer , focusing on quick-turn and volume production of technologically advanced pcbs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency ( rf ) and microwave components and assemblies . we focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design , engineering and manufacturing solution to our customers . this one-stop design , engineering and manufacturing solution allows us to align technology development with the diverse needs of our customers and to enable them to reduce the time required to develop new products and bring them to market . we serve a diversified customer base consisting of approximately 1,600 customers in various markets throughout the world , including aerospace and defense , computing , automotive components , medical , industrial and instrumentation related products , as well as networking/communications infrastructure products . our customers include both original equipment manufacturers ( oems ) and electronic manufacturing services ( ems ) providers . recent developments the recent coronavirus ( covid-19 ) pandemic first caused business disruption in our operations in china beginning in january 2020. by march 2020 , the situation escalated as the scope of the covid-19 pandemic worsened outside of the asia-pacific region , with europe and north america being affected by the pandemic . also , we experienced an increase in covid-19 cases in our facilities in north america during the fourth quarter of 2020. as a result , we expect continued impacts on our production , as well as ongoing significant uncertainty relating to the actual and potential impacts of the covid-19 pandemic , and we can not reasonably estimate its duration or severity . the covid-19 pandemic has created and continues to create various global macroeconomic , customer demand , operational and supply chain risks any one of which could have a material and adverse impact on our business going forward . see item 1a , risk factors , of part i above for further information related to the covid-19 pandemic . we have taken measures to protect our employees , suppliers and customers by implementing our pandemic recovery protocols , establishing situational leadership teams in asia-pacific and north america along with regularly scheduled executive review and planning calls , implementing global travel restrictions , and conforming to the guidance and direction of local governments and global health organizations . we are monitoring the impacts the covid-19 pandemic has had , and continues to have , on our supply chain and are collaborating with our third-party partners with the goal of mitigating , to the extent reasonably practicable , significant delays in delivery of our products . financial overview on april 17 , 2020 , we completed the sale of our mobility business unit for a final purchase price of $ 569.2 million , received pre-tax proceeds from the sale , net of cash disposed of $ 507.5 million , and recorded a gain on the sale before income taxes of $ 237.3 million . the final purchase price of $ 569.2 million did not include approximately $ 83.0 million of accounts receivable of the divested business . results related to our mobility business unit are reported as discontinued operations for all periods presented . see note 3 of the notes to consolidated financial statements for further information . unless otherwise noted , amounts and disclosures throughout our management 's discussion and analysis of financial condition and results of operations relate to our continuing operations . while our customers include both oems and ems providers , we measure customers based on oem companies , as they are the ultimate end customers . sales to our five largest customers accounted for 29 % , 27 % and 25 % of our net sales in fiscal years 2020 , 2019 and 2018 , respectively . we sell to oems both directly and indirectly through ems providers . 34 the following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated : replace_table_token_3_th ( 1 ) sales to ems companies are classified by the end markets of their oem customers . ( 2 ) other consumer devices that include wearables , portable video devices and personal headphones are included in the other end market . ( 3 ) amounts include activity of anaren since the acquisition which occurred on april 18 , 2018. we derive revenues primarily from the sale of pcbs , custom electronic assemblies using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of rf and microwave components , assemblies and subsystems . orders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders . our customers have continuous control of the work in progress and finished goods throughout the pcb and custom electronic assemblies manufacturing process , as these are built to customer specifications with no alternative use , and there is an enforceable right of payment for work performed to date . as a result , we recognize revenue progressively over time based on the extent of progress towards completion of the performance obligation . story_separator_special_tag during the year ended december 28 , 2020 , our rf & s components operating segment met the quantitative threshold for separate presentation of a reportable segment . in prior periods , we had two reportable segments consisting of pcb and e-m solutions . the rf & s components reportable segment was previously aggregated with the pcb reportable segment . goodwill is only attributable to our pcb and rf & s components reportable segments . during the third quarter of 2020 , we determined that there was a permanent loss of sales due to certain government restrictions on the sale of u.s.-designed products to certain customers in china in the rf & s components reporting unit that coupled with the impact of covid-19 , resulted in lower than anticipated results and continued decline in sales . we considered these factors to be indicators of potential impairment requiring us to test the related goodwill of $ 177.2 million for impairment . as of september 28 , 2020 , we completed a quantitative goodwill impairment analysis related to our rf & s components reporting unit by comparing the fair value of the reporting unit with its carrying amount . we determined the fair value of the reporting unit by using both a discounted cash flow ( dcf ) and a market approach . under the market approach , we used revenue and earnings multiples based on comparable industry multiples to estimate the fair value of the reporting unit . under the dcf approach , we estimated the future cash flows , as well as selected a risk-adjusted discount rate to measure the present value of the anticipated cash flows . when determining future cash flow estimates , we considered historical results adjusted to reflect current and anticipated future operating conditions . we estimated cash flows for the reporting unit over a discrete period and a terminal period ( considering expected long-term growth rates and trends ) . based on our analysis , we determined that the fair value of the rf & s components reporting unit was less than its carrying value and recorded a goodwill impairment charge of $ 69.2 million . estimating the fair value of the reporting unit requires us to make assumptions and estimates in such areas as future economic conditions , industry-specific conditions , product pricing , and necessary capital expenditures . the use of different assumptions or estimates for future cash flows , discount rates , or terminal growth rates could produce substantially different estimates of the fair value of the reporting unit . we may be subject to additional goodwill impairment charges if actual results do not meet the estimates used in determining the fair value of goodwill and the associated goodwill impairment charge . during the fourth quarter of 2020 , we changed the date of our annual impairment test of goodwill from year-end to the first day of fiscal november to provide for additional time to complete the required impairment testing . this change does not represent a material change to our method of applying an accounting principle . the change in annual impairment test date has been prospectively applied beginning the first day of fiscal november 2020. in the fourth quarter of 2020 , we performed our annual impairment test qualitatively and concluded that it was more likely than not that goodwill was not impaired . management will continue to monitor the reporting units for changes in the business environment that could impact recoverability . the recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities . if the economy or business environment falter and we are unable to achieve our assumed revenue growth rates or profit margin percentages , our projections used would need to be re-measured , which could impact the carrying value of our goodwill in one or more of our reporting units . we also assess definite-lived intangibles for potential impairment given similar impairment indicators . when indicators of impairment exist related to our definite-lived intangible assets , we use an estimate of the undiscounted cash flows in measuring whether the carrying amount of the assets is recoverable . if the sum of the undiscounted cash flows is less than the carrying amount of the net assets , impairment is measured based on the difference between the net asset 's carrying value and estimated fair value . fair 36 value is determined through various valuation techniques , including cost-based , market and income approaches as considered necessary , which involve judgments related to future cash flows and the application of the appropriate valuation model . income taxes deferred income tax assets are reviewed for recoverability , and valuation allowances are provided , when necessary , to reduce deferred income tax assets to the amounts that are more likely than not to be realized based on our estimate of future taxable income . as of december 28 , 2020 , we had a net non-current deferred income tax asset of $ 16.6 million , which is comprised of a net deferred tax asset of $ 111.1 million and a net deferred tax liability of $ 94.5 million . as of december 28 , 2020 , our deferred income tax asset of $ 111.1 million was net of a valuation allowance of approximately $ 15.3 million . should our expectations of taxable income change in future periods , it may be necessary to adjust our valuation allowance , which could affect our results of operations in the period such a determination is made . we are subject to income taxes in the united states and foreign jurisdictions . significant judgment is required in determining our worldwide provision for income taxes . in the ordinary course of our business , there are many transactions for which the ultimate tax determination is uncertain . additionally , our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file .
| results of operations we operate on a 52 or 53 week year ending on the monday nearest december 31. fiscal year 2020 , 2019 and 2018 were 52 weeks ended december 28 , 2020 , december 30 , 2019 and december 31 , 2018 , respectively . the following table sets forth the relationship of various items to net sales in our consolidated statements of operations : replace_table_token_4_th the anaren acquisition occurred on april 18 , 2018. accordingly , our fiscal year 2018 only includes anaren 's 2018 results of operations since the acquisition date . during the year ended december 28 , 2020 , our rf & s components operating segment met the quantitative threshold for separate presentation of a reportable segment . in prior periods , we had two reportable segments : pcb and e-m solutions . the rf & s components reportable segment was previously aggregated with the pcb reportable segment . as a result , we now report on all three segments , and certain prior year amounts have been reclassified to conform with this new presentation . net sales total net sales decreased $ 27.9 million , or 1.3 % , to $ 2,105.3 million for the year ended december 28 , 2020 from $ 2,133.2 million for the year ended december 30 , 2019. this decrease primarily resulted from a decrease in net sales for the e-m solutions reportable segment of $ 70.9 million , or 31.3 % , to $ 155.4 million for the year ended december 28 , 2020 from $ 226.3 million for the year ended december 30 , 2019 , primarily due to the winding down of this reportable segment and lower demand in our automotive end market .
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forward-looking statements include statements preceded by , followed by or that include the words `` may , '' `` could , '' `` would , '' `` should , '' `` believe , '' `` expect , '' `` anticipate , '' `` plan , '' `` estimate , '' `` target , '' `` project , '' `` intend '' and similar words or expressions . in particular , forward-looking statements contained in this discussion include our expectations regarding : the effect of client trading activity on our results of operations ; the effect of changes in interest rates on our net interest spread ; the amount of net revenues ; average commissions per trade ; the amounts of total operating expenses and advertising expense ; our effective income tax rate ; our capital and liquidity needs and our plans to finance such needs ; and our plans to return capital to stockholders through cash dividends and share repurchases . the company 's actual results could differ materially from those anticipated in such forward-looking statements . important factors that may cause such differences include , but are not limited to : economic , social and political conditions and other securities industry risks ; interest rate risks ; liquidity risks ; credit risk with clients and counterparties ; risk of liability for errors in clearing functions ; systemic risk ; systems failures , delays and capacity constraints ; network security risks ; competition ; reliance on external service providers ; new laws and regulations affecting our business ; net capital requirements ; extensive regulation , regulatory uncertainties and legal matters ; difficulties and delays in integrating the scottrade financial services , inc. ( `` scottrade '' ) business or fully realizing cost savings and other benefits from the acquisition ; disruptions from the scottrade acquisition or other factors making it more difficult to maintain relationships with employees , customers , other business partners or governmental entities ; the inability to achieve synergies or to implement integration plans and other consequences associated with other acquisitions ; and the other risks and uncertainties set forth under item 1a — risk factors of this form 10-k. the forward-looking statements contained in this report speak only as of the date on which the statements were made . we undertake no obligation to publicly update or revise these statements , whether as a result of new information , future events or otherwise , except to the extent required by the federal securities laws . glossary of terms in discussing and analyzing our business , we utilize several metrics and other terms that are defined in the following glossary of terms . italics indicate other defined terms that appear elsewhere in the glossary . the term `` gaap '' refers to u.s. generally accepted accounting principles . asset-based revenues — revenues consisting of ( 1 ) bank deposit account fees , ( 2 ) net interest revenue and ( 3 ) investment product fees . the primary factors driving our asset-based revenues are average balances and average rates . average balances consist primarily of average client bank deposit account balances , average client margin balances , average segregated cash balances , average client credit balances , average fee-based investment balances and average securities borrowing and securities lending balances . average rates consist of the average interest rates and fees earned and paid on such balances . average client trades per day — total trades divided by the number of trading days in the period . this metric is also known as daily average revenue trades ( `` darts `` ) . average commissions per trade — total commissions and transaction fee revenues as reported on our consolidated financial statements , less order routing revenue , divided by total trades for the period . commissions and transaction fee revenues primarily consist of trading commissions , order routing revenue and markups on riskless principal transactions in fixed-income securities . basis point — when referring to interest rates , one basis point represents one one-hundredth of one percent . bank deposit account fees — revenues generated from a sweep program that is offered to eligible clients of the company whereby clients ' uninvested cash is swept to fdic-insured ( up to specified limits ) money market deposit accounts at third-party financial institutions participating in the program . beneficiary accounts — brokerage accounts managed by a custodian , guardian , conservator or trustee on behalf of one or more beneficiaries . examples include accounts maintained under the uniform gift to minors act ( ugma ) or uniform transfer to minors act ( utma ) , guardianship , conservatorship and trust arrangements and pension or profit plan for small business accounts . 27 brokerage accounts — accounts maintained by us on behalf of clients for securities brokerage activities . the primary types of brokerage accounts are cash accounts , margin accounts , ira accounts and beneficiary accounts . futures accounts are sub-accounts associated with a brokerage account for clients who want to trade futures and or options on futures . forex accounts are sub-accounts associated with a brokerage account for clients who want to engage in foreign exchange trading . cash accounts — brokerage accounts that do not have margin account approval . client assets — the total value of cash and securities in brokerage accounts . client cash and money market assets — the sum of all client cash balances , including client credit balances and client cash balances swept into bank deposit accounts or money market mutual funds . client credit balances — client cash held in brokerage accounts , excluding balances generated by client short sales on which no interest is paid . interest paid on client credit balances is a reduction of net interest revenue . client credit balances are included in `` payable to clients '' on our consolidated financial statements . client margin balances — the total amount of cash loaned to clients in margin accounts . such loans are secured by client assets . story_separator_special_tag we include the excess capital of our regulated subsidiaries in the calculation of liquid assets , rather than simply including regulated subsidiaries ' cash and cash equivalents , because capital requirements may limit the amount of cash available for dividend from the regulated subsidiaries to the parent company . excess capital , as defined under clause ( c ) above , is generally available for dividend from the regulated subsidiaries to the parent company . liquid assets is based on more conservative measures of net capital than regulatory requirements because we generally manage to higher levels of net capital at our regulated subsidiaries than the regulatory thresholds require . liquid assets should be considered as a supplemental measure of liquidity , rather than as a substitute for gaap cash and cash equivalents . liquidation value — the net value of a client 's account holdings as of the close of a regular trading session . liquidation value includes client cash and the value of long security positions , less margin balances and the cost to buy back short security positions . it also includes the value of open futures , foreign exchange and options positions . margin accounts — brokerage accounts in which clients may borrow from us to buy securities or for any other purpose , subject to regulatory and company-imposed limitations . market fee-based investment balances — client assets invested in mutual funds ( except money market funds ) and investment programs such as advisordirect , ® essential portfolios , selective portfolios and personalized portfolios on which we earn fee revenues that are largely based on a percentage of the market value of the investment . market fee-based investment balances are a component of fee-based investment balances . fee revenues earned on these balances are included in investment product fees on our consolidated financial statements . net interest margin ( `` nim `` ) — a measure of the net yield on our average spread-based assets . net interest margin is calculated for a given period by dividing the annualized sum of bank deposit account fees and net interest revenue by average spread-based assets . net interest revenue — net interest revenue is interest revenues less brokerage interest expense . interest revenues are generated by charges to clients on margin balances maintained in margin accounts , the investment of cash from operations and segregated cash and interest earned on securities borrowing/securities lending . brokerage interest 29 expense consists of amounts paid or payable to clients based on credit balances maintained in brokerage accounts and interest incurred on securities borrowing/securities lending . brokerage interest expense does not include interest on our non-brokerage borrowings . net new assets — consists of total client asset inflows , less total client asset outflows , excluding activity from business combinations . client asset inflows include interest and dividend payments and exclude changes in client assets due to market fluctuations . net new assets are measured based on the market value of the assets as of the date of the inflows and outflows . net new asset growth rate ( annualized ) — annualized net new assets as a percentage of client assets as of the beginning of the period . non-gaap net income and non-gaap diluted eps — non-gaap net income and non-gaap diluted earnings per share ( `` eps '' ) are non-gaap financial measures . we define non-gaap net income as net income adjusted to remove the after-tax effect of amortization of acquired intangible assets and acquisition-related expenses . we consider non-gaap net income and non-gaap diluted eps as important measures of our financial performance because they exclude certain items that may not be indicative of our core operating results and business outlook and may be useful in evaluating the operating performance of the business and facilitating a meaningful comparison of our results in the current period to those in prior and future periods . amortization of acquired intangible assets is excluded because management does not believe it is indicative of our underlying business performance . acquisition-related expenses are excluded as these costs are not representative of the costs of running our on-going business . non-gaap net income and non-gaap diluted eps should be considered in addition to , rather than as a substitute for , gaap net income and diluted eps . order routing revenue — revenues generated from payments or rebates received from market centers . order routing revenue is a component of transaction-based revenues . securities borrowing — we borrow securities temporarily from other broker-dealers in connection with our broker-dealer business . we deposit cash as collateral for the securities borrowed , and generally earn interest revenue on the cash deposited with the counterparty . we also incur interest expense for borrowing certain securities . securities lending — we loan securities temporarily to other broker-dealers in connection with our broker-dealer business . we receive cash as collateral for the securities loaned , and generally incur interest expense on the cash deposited with us . we also earn revenue for lending certain securities . securities sold under agreements to repurchase ( repurchase agreements ) — we sell securities to counterparties with an agreement to repurchase the same or substantially the same securities at a stated price plus interest on a specified date . we utilize repurchase agreements to finance our short-term liquidity and capital needs . under these financing transactions , we receive cash from counterparties and provide u.s. treasury securities as collateral . segregated cash — client cash and investments segregated in compliance with rule 15c3-3 of the securities exchange act of 1934 ( the customer protection rule ) and other regulations . interest earned on segregated cash is a component of net interest revenue . spread-based assets — client and brokerage-related asset balances , consisting of bank deposit account balances and interest-earning assets . spread-based assets is used in the calculation of our net interest margin and our consolidated duration . total trades — revenue-generating client securities trades , which are executed by our broker-dealer and fcm/fdm subsidiaries . total trades are a significant source of our revenues .
| results of operations conditions in the u.s. equity markets significantly impact the volume of our clients ' trading activity . there is a strong relationship between the volume of our clients ' trading activity and our results of operations . we can not predict future trading volumes in the u.s. equity markets . if client trading activity increases , we generally expect that it would have a positive impact on our results of operations . if client trading activity declines , we expect that it would have a negative impact on our results of operations . changes in average client balances , especially bank deposit account , margin , credit and fee-based investment balances , may significantly impact our results of operations . changes in interest rates also significantly impact our results of operations . we seek to mitigate interest rate risk by aligning the average duration of our interest-earning assets with that of our interest-bearing liabilities . we can not predict the direction of interest rates or the levels of client balances . if interest rates rise , we generally expect to earn a larger net interest spread . conversely , a falling interest rate environment generally would result in us earning a smaller net interest spread . financial performance metrics net income , diluted earnings per share and ebitda are key metrics we use in evaluating our financial performance . net income and diluted earnings per share are gaap financial measures and ebitda is a non-gaap financial measure . we consider ebitda to be an important measure of our financial performance and of our ability to generate cash flows to service debt , fund capital expenditures and fund other corporate investing and financing activities . ebitda is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under the td ameritrade holding corporation senior revolving credit facility . ebitda eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization .
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notes to consolidated financial statements for the years ended july story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this report . certain statements in this report constitute forward-looking statements . these forward-looking statements include statements , which involve risks and uncertainties , regarding , among other things , ( a ) our projected sales , profitability , and cash flows , ( b ) our growth strategy , ( c ) anticipated trends in our industry , ( d ) our future financing plans , and ( e ) our anticipated needs for , and use of , working capital . they are generally identifiable by use of the words “ may , ” “ will , ” “ should , ” “ anticipate , ” “ estimate , ” “ plan , ” “ potential , ” “ project , ” “ continuing , ” “ ongoing , ” “ expects , ” “ management believes , ” “ we believe , ” “ we intend , ” or the negative of these words or other variations on these words or comparable terminology . in light of these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this filing will in fact occur . you should not place undue reliance on these forward-looking statements . the forward-looking statements speak only as of the date on which they are made , and , except to the extent required by federal securities laws , we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events . overview mu global holding limited , the us company , operates through its wholly owned subsidiary , mu worldwide group limited , a seychelles company ; which operates through its wholly owned subsidiary , mu global holding limited , a hong kong company ; which operates through its wholly owned subsidiary , mu global health management ( shanghai ) limited , a shanghai company . the us , seychelles and hong kong companies act solely for holding purposes whereas all current and future operations in china are planned to be carried out via mu global health management ( shanghai ) limited , the shanghai company . the purpose of the hong kong company is to function as the current regional hub of the company . at present , we have a physical office in shanghai with an address of a310 , no . 2633 , yan'an west road , changning district , shanghai city , 200050 people republic china . in addition , we also have a physical outlet in shanghai with address of 203 , no . 193 luo jin hui south road , minhang district , shanghai city , 201103 , people republic china . in the future , we do not have definitive plans for which markets intend to expand to , but we base our operations in shanghai , as we prepare for future unidentified expansion efforts . all of the previous entities share the same exact business plan with the goal of developing and providing wellness and beauty services to our future clients . we aim to promote improved overall health and beauty in our clients through a holistic detoxification method . we will , at least initially , primarily focus our efforts on attracting customers in china . we have intentions , but no definitive plans or timelines , to expand to singapore , malaysia , hong kong , and middle eastern countries in the coming years , and subsequently we intend to make efforts to expand throughout asia . we anticipate spending a substantial amount in marketing and advertising in the coming year . 16 story_separator_special_tag serif ; margin : 0 ; text-align : justify ; background-color : white '' > classification estimated useful life leasehold improvement 11 months to 60 months ( over remaining lease term ) leasable equipment 5 years computer hardware and software 3 years office equipment 3 years expenditures for maintenance and repairs are expensed as incurred . the gain or loss on the disposal of property , plant and equipment is the difference between the net sale proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of operations and comprehensive loss . impairment of long-live assets long-lived assets primarily include trademark of the company . 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 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 . 19 leases prior to november 1 , 2019 , the company accounted for leases under asc 840 , accounting for leases . effective november 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 implementation of asc 842 did not have a material impact on the company 's consolidated financial statements and did not have a significant impact on our liquidity . story_separator_special_tag 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 . income taxes income taxes are determined in accordance with the provisions of asc topic 740 , “ income taxes ” ( “ asc topic 740 ” ) . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled . any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . asc 740 prescribes a comprehensive model for how companies should recognize , measure , present , and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return . under asc 740 , tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities . such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts . the company conducts major businesses in china and is subject to tax in this jurisdiction . as a result of its business activities , the company will file tax returns that are subject to examination by the foreign tax authority . going concern the accompanying financial statements have been prepared using the going concern basis of accounting , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . for the year ended july 31 , 2020 , the company has generated revenue of $ 98,478 and continuously incurred a net loss of $ 668,908. as of july 31 , 2020 , the company suffered an accumulated deficit of $ 1,644,904. the company 's ability to continue as a going concern is dependent upon improving the profitability and the continuing financial support from its stockholders . management believes the existing shareholders or external financing will provide the additional cash to meet the company 's obligations as they become due . these and other factors raise substantial doubt about the company 's ability to continue as a going concern . these financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the company not being able to continue as a going concern 20 net loss per share the company calculates net loss per share in accordance with asc topic 260 “ earnings per share ” . basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period . diluted loss per share is computed similar to basic 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 consolidated statements of operations and comprehensive loss . the reporting currency of the company and its subsidiary is united states dollars ( “ us $ ” ) and the accompanying financial statements have been expressed in us $ . in general , for consolidation purposes , assets and liabilities of its subsidiary 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 . revenues and expenses are translated at average rates prevailing during the period . the gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive loss within the statements of shareholders ' equity . translation of amounts from rmb , twd and hk $ into us $ 1 has been made at the following exchange rates for the respective periods : replace_table_token_4_th related parties parties , which can be a corporation or individual , are considered to be related if the company has the ability , directly or indirectly , to control the other party or exercise significant influence over the other party in making financial and operating decisions . companies are also considered to be related if they are subject to common control or common significant influence . fair value of financial instruments : the carrying value of the company 's financial instruments : cash and cash equivalents , accounts payable and accrued liabilities , and amount due to a director approximate at their fair values because of the short-term nature of these financial instruments . the company also follows the guidance of the asc topic 820-10 , “ fair value measurements and disclosures ” ( “ asc 820-10 ” ) , with respect to financial assets and liabilities that are measured at fair value .
| results of operations revenues for the year ended july 31 , 2020 the company generated revenue of $ 98,478 and $ 38,905 for the year ended july 31 , 2020 and 2019. the revenue represented income from wellness and beauty services provided to customers and sales of products via shanghai outlets . cost of revenue and gross margin for the year ended july 31 , 2020 and 2019 , cost incurred in providing wellness and beauty services amounted to $ 10,718 and $ 13,191 respectively . following the commencement of business operation in january 2018 , the company generated gross profits of $ 87,760 and $ 25,714 for the year ended july 31 , 2020 and 2019. selling and marketing expenses selling and distribution expenses for the year ended july 31 , 2020 and 2019 amounted to $ 25,668 and $ 88,795 respectively , comprising advertisement expenses on wechat , mobile apps and market public research . general and administrative expenses general and administrative expenses for the year ended july 31 , 2020 and 2019 amounted to $ 737,170 and $ 886,589 respectively , comprising salary , allowances , professional fees , consultancy fee for it and system management , office and outlet operation expenses and depreciation . other income the company recorded an amount of $ 6,170 and $ 3,390 as other income for the year ended july 31 , 2020 and 2019 respectively , being interest income . net loss net loss for the year ended july 31 , 2020 and 2019 amounted to $ 668,908 and $ 946,280 respectively .
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our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis , or cf , and advancing our research and development programs in other diseases . our marketed products are orkambi ( lumacaftor in combination with ivacaftor ) , kalydeco ( ivacaftor ) and symdeko ( tezacaftor in combination with ivacaftor ) . our total net product revenues were $ 2.2 billion in 2017 , an increase of 29 % over net product revenues of $ 1.7 billion in 2016 , due to increased orkambi and kalydeco net product revenues . cystic fibrosis current medicines orkambi , kalydeco and symdeko are collectively approved to treat approximately 45 % of the 75,000 cf patients in north america , europe and australia . orkambi is approved as a treatment for approximately 28,000 patients who have two copies of the f508del mutation , or f508del homozygous , in their cystic fibrosis transmembrane conductance regulator , or cftr , gene . kalydeco is approved for the treatment of approximately 6,000 cf patients who have the g551d mutation or other specified mutations in their cftr gene . symdeko was approved by the united states food and drug administration , or fda , in february 2018 for the treatment of patients with cf twelve years of age and older who are f508del homozygous or who have at least one mutation that is responsive to tezacaftor/ivacaftor , and provides an additional treatment option to cf patients who were already eligible for either orkambi or kalydeco . we are currently seeking approval from the european medicines agency for tezacaftor in combination with ivacaftor . next-generation cftr corrector compounds in the first quarter of 2018 , we selected two next-generation corrector compounds , vx-659 and vx-445 , to advance into phase 3 clinical development as part of separate triple combination regimens . each of vx-659 and vx-445 have the potential to be combined with both ( i ) tezacaftor and ivacaftor and ( ii ) tezacaftor and vx-561 , a deuterated version of ivacaftor . we expect to initiate the phase 3 development program for vx-659 in combination with tezacaftor and ivacaftor in the first half of 2018. in mid-2018 , we expect to initiate the phase 3 development of a once-daily combination of vx-445 , tezacaftor and vx-561 . our decision to advance vx-659 and vx-445 was based on available clinical and nonclinical data , including data from an ongoing phase 2 clinical program , and regulatory discussions are ongoing to finalize the design of the phase 3 development programs for vx-659 and vx-445 . we believe the triple combination regimens we are evaluating could potentially provide benefits to all cf patients who have at least one f508del mutation in their cftr gene ( approximately 90 % of all cf patients ) . this would include ( i ) the first treatment option that treats the underlying cause of cf for patients who have one copy of the f508del mutation in their cftr gene and a second mutation in their cftr gene that results in minimal cftr function , who we refer to as f508del/min patients , and ( ii ) an additional treatment option for patients with cf who are eligible for orkambi , kalydeco and or symdeko . research and development we have a number of ongoing research and development programs in other diseases that we are conducting independently or in collaboration with third parties . we are developing vx-150 and vx-128 as treatments for pain , co-developing ctx001 , an investigational gene editing treatment , for the treatment of beta-thalassemia and sickle cell disease , with crispr therapeutics ag , or crispr , and developing vx-210 as a treatment for acute spinal cord injury . we plan to continue investing in our research programs and fostering scientific innovation in order to identify and develop transformative medicines for people with serious diseases . in addition to continuing our research in cystic fibrosis , pain and hemoglobinopathies , our current internal research programs include programs targeting adrenoleukodystrophy , alpha-1 antritrypsin deficiency and polycystic kidney disease . to supplement our internal research programs , we seek to collaborate with biopharmaceutical and technology companies , leading academic research institutions , government laboratories , foundations and other organizations as needed to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy . we believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years . 48 drug discovery and development discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more . potential drug candidates are subjected to rigorous evaluations , driven in part by stringent regulatory considerations , designed to generate information concerning efficacy , side-effects , proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product . most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable risks , we closely monitor the results of our discovery , research , clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in abrupt changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs , as well as those of our competitors . story_separator_special_tag depending on many factors , including the structure of the collaboration , the significance of the drug candidate that we license to the collaborator 's operations and the other activities in which our collaborators are engaged , the accounting for these transactions can vary significantly . for example , the upfront payments and expenses incurred in connection with our crispr and moderna collaborations are being expensed as research expenses because the collaboration represents a small portion of these collaborators overall business . crispr and moderna 's activities unrelated to our collaborations have no effect on our consolidated financial statements . parion and bioaxone have historically been accounted for as variable interest entities , or vies , and historically have been included in our consolidated financial statements due to ( i ) the significance of the respective licensed programs to parion and bioaxone as a whole , ( ii ) our power to control the significant activities under each collaboration and ( iii ) our obligation to absorb losses and right to receive benefits that potentially could be significant . as of september 30 , 2017 , we determined that the above conditions were no longer satisfied with respect to parion following the results of a phase 2 clinical trial of vx-371 that did not meet its primary efficacy endpoint . as a result , we no longer account for parion as a vie and have deconsolidated parion from our consolidated financial statements as of september 30 , 2017. bioaxone continues to be accounted for as a vie and remains included in our consolidated financial statements as of december 31 , 2017. collaborators we account for as a vie may engage in activities unrelated to our collaboration . the revenues and expenses unrelated to the programs we in-license from our vies have historically been immaterial to our consolidated financial statements . with respect to each of parion , prior to its deconsolidation as of september 30 , 2017 , and bioaxone , the activities unrelated to our collaborations with these entities have represented approximately 2 % or less of our total revenues and total expenses on an annual basis . as a result of the deconsolidation of parion , we expect these amounts to decrease in future periods . for any consolidated vies , we evaluate the fair value of the contingent payments payable by us on a quarterly basis . changes in the fair value of these contingent future payments affect net income attributable to vertex on a dollar-for-dollar basis , with increases in the fair value of contingent payments payable by us to a vie resulting in a decrease in net income attributable to vertex ( or an increase in net loss attributable to vertex ) and decreases in the fair value of contingent payments payable by us to a vie resulting in an increase in net income attributable to vertex ( or decrease in net loss attributable to vertex ) . for additional information regarding our vies see note b “ collaborative arrangements and acquisitions ” and our critical accounting policies “ collaborations ; variable interest entities. ” we also have outlicensed internally-developed programs to collaborators who are leading the development of these programs . these outlicense arrangements include our collaboration agreements with : merck kgaa , darmstadt , germany , or merck kgaa , pursuant to which merck kgaa obtained rights to four oncology research and development programs ; and 50 janssen pharmaceuticals , inc. , or janssen , inc. , which is evaluating jnj-63623872 ( formerly vx-787 ) for the treatment of influenza in a phase 3 clinical development program . pursuant to these outlicensing arrangements , our collaborators are responsible for the research , development and commercialization costs associated with these programs , and we are entitled to receive contingent milestone and or royalty payments . as a result , we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative and or royalty revenues resulting from these programs . 51 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; text-align : left ; padding-left:48px ; text-indent : -24px ; font-size:10pt ; '' > cost of product revenues our cost of product revenues includes the cost of producing inventories that corresponded to product revenues for the reporting period , plus the third-party royalties payable on our net sales of our products . pursuant to our agreement with cystic fibrosis foundation therapeutics incorporated , or cfft , our tiered third-party royalties on sales of kalydeco , orkambi and symdeko , calculated as a percentage of net sales , range from the single digits to the sub-teens . as a result of the tiered royalty rate , which resets annually , our cost of product revenues as a percentage of cf product revenues is lower at the beginning of each calendar year . our cost of product revenues have been increasing due primarily to increased net product revenues . in each of 2016 and 2015 , our cost of product revenues included a $ 13.9 million commercial milestone that was earned by cfft and was related to sales of orkambi . there are no further commercial milestones payable to cfft . in 2018 , we expect our cost of product revenues as a percentage of total cf product revenues to be similar to the cost of product revenues as a percentage of total cf product revenues in 2017. royalty expenses royalty expenses primarily consist of expenses related to a subroyalty payable to a third party on net sales of an hiv protease inhibitor sold by glaxosmithkline . royalty expenses do not include royalties we pay to cfft on sales of kalydeco and orkambi , which instead are included in cost of product revenues . 54 research and development expenses replace_table_token_8_th our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates .
| results of operations replace_table_token_4_th net income ( loss ) attributable to vertex comparison of net income ( loss ) attributable to vertex 2017 vs. 2016 net income attributable to vertex was $ 263.5 million in 2017 as compared to a net loss attributable to vertex of $ ( 112.1 ) million in 2016 . our revenues increased significantly in 2017 as compared to 2016 primarily due to increased orkambi and kalydeco net product revenues and $ 230.0 million in one-time collaborative revenues related to the strategic collaboration and license agreement we established with merck kgaa in the first quarter of 2017. our operating costs and expenses increased in 2017 as compared to 2016 primarily due to increases in our cost of product revenues related to our increased net product revenues , increases in our research and development expenses , which included $ 160.0 million in development expenses incurred in connection with the acquisition of vx-561 from concert , increases in our sales and administrative expenses and a $ 255.3 million intangible asset impairment charge related to parion 's pulmonary enac platform . other items , net in 2017 primarily reflect a benefit from income taxes and certain other benefits associated with the impairment of parion 's pulmonary enac platform , for which there were no comparable benefits in 2016 , and a decrease in interest expense , net to $ 57.6 million . other items , net in 2016 primary reflects interest expense , net of $ 81.4 million , a provision for income taxes of $ 16.7 million and net income attributable to noncontrolling interest of $ 28.0 million .
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the projects do not pay federal or state income taxes on a standalone basis , as the projects are treated as a partnership for tax purposes , with each member paying federal and state income taxes on their allocated taxable income . mic has certain rights to make decisions over the management and operations of the projects and the company has determined that it is appropriate to consolidate the project with the co-investor 's interest reflected as a noncontrolling interest in the consolidated financial statements . acquisition of tucson , arizona on november 21 , 2012 , the company completed the acquisition of the tucson project for a purchase price of $ 59.4 million . this acquisition was funded by a $ 4.0 million capital investment by the company and $ 55.4 million capital contribution from a noncontrolling interest co-investor . at december 31 , 2012 , this facility was fully operational . during june of 2013 , the co-investor made a further investment of $ 1.7 million into the tucson project . this facility is expected to generate approximately 20 megawatts of electricity . the acquisition has been story_separator_special_tag the following discussion of the financial condition and results of operations of macquarie infrastructure company llc should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere herein . we own , operate and invest in a diversified group of infrastructure businesses that provide services , such as aircraft fueling , contracted power generation and utility gas services to businesses and individuals primarily in the u.s. our businesses are a 50 % interest in international-matex tank terminals , or imtt ; hawaii gas ; atlantic aviation ; and interests in solar power generation facilities and a district cooling business that together comprise our contracted power and energy segment . our businesses generally operate in sectors of infrastructure with barriers to entry , including high initial development and construction costs , the existence of long-term contracts or the requirement to obtain government approvals and a lack of immediate cost-efficient alternatives to the services provided . overall they tend to generate sustainable long-term cash flows . in analyzing the financial condition and results of operations of our businesses , we focus primarily on cash generation , and our ability to distribute cash to shareholders in particular . the ability of our businesses to generate cash , broadly , is tied to their ability to effectively manage the volume of products sold or services provided and the margin earned on those transactions . offsetting these are required payments on debt facilities , taxes and capital expenditures necessary to maintain the productivity of the fixed assets of the businesses , among others . at imtt , we focus on the generation of terminal revenue and on making appropriate expenditures in maintaining fixed assets of the business . imtt seeks to attract third party storage from customers who place a premium on ease of access , and operational flexibility . at hawaii gas , we look to grow the number of customers served and in the case of the non-utility portion , the margins achieved on gas sales as well . hawaii gas has an active marketing program that seeks to develop new customers throughout hawaii . in addition to the existing utility and non-utility operations , hawaii gas is seeking to advance initiatives related to the distribution of lng . at atlantic aviation , our focus is on attracting and maintaining relationships with general aviation aircraft owners and pilots so that they use our fbos . the number of general aviation flight movements has grown consistently since the first quarter of 2009 and we believe that flight activity will continue to increase during 2014 , subject to continued improvement of the u.s. economy generally . within contracted power and energy , we are focused on deploying capital effectively in the growth of the businesses within the segment . we believe we can achieve attractive risk-adjusted returns on investments in contracted power generation in particular . prior to 2013 year-end , the company reported contracted power and district energy in separate reportable segments . the company assessed its businesses and operating segments and determined to combine these two businesses into one reportable segment covering the company 's long-term contracted power and energy segment , which the company believes better reflects how these businesses are managed and allocated capital . atlantic aviation credit agreement on may 31 , 2013 , atlantic aviation entered into a credit agreement ( the aa credit agreement ) that provides the business with a seven-year , $ 465.0 million senior secured first lien term loan facility and a five year , $ 70.0 million senior secured first lien revolving credit facility . proceeds of the term loan facility , together with proceeds from the may of 2013 equity offering discussed below and cash on hand , were used to repay all of the amounts outstanding under atlantic aviation 's then existing credit agreement dated september 27 , 2007 . 51 in addition , on november 7 , 2013 , atlantic aviation entered into an incremental $ 50.0 million term loan under the aa credit agreement , that provides the business with a seven-year senior secured first lien term loan facility . for a description of the material terms of atlantic aviation 's credit facilities , see note 9 , long-term debt , in our consolidated financial statements in financial statements and supplementary data in part ii , item 8 , of this form 10-k. atlantic aviation acquisitions galaxy acquisition atlantic aviation has entered into an agreement to acquire certain of the assets of galaxy aviation , including substantially all of the assets of five fbos and one new hangar that is currently under construction at one of the five airports at which the fbos operate , for $ 195.0 million . the company expects to fund the acquisition using a combination of cash on hand and an increase in atlantic aviation 's term loan facility . story_separator_special_tag the cash state and local taxes paid by our individual businesses are discussed in the sections entitled income taxes for each of these businesses . pursuant to tax sharing agreements , the individual businesses included in our consolidated federal income tax return pay mic an amount equal to the federal income taxes each would have paid on a standalone basis as if they were not part of the mic consolidated federal income tax return . american taxpayer relief act of 2012 in january of 2013 , the american taxpayer relief act of 2012 ( the 2012 tax act ) was signed . the 2012 tax act extends the period over which the 50 % bonus depreciation provided for in the tax relief , unemployment insurance reauthorization act of 2010 ( the 2010 tax act ) applies to include 2013. the company took the bonus depreciation provision into consideration when evaluating its maintenance and growth capital expenditure plans for 2013. results of operations consolidated key factors affecting operating results for 2013 compared to 2012 : an increase in terminal revenue at imtt ; lower interest expense driven by lower average cost of debt and reduced debt levels primarily at atlantic aviation ; improved gross profit at atlantic aviation ; an increase in gross profit at cp & e due to results contributed by cp ; 53 results of operations : consolidated ( continued ) an increase in non-utility contribution margin at hawaii gas ; and decrease in performance fee incurred in 2013 compared with 2012. key factors affecting operating results for 2012 compared to 2011 : an increase in average storage rates at imtt ; higher volume of general aviation ( ga ) fuel sold and lower interest expense at atlantic aviation ; and an increase in non-utility contribution margin at hawaii gas ; partially offset by performance fees incurred in 2012 ; reduced spill response activity in 2012 compared with 2011 at imtt ; and reduced de-icing revenue at atlantic aviation . 54 results of operations : consolidated ( continued ) our consolidated results of operations are as follows : replace_table_token_12_th nm not meaningful ( 1 ) interest expense includes losses on derivative instruments of $ 7.5 million , $ 21.6 million and $ 35.0 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . 55 results of operations : consolidated ( continued ) gross profit consolidated gross profit increased from 2012 to 2013 reflecting improved results at atlantic aviation , an increased contribution from cp and improved results at hawaii gas . this increase was partially offset by a reduction in cooling consumption gross profit at de during 2013. consolidated gross profit increased from 2011 to 2012 reflecting improved results in the non-utility business at hawaii gas . in addition , the increase in gross profit for 2012 reflects higher volume of ga fuel sold and higher weighted average ga fuel margins , partially offset by reduced de-icing revenue at atlantic aviation . selling , general and administrative expenses selling , general and administrative expenses decreased in 2013 compared with 2012 primarily as a result of lower legal fees at the mic holding company level , most significantly those incurred in connection with the arbitration and related matters involving mic and its co-investor in imtt incurred during 2012. these improvements were partially offset by an increase in transactional costs at atlantic aviation in connection with the acquisitions of an fbo in kansas city and the five galaxy fbos and an increase in hawaii gas primarily related to severance costs . selling , general and administrative expenses increased in 2012 compared with 2011 primarily as a result of legal costs at the mic holding company level , most significantly those incurred in the arbitration proceedings and related matters between mic and its imtt co-investor . selling , general and administrative expenses also include costs incurred in connection with the acquisition of cp during the fourth quarter of 2012. selling , general and administrative expenses were also higher at hawaii gas due primarily to medical and benefit costs and overtime . fees to manager our manager is entitled to a base management fee based primarily on our market capitalization , and potentially a performance fee , based on the performance of our stock relative to a u.s. utilities index . for the years ended december 31 , 2013 , 2012 and 2011 , we incurred base management fees of $ 32.0 million , $ 21.9 million and $ 15.5 million , respectively . for the years ended december 31 , 2013 and 2012 we incurred performance fees of $ 53.4 million and $ 67.3 million , respectively . our manager elected to reinvest the base management and performance fees in additional llc interests . for the year ended december 31 , 2011 , our manager did not earn a performance fee . 56 results of operations : consolidated ( continued ) the unpaid portion of the base management fees and performance fees , if any , at the end of each reporting period is included in due to manager-related party in the consolidated balance sheets . the following table shows our manager 's election to reinvest its base management fees and performance fees , if any , in additional llc interests . replace_table_token_13_th ( 1 ) our manager elected to reinvest the fourth quarter of 2013 base management fees in llc interests . we issued 155,943 llc interests in accordance with the second amended and restated management service agreement . depreciation depreciation expense increased in 2013 compared with 2012 primarily as a result of the depreciation generated by solar projects that became operational . depreciation expense decreased from 2011 to 2012 primarily due to non-cash write-offs of $ 2.9 million recorded during the quarter ended september 30 , 2011 associated with leasehold improvements at atlantic aviation . this write-off was due to the consolidation of two fbos it operated at one airport .
| key factors affecting operating results : higher volume of ga fuel sold and higher weighted average ga fuel margins , and lower cash interest expense driven by reduced debt levels ; partially offset by reduced de-icing revenue ; and lost earnings from divested locations . revenue and gross profit for 2012 and 2011 , the business derived 65.7 % and 66.1 % , respectively , of total gross profit from fuel and fuel-related services . the increase in gross profit in 2012 compared with 2011 was the result of an increase in volume of fuel sold and higher margins . ga fuel-related gross profit increased by 1.4 % . de-icing gross profit declined by 55.2 % , due to the unseasonably mild winter in the northeastern and central u.s. in 2012 and the sale of fbos during 2011. on a same store basis , total gross profit increased by 2.6 % in 2012 compared with 2011. on a same store basis , the volume of ga fuel sold increased by 2.7 % in 2012 and ga average fuel margin increased by 1.2 % in 2012. the increase in ga fuel-related gross profit was partially offset by a decrease in de-icing revenue and non-ga-related gross profit . atlantic aviation 's weighted average lease life was 17.8 years at december 31 , 2011 and 19.0 years at december 31 , 2012 . 73 atlantic aviation ( continued ) depreciation and amortization depreciation and amortization for 2012 were lower compared with 2011 due to the consolidation of two fbos it operated at one airport .
| 3,769 |
72 fair value measurement - in august 2018 , the fasb issued asu 2018-13 , disclosure framework - changes to the disclosure requirements of fair value measurement , which amends the guidance on the disclosure requirements on fair value measurements in asc 820. this guidance is effective for annual reporting periods , and periods within those annual periods , beginning after december 15 , 2019 , with early adoption permitted . disclosure of fair value measurements in note 9 has been revised to include a description of the weighted averages of unobservable inputs used to value level 3 assets . financial instruments - in february 2020 , the fasb issued asu 2020-02 story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in “ item 8. consolidated financial statements and supplementary data ” of this annual report on form 10-k. all currency amounts are presented in thousands , except per share amounts or as otherwise noted . general we are a public residential real estate finance company focused on acquiring , investing in and managing residential mortgage assets in the united states . we were incorporated in maryland on october 31 , 2012 , and we commenced operations on or about october 9 , 2013 following the completion of our initial public offering and a concurrent private placement . our common stock , our series a preferred stock and our series b preferred stock are listed and traded on the nyse under the symbols “ chmi , ” “ chmi-pra ” and “ chmi-prb , ” respectively . we are externally managed by our manager , cherry hill mortgage management , llc , an sec-registered investment adviser . our principal objective is to generate attractive current yields and risk-adjusted total returns for our stockholders over the long term , primarily through dividend distributions and secondarily through capital appreciation . we attempt to attain this objective by selectively constructing and actively managing a portfolio of servicing related assets and rmbs and , subject to market conditions , other cash flowing residential mortgage assets . 36 we are subject to the risks involved with real estate and real estate-related debt instruments . these include , among others , the risks normally associated with changes in the general economic climate , changes in the mortgage market , changes in tax laws , interest rate levels , and the availability of financing . we elected to be taxed as a reit for u.s. federal income tax purposes commencing with our short taxable year ended december 31 , 2013. we operate so as to continue to qualify to be taxed as a reit . our asset acquisition strategy focuses on acquiring a diversified portfolio of residential mortgage assets that balances the risk and reward opportunities our manager observes in the marketplace . prior to our acquisition of aurora in may 2015 , our servicing related assets consisted of excess msrs in three pools : excess msr pool 1 , excess msr pool 2 and excess msr pool 2014. the excess msrs in these three pools had been previously acquired by the company from freedom mortgage . all of these excess msrs were sold back to freedom mortgage in november 2016 and february 2017. aurora has the licenses necessary to service mortgage loans on a nationwide basis and is approved to service loans for fannie mae , freddie mac and ginnie mae . in addition to servicing related assets , we invest in rmbs , primarily those backed by 30- , 20- and 15-year fixed rate mortgages that offer what we believe to be favorable prepayment and duration characteristics . our rmbs consist primarily of agency rmbs on which the payments of principal and interest are guaranteed by an agency . we have also invested in agency cmos consisting of interest only securities ( “ ios ” ) as well as non-agency rmbs . we finance our rmbs with an amount of leverage , that varies from time to time depending on the particular characteristics of our portfolio , the availability of financing and market conditions . we do not have a targeted leverage ratio for our rmbs . our borrowings for rmbs consist of short-term borrowings under master repurchase agreements . subject to maintaining our qualification as a reit , we utilize derivative financial instruments ( or hedging instruments ) to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates . in utilizing leverage and interest rate hedges , our objectives include , where desirable , locking in , on a long-term basis , a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders . we also operate our business in a manner that permits us to maintain our exclusion from registration as an investment company under the investment company act . effective january 1 , 2020 , the operating partnership contributed substantially all of its assets to chmi sub-reit , inc. ( the “ sub-reit ” ) in exchange for all of the common stock of the sub-reit . as a result of this contribution , the sub-reit is a wholly-owned subsidiary of the operating partnership and operations formerly conducted by the operating partnership through its subsidiaries are now conducted by the sub-reit through those same subsidiaries . the sub-reit will elect to be taxed as a reit under the code commencing with the taxable year ending december 31 , 2020. from time to time , we may issue and sell shares of our common stock , our class a preferred stock or our class b preferred stock . see “ item 8. consolidated financial statements and supplementary data—note 6. equity and earnings per common share—common and preferred stock. story_separator_special_tag we do not anticipate any operational issues arising from working remotely for as long as is necessary . factors impacting our operating results our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts . our net income includes the actual interest payments we receive on our rmbs , the net servicing fees we receive on our msrs and the accretion/amortization of any purchase discounts/premiums . changes in various factors such as market interest rates , prepayment speeds , estimated future cash flows , servicing costs and credit quality could affect the amount of premium to be amortized or discount to be accreted into interest income for a given period . prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . our operating results may also be affected by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose mortgage loans underlay the msrs held by aurora or the non-agency rmbs held in our portfolio . 38 set forth below is the positive gross spread between the yield on rmbs and our costs of funding those assets at the end of each of the quarters indicated below : average net yield spread at period end replace_table_token_2_th the average cost of funds also includes the benefits of related payer swaps . changes in the market value of our assets we hold our servicing related assets as long-term investments . our msrs are , carried at their fair value with changes in their fair value recorded in other income or loss in our consolidated statements of income ( loss ) . those values may be affected by events or headlines that are outside of our control , such as the covid-19 pandemic and other events impacting the u.s. or global economy generally or the u.s. residential market specifically , and events or headlines impacting the parties with which we do business . see “ item 1a . risk factors – risks related to our business. ” our rmbs are carried at their fair value , as available-for-sale in accordance with asc 320 , investments – debt and equity securities . beginning on january 1 , 2020 , upon adoption of accounting standards update ( “ asu ” ) 2016-13 , financial instruments-credit losses , we evaluate the cost basis of our rmbs on a quarterly basis under asc 326-30 , financial instruments-credit losses : available-for-sale debt securities . when the fair value of a security is less than its amortized cost basis as of the balance sheet date , the security 's cost basis is considered impaired . if we determine that we intend to sell the security or it is more likely than not that we will be required to sell before recovery , we recognize the difference between the fair value and amortized cost as a loss in the consolidated statements of income ( loss ) . if we determine we do not intend to sell the security or it is not more likely than not we will be required to sell the security before recovery , we must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors . in our assessment of whether a credit loss exists , we perform a qualitative assessment around whether a credit loss exists and if necessary , we compare the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security . the estimated future cash flows reflect those that a “ market participant ” would use and typically include assumptions related to fluctuations in interest rates , prepayment speeds , default rates , collateral performance , and the timing and amount of projected credit losses , as well as incorporating observations of current market developments and events . cash flows are discounted at an interest rate equal to the current yield used to accrete interest income . if the present value of estimated future cash flows is less than the amortized cost basis of the security , an expected credit loss exists and is included in provision ( reversal ) for credit losses on securities in the consolidated statements of income ( loss ) . if it is determined as of the financial reporting date that all or a portion of a security 's cost basis is not collectible , then we will recognize a realized loss to the extent of the adjustment to the security 's cost basis . this adjustment to the amortized cost basis of the security is reflected in realized gain ( loss ) on rmbs , available-for-sale , net in the consolidated statements of income ( loss ) . impact of changes in market interest rates on our assets the value of our assets may be affected by prepayment rates on mortgage loans . prepayment speed is the measurement of how quickly borrowers pay down the upb of their loans or how quickly loans are otherwise liquidated or charged off . generally , in a declining interest rate environment , prepayment speeds tend to increase . conversely , in an increasing interest rate environment , prepayment speeds tend to decrease . when we acquire servicing related assets or rmbs , we anticipate that the underlying mortgage loans will prepay at a projected rate generating an expected cash flow ( in the case of servicing related assets ) and yield . if we purchase assets at a premium to par value and borrowers prepay their mortgage loans faster than expected , the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis .
| results of operations presented below is a comparison of the company 's results of operations for the periods indicated ( dollars in thousands ) : results of operations replace_table_token_3_th 43 presented below is summary financial data on our segments together with the data for the company as a whole , for the periods indicated ( dollars in thousands ) : segment summary data for replace_table_token_4_th 44 replace_table_token_5_th replace_table_token_6_th interest income interest income for the year ended december 31 , 2020 was $ 49.0 million as compared to $ 73.3 million for the year ended december 31 , 2019. the $ 24.3 million decrease in interest income for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 primarily resulted from the sale of rmbs during the year ended december 31 , 2020 in order to rebuild the company 's liquidity . interest expense interest expense for the year ended december 31 , 2020 was $ 16.3 million as compared to $ 48.6 million for the year ended december 31 , 2019. the $ 32.3 million decrease for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , was comprised of a decrease of approximately $ 4.4 million from servicing related assets and a decrease of approximately $ 27.9 million from rmbs . the changes were primarily related to fewer repurchase agreement borrowings and an overall decrease in repurchase rates . change in fair value of investments in servicing related assets the fair value of our investments in servicing related assets for the years ended december 31 , 2020 and 2019 decreased by approximately $ 141.9 million and $ 106.8 million , respectively , primarily due to changes in valuation inputs or assumptions .
| 3,770 |
post-acquisition private placement on july 12 , 2019 , the company entered into a common stock purchase agreement ( the “ purchase agreement ” ) with certain accredited investors for the sale by the company in a private placement ( the “ private placement ” ) of an aggregate 1,538,462 shares of common stock , at a purchase price of $ 3.25 per share . the closing of the private placement occurred on july 15 , 2019. the aggregate net proceeds from the sale of the common stock was approximately $ 5.0 million . convertible notes as described in note 5 , in connection with the closing of the pre-acquisition financing , the convertible notes plus unpaid interest , of approximately $ 966,216 were converted into 598,472 shares of private neubase common stock at a price of $ 1.6145 per share . upon the consummation of the ohr acquisition , the convertible note shares were converted pursuant to the exchange ratio in the acquisition agreement into the right to receive 609,874 shares of common stock . asset acquisitions as described in note 4 , in connection with the acquisition of the cmu license agreement , private neubase issued 820,000 shares of private neubase common stock . upon the consummation of the ohr acquisition , the shares issued in connection with the cmu license agreement were converted pursuant to the exchange ratio in the acquisition agreement into the right to receive 835,625 shares of common stock . as described in note 3 , in connection with the acquisition of ohr , the company issued to private neubase stockholders , optionholders , warrantholders and noteholders of neubase a number of shares of ohr common stock at the exchange rate of 1.019055643 shares of common stock for each share of private neubase 's common stock outstanding immediately prior to the ohr acquisition . the common stock of the combined company that ohr stockholders owned as of the closing of the ohr acquisition on july 12 , 2019 is 2,829,248 shares of common stock . treasury stock at september 30 , 2018 , private neubase had sold 5,620,000 shares of private neubase common stock ( or 5,727,090 shares of common stock of the company converted at the exchange ratio provided for in the acquisition agreement ) to private neubase 's founders and other employees and service providers for gross proceeds of $ 55 . the private neubase common stock issued to the company 's employees was eligible to be repurchased by the company for a 36 month period following the sale , subject to the amount available for repurchase , in the event the purchaser is story_separator_special_tag disclosures regarding forward-looking statements this report includes “ forward-looking statements ” within the meaning of section 21e of the exchange act . those statements include statements regarding the intent , belief or current expectations of the company and its subsidiaries and our management team . any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties , and actual results may differ materially from those projected in the forward-looking statements . these risks and uncertainties include but are not limited to those risks and uncertainties set forth in item 1a of this annual report on form 10-k. in light of the significant risks and uncertainties inherent in the forward-looking statements included in this annual report on form 10-k , the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . further , these forward-looking statements reflect our view only as of the date of this report . except as required by law , we undertake no obligations to update any forward-looking statements and we disclaim any intent to update forward-looking statements after the date of this report to reflect subsequent developments . accordingly , you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the sec . 65 overview as a result of the merger , our going-forward operations will be primarily those of legacy neubase . accordingly , the results of operations reported for the fiscal years ended september 30 , 2019 and 2018 , in this management 's discussion and analysis are not indicative of the results of operations expected for future years due to the transition of our historic business operations to primarily those of legacy neubase . we are a biotechnology company focused on developing next generation therapies to treat rare genetic diseases and cancer caused by mutant genes . given that perhaps every human disease has a genetic component , we believe that our differentiated platform technology has the potential for broad impact . mutated proteins resulting from errors in deoxyribonucleic acid ( “ dna ” ) sequences cause many rare genetic diseases and cancer . dna in each cell of the body is transcribed into pre-rna , which is then processed ( spliced ) into mrna which is exported into the cytoplasm of the cell and translated into protein . this is termed the “ central dogma ” of biology . therefore , when errors in a dna sequence occur , they are propagated to rnas and can become a damaging protein . the type of therapies that we are developing are termed aso therapies . asos are short single strands of nucleic acids ( traditionally thought of as single stranded rna molecules ) which will bind to defective rna targets in cells and inhibit their ability to be translated into defective proteins . we believe we are a leader in the discovery and development of the class of rna-targeted aso drugs called pnas . our proprietary patrol platform allows for a more efficient discovery of drug product candidates , potentially transforming the treatment paradigm for people affected by rare genetic diseases and cancer . story_separator_special_tag shares of our common stock commenced trading on the nasdaq capital market under the ticker symbol “ nbse ” as of market open on july 15 , 2019. our previous ticker symbol was “ ohrp ” . story_separator_special_tag times , serif ; margin : 0pt 0.7pt 0pt 0 '' > cash flow summary the following table summarizes selected items in our consolidated statements of cash flows : replace_table_token_2_th operating activities from continuing operations net cash used in operating activities from continuing operations was approximately $ 2.8 million for the fiscal year ended september 30 , 2019 and net cash used in operating activities from continuing operations was approximately $ 455 for the period from inception to september 30 , 2018. net cash used in operating activities from continuing operations in 2019 was primarily as a result of our net loss , offset by our stock-based compensation expense and research and development expense-licenses acquired . investing activities from continuing operations net cash used in investing activities from continuing operations was approximately $ 685 thousand for the fiscal year ended september 30 , 2019 and net cash used in investing activities from continuing operations was $ 0 for the period from inception to september 30 , 2018. net cash used in investing activities in 2019 was primarily as a result of transaction costs paid in connection with the merger with ohr and the acquisition of the cmu license as well as the purchase of laboratory and office equipment . these expenditures were partially offset by cash acquired in connection with the merger with ohr . 68 financing activities from continuing operations net cash provided by financing activities was approximately $ 13.6 million for the fiscal year ended september 30 , 2019 and net cash provided by financing activities was approximately $ 250 thousand for the period from inception to september 30 , 2018. net cash provided by financing activities in 2019 reflects the proceeds from the issuance of common stock in our pre-acquisition and private placement financings . net cash provided by financing activities in 2019 also reflects the proceeds from the issuance of convertible notes . off-balance sheet arrangements as of september 30 , 2019 , we did not have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k. recent accounting pronouncements in june 2018 , the financial accounting standards board ( the “ fasb ” ) issued accounting standard update ( “ asu ” ) 2018-07 , compensation- stock compensation ( topic 718 ) improvements to nonemployee share-based payment accounting , which expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees . the guidance also specifies that topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor 's own operations by issuing share-based payment awards . the company early adopted this standard as of october 1 , 2018. the company did not grant share-based payment awards during the period from august 28 , 2018 ( inception ) through september 30 , 2018. accordingly , the adoption of this standard did not have a material effect on the company 's consolidated financial statements and related disclosures . in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) , which requires entities to recognize revenue in a way that depicts 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 new guidance also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts . the fasb subsequently issued asu 2016-10 , revenue from contracts with customers : ( topic 606 ) identifying performance obligations and licensing , to address issues arising from implementation of the new revenue recognition standard . the company adopted the standard using the full retrospective method . the company does not currently have a revenue stream . accordingly , the adoption of this standard did not have a material effect on the company 's consolidated financial statements and related disclosures . in february 2016 , the fasb issued asu 2016-2 , leases . the new standard establishes a right-of-use ( “ rou ” ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . the company plans to adopt this standard on october 1 , 2019. the adoption of the standard is not expected to have a material effect on the company 's consolidated financial statements and related disclosures as the company does not currently have leases with terms longer than 12 months . critical accounting estimates and policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) .
| results of operations results of operations for the fiscal year ended september 30 , 2019 reflect the following changes from the period from inception ( august 28 , 2018 ) to september 30 , 2018 : replace_table_token_1_th during the fiscal year ended september 30 , 2019 , we had no revenues and our operating loss increased by $ 26,295,195 compared to the period from inception to september 30 , 2018. our net loss increased by $ 26,916,295 for the fiscal year ended september 30 , 2019 , as compared to the period from inception to september 30 , 2018. until we are able to generate revenues , our management expects to continue to incur net losses . general and administrative expense general and administrative expense consists primarily of legal and professional fees , wages and stock-based compensation . general and administrative expenses increased by $ 9,067,281 for the fiscal year ended september 30 , 2019 , as compared to the period from inception to september 30 , 2018 , primarily due to an increase in stock-based compensation expense , employee head count and need for legal and professional services . research and development expense research and development expense consist primarily of professional fees , manufacturing expenses , wages and stock-based compensation . research and development expenses increased by $ 4,260,499 for the fiscal year ended september 30 , 2019 , as compared to the period from inception to september 30 , 2018 , primarily due to an increase in stock-based compensation , employee head count and the ramp up of research and development before and after the close of the merger with ohr pharmaceutical . research and development expense- licenses acquired research and development expense- licenses acquired consists of licenses acquired from cmu and in the merger with ohr .
| 3,771 |
an entity need not reassess whether any expired or existing contracts contain leases . 2. an entity need not reassess the lease classification for any expired or existing leases . 3. an entity need not reassess initial direct costs for any existing leases . the corporation also elected the practical expedient , which must be applied consistently to all leases , to use hindsight in determining the lease term and in assessing impairment of our right-of-use assets . the corporation will record a rou asset in the amount of approximately $ 2.7 million and a lease liability in the amount of approximately $ 3.3 million on the statement of financial condition upon adoption on january 1 , 2019. we do not believe there will be a material impact to the statement of income or the statement of cash flows . 2. earnings per common share basic earnings per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents . diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding , adjusted for the dilutive effect of outstanding common stock equivalents . there were no common stock equivalents at december 31 , 2018 or december 31 , 2017. the following table sets forth the calculation of basic and diluted story_separator_special_tag this discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the years ended december 31 , 2018 and 2017 , which are included in item 8 of part ii of this annual report . overview first united corporation is a bank holding company that , through the bank and its non-bank subsidiaries , provides an array of financial products and services primarily to customers in four western maryland counties and four northeastern west virginia counties . its principal operating subsidiary is the bank , which consists of a community banking network of 25 branch offices located throughout its market areas . our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers . consolidated net income available to common shareholders was $ 10.7 million for the year ended december 31 , 2018 , compared to $ 4.1 million for 2017. basic and diluted net income per common share for the year ended december 31 , 2018 were both $ 1.51 , compared to basic and diluted net income per common share of $ .58 for 2017. the increase in earnings for 2018 was attributable to a $ 4.6 million increase in net interest income , an increase of $ .7 million in other operating income , exclusive of gains , a $ .4 million decrease in provision expense , and a $ 4.2 million decrease in income tax expense . the decrease in income tax expense was driven by the enactment of the tax act in december 2017 , which reduced the federal tax rate from 35 % to 21 % . the reduction in the tax rate at december 31 , 2017 increased tax expense due to the revaluation of our deferred tax assets at the lower rate . these changes were offset by a $ 4.6 million increase in other operating expenses , driven primarily by increased salaries and benefits relating to new hires late in 2017 , merit increases and increased life and health costs due to increased claims . the elimination of preferred stock dividends relating to the redemption of $ 10.0 million of the corporation 's fixed rate cumulative perpetual preferred stock , series a ( the “ series a preferred stock ” ) in each of march 2017 and november 2017 also contributed to the increase in net income . the net interest margin for the year ended december 31 , 2018 , on a fully tax equivalent ( “ fte ” ) basis , increased to 3.74 % from 3.37 % for the year ended december 31 , 2017. the provision for loan losses decreased to $ 2.1 million for the year ended december 31 , 2018 , compared to $ 2.5 million for the year ended december 31 , 2017. the decrease was driven primarily by a reduction in net credit losses and historical loss factors due to a large charge-off rolling off from prior periods . these factors were attributable to good asset quality and improving economies . specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance , and the qualitative factors affecting the allowance for loan losses ( the “ all ” ) have been adjusted based on the current economic environment and the characteristics of the loan portfolio . other operating income increased $ .8 million for the year ended december 31 , 2018 when compared to 2017. this increase was attributable to increases in trust department earnings of $ .4 million , brokerage commissions of $ .2 million and debit card income of $ .1 million . these increases were offset slightly by decreases in service charges on deposit accounts and bank owned life insurance ( “ boli ” ) income . operating expenses increased $ 4.6 million when comparing the year ended december 31 , 2018 to the year ended december 31 , 2017. salaries and benefits increased $ 1.9 million , primarily due to new hires in late 2017 , merit increases and an increase in life and health insurance related to increased claims . we also saw an increase of $ .9 million in data processing , equipment and occupancy expense due to increased depreciation expense related to the branch renovation projects and new digital services implemented during 2018 as compared to the same period of 2017. other real estate owned ( “ oreo ” ) expenses increased $ 1.3 million due primarily to valuation allowance write-downs on properties in 2018. story_separator_special_tag management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements . allowance for loan losses one of our most important accounting policies is that related to the monitoring of the loan portfolio . a variety of estimates impact the carrying value of the loan portfolio and resulting interest income , including the calculation of the all , the valuation of underlying collateral , and the timing of loan charge-offs . the all is established and maintained at a level that management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans . estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio , current and historical trends in delinquencies and charge-offs , and changes in the size and composition of the loan portfolio . the analysis also requires consideration of the economic climate and direction , changes in lending rates , political conditions , legislation impacting the banking industry and economic conditions specific to western maryland and northeastern west virginia . because the calculation of the all relies on management 's estimates and judgments relating to inherently uncertain events , actual results may differ from management 's estimates . the all is also discussed below in item 7 under the heading “ allowance for loan losses ” and in note 7 to the consolidated financial statements . goodwill accounting standards codification ( “ asc ” ) topic 350 , intangibles - goodwill and other , establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill . the $ 11.0 million in recorded goodwill at december 31 , 2018 is related to the bank 's 2003 acquisition of huntington national bank branches and is not subject to periodic amortization . [ 25 ] goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired . goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment testing requires that the fair value of each of an entity 's reporting units be compared to the carrying amount of its net assets , including goodwill . if the estimated current fair value of the reporting unit exceeds its carrying value , then no additional testing is required and an impairment loss is not recorded . otherwise , additional testing is performed and , to the extent such additional testing results in a conclusion that the carrying value of goodwill exceeds its implied fair value , an impairment loss is recognized . for evaluation purposes , the corporation is considered to be a single reporting unit . accordingly , our goodwill relates to value inherent in the banking business and the value is dependent upon our ability to provide quality , cost effective services in a highly competitive local market . this ability relies upon continuing investments in processing systems , the development of value-added service features and the ease of use of our services . as such , goodwill value is supported ultimately by revenue that is driven by the volume of business transacted . a decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill , which could adversely impact earnings in future periods . asc topic 350 requires an annual evaluation of goodwill for impairment . the determination of whether or not these assets are impaired involves significant judgments and estimates . at december 31 , 2018 , the date of the corporation 's annual impairment test , the fair value of the corporation as determined by the price of its common stock exceeded the carrying amount of the corporation 's common equity . based on the results of the evaluation , management concluded that the recorded value of goodwill at december 31 , 2018 was not impaired . however , future changes in strategy and or market conditions could significantly impact these judgments and require adjustments to recorded asset balances . management will continue to evaluate goodwill for impairment on an annual basis and as events occur or circumstances change . accounting for income taxes we account for income taxes in accordance with asc topic 740 , “ income taxes ” . under this guidance , deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates that will 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 as income or expense in the period that includes the enactment date . we regularly review the carrying amount of our net deferred tax assets to determine if the establishment of a valuation allowance is necessary . if based on the available evidence , it is more likely than not that all or a portion of our net deferred tax assets will not be realized in future periods , then a deferred tax valuation allowance must be established . consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets . in evaluating this available evidence , management considers , among other things , historical performance , expectations of future earnings , the ability to carry back losses to recoup taxes previously paid , length of statutory carry forward periods , experience with utilization of operating loss and tax credit carry forwards not expiring , tax planning strategies and timing of reversals of temporary differences . significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences .
| consolidated balance sheet review overview total assets at december 31 , 2018 increased slightly to $ 1.4 billion from the $ 1.3 billion recorded at december 31 , 2017. comparing 2018 to 2017 , cash and interest-bearing deposits in other banks decreased by $ 60.2 million , the investment portfolio decreased by $ 8.5 million , and gross loans increased by $ 115.2 million . net deferred tax assets decreased by $ 1.4 million . oreo balances decreased by $ 3.5 million due to sales of properties as well as valuation allowance write-downs as new appraisals were obtained on properties in 2018. the balance of our boli investments increased by $ 1.2 million due to earnings in 2018. total liabilities increased by $ 39.4 million for the year ended december 31 , 2018 when compared to 2017 due primarily to an increase of $ 28.1 million in deposits due in large part to the purchase of two short-term brokered certificates of deposit of $ 25.0 million . short-term borrowings increased by $ 28.9 million due to an increase in overnight borrowings . this increase was related to a $ 15.0 million fhlb advance that was shifted from long-term borrowings at its maturity in april 2018 and the utilization of our funding sources from our correspondent banks . long-term borrowings decreased by $ 20.0 million as a result of the repayment of two fhlb advances totaling $ 5.0 million at maturity in january 2018 and the shift of a $ 15.0 fhlb advance to short-term borrowings as discussed above . comparing december 31 , 2018 to december 31 , 2017 , shareholders ' equity increased by $ 8.9 million as a result of the corporation 's income recorded in 2018 less dividends paid to the common shareholders .
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these conditions have resulted in some recent moderation of demand for new homes , particularly at higher price points . however , we continue to see solid economic fundamentals and a limited supply of homes at affordable prices across most of our markets . our position as the most geographically diverse and largest volume homebuilder in the united states provides a strong platform for us to compete for new home sales . in recent years , we have expanded our product offerings to include a broad range of homes for entry-level , move-up and luxury buyers across most of our markets . our affordable entry-level homes have experienced very strong demand from homebuyers , as the entry-level segment of the new home market remains under-served , with low inventory levels relative to demand . more recently , we have also been introducing homes at affordable price points in communities designed for active adult buyers seeking a low-maintenance lifestyle . we believe our business is well positioned with a broad geographic footprint , diverse product offerings , a balanced supply of finished lots , land and homes , a strong balance sheet and liquidity and experienced personnel across our operating markets . we remain focused on growing our revenues and profitability , generating positive annual cash flows from operations and managing our product offerings , pricing , sales pace , and inventory levels to optimize the return on our inventory investments . in fiscal 2018 , our number of homes closed and home sales revenues increased 13 % and 14 % , respectively , compared to the prior year . our pre-tax income was $ 2.1 billion in fiscal 2018 compared to $ 1.6 billion in fiscal 2017 and $ 1.4 billion in fiscal 2016 . our pre-tax operating margin increased to 12.8 % in fiscal 2018 compared to 11.4 % in fiscal 2017 and 11.1 % in fiscal 2016 . the increase in 2018 compared to 2017 was primarily the result of an increase in our home sales gross margin . during fiscal 2018 , we reduced sales incentives or raised prices in communities where we were achieving our targeted sales pace , while striving to ensure our product offerings remained affordable . as land and construction costs have generally increased , we have leveraged our scale and relationships to control these increases . cash provided by our homebuilding operations was $ 1.0 billion in fiscal 2018 compared to $ 303.7 million in fiscal 2017 and $ 580.5 million in fiscal 2016 . in fiscal 2018 , our homebuilding return on inventory ( roi ) improved to 20.2 % compared to 16.6 % in fiscal 2017 and 15.4 % in fiscal 2016 . homebuilding roi is calculated as homebuilding pre-tax income for the year divided by average inventory . average inventory in the roi calculation is the sum of ending inventory balances for the trailing five quarters divided by five . within our homebuilding land and lot portfolio , our lots controlled under option purchase contracts represent 57 % of the lots owned and controlled at september 30 , 2018 compared to 50 % at september 30 , 2017 . the forestar acquisition is advancing our homebuilding strategy of increasing our access to optioned land and lot positions . 27 we believe that housing demand in our individual operating markets is tied closely to each market 's economy . therefore , we expect that housing market conditions will continue to vary across our markets . if the u.s. economy remains strong , we expect to see continued strength in housing demand , concentrated in markets where job growth is occurring and new home prices remain affordable relative to household incomes . the pace and sustainability of new home demand and our future results could be negatively affected by weakening economic conditions , decreases in the level of employment and housing demand , decreased home affordability , further increases in mortgage interest rates or tightening of mortgage lending standards . strategy our operating strategy focuses on leveraging our financial and competitive position to increase the returns on our inventory investments and generate strong profitability and cash flows , while managing risk and maintaining financial flexibility to make opportunistic strategic investments . this strategy includes the following initiatives : maintaining a strong cash balance and overall liquidity position and controlling our level of debt . allocating and actively managing our inventory investments across our operating markets to diversify our geographic risk . offering new home communities that appeal to a broad range of entry-level , move-up , active adult and luxury homebuyers based on consumer demand in each market . modifying product offerings , sales pace , home prices and sales incentives as necessary in each of our markets to meet consumer demand and maintain affordability . delivering high quality homes to our customers and a positive experience both during and after the sale . managing our inventory of homes under construction relative to demand in each of our markets , including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold , completed homes in inventory . investing in land and land development in desirable markets , while controlling the level of land and lots we own in each of our markets relative to the local new home demand . increasing the amount of land and finished lots controlled through option purchase contracts by expanding relationships with land developers across the country and growing our majority-owned forestar lot development operations . pursuing acquisitions of companies to enhance and improve the returns of our homebuilding and other operations . controlling the cost of goods purchased from both vendors and subcontractors . improving the efficiency of our land development , construction , sales and other key operational activities . controlling our selling , general and administrative ( sg & a ) expense infrastructure to match production levels . story_separator_special_tag the average selling price of homes closed during fiscal 2017 was $ 298,400 , up 2 % from the prior year . 34 homebuilding operating margin analysis replace_table_token_8_th home sales gross profit 2018 versus 2017 gross profit from home sales increased 21 % to $ 3.3 billion in 2018 from $ 2.7 billion in 2017 and increased 130 basis points to 21.3 % as a percentage of home sales revenues . the percentage increase resulted from improvements of 60 basis points due to the average selling price of our homes closed increasing by more than the average cost , 40 basis points from a decrease in warranty and construction defect expenses and 30 basis points from a decrease in the amortization of capitalized interest . we remain focused on managing the pricing , incentives and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions and new home demand . these actions could cause our gross profit margins to fluctuate in future periods . 2017 versus 2016 gross profit from home sales increased 15 % to $ 2.7 billion in 2017 from $ 2.4 billion in 2016 and decreased 20 basis points to 20.0 % as a percentage of home sales revenues . the percentage decrease resulted from a decrease of 50 basis points due to an increase in warranty and construction defect expenses , partially offset by an improvement of 30 basis points due to a decrease in the amortization of capitalized interest . land sales and other revenues land sales and other revenues from our homebuilding operations were $ 121.8 million , $ 88.3 million and $ 78.7 million in fiscal 2018 , 2017 and 2016 , respectively . land sales and other revenues during fiscal 2018 included $ 39.5 million from the sale of a parcel of land in phoenix . we continually evaluate our land and lot supply , and fluctuations in revenues and profitability from land sales occur based on how we manage our inventory levels in various markets . we generally purchase land and lots with the intent to build and sell homes on them . however , some of the land that we purchase includes commercially zoned parcels that we may sell to commercial developers . we may also sell residential lots or land parcels to manage our supply or for other strategic reasons . as of september 30 , 2018 , our homebuilding operations had $ 40.2 million of land held for sale that we expect to sell in the next twelve months . 35 inventory and land option charges at the end of each quarter during fiscal 2018 , we reviewed the performance and outlook for all of our communities and land inventories for indicators of potential impairment and performed detailed impairment evaluations and analyses when necessary . as of september 30 , 2018 , we performed detailed impairment evaluations of communities and land inventories with a combined carrying value of $ 60.5 million and recorded impairment charges of $ 2.6 million during the fourth quarter to reduce the carrying value of impaired communities and land to fair value . total homebuildingu impairment charges during fiscal 2018 , 2017 and 2016 were $ 10.9 million , $ 23.2 million and $ 20.3 million , respectively . as we manage our inventory investments across our operating markets to optimize returns and cash flows , we may modify our pricing and incentives , construction and development plans or land sale strategies in individual active communities and land held for development , which could result in the affected communities being evaluated for potential impairment . also , if housing or economic conditions weaken in specific markets in which we operate , or if conditions weaken in the broader economy or homebuilding industry , we may be required to evaluate additional communities for potential impairment . these evaluations could result in additional impairment charges . during fiscal 2018 , 2017 and 2016 , earnest money and pre-acquisition cost write-offs related to land option contracts that we have terminated or expect to terminate were $ 13.4 million , $ 17.0 million and $ 11.1 million , respectively . total homebuilding inventory and land option charges of $ 48.8 million for fiscal 2018 also include a charge of $ 24.5 million in the second quarter related to the settlement of an outstanding dispute associated with a land transaction . selling , general and administrative ( sg & a ) expense sg & a expense from homebuilding activities was $ 1.3 billion , $ 1.2 billion and $ 1.1 billion in fiscal 2018 , 2017 and 2016 , respectively , an increase of 10 % in 2018 and 11 % in 2017 from the respective prior years . as a percentage of homebuilding revenues , sg & a expense decreased 30 basis points to 8.6 % in 2018 and decreased 40 basis points to 8.9 % in 2017 from the respective prior years . employee compensation and related costs were $ 964.2 million , $ 860.2 million and $ 748.7 million in fiscal 2018 , 2017 and 2016 , respectively , representing 72 % , 70 % and 68 % of sg & a costs in those years . these costs increased 12 % in 2018 and 15 % in 2017 due to increases in the number of employees and the amount of incentive compensation as compared to the respective prior years . our homebuilding operations employed 6,419 , 5,876 and 5,356 employees at september 30 , 2018 , 2017 and 2016 , respectively . we attempt to control our sg & a costs while ensuring that our infrastructure adequately supports our operations ; however , we can not make assurances that we will be able to maintain or improve upon the current sg & a expense as a percentage of revenues . interest incurred we capitalize interest costs incurred to inventory during active development and construction ( active inventory ) .
| key results key financial results as of and for our fiscal year ended september 30 , 2018 ( or from the acquisition date of october 5 , 2017 through september 30 , 2018 for forestar 's results ) , as compared to fiscal 2017 , were as follows : homebuilding : homebuilding revenues increased 14 % to $ 15.6 billion . homes closed increased 13 % to 51,857 homes , and the average closing price of those homes was $ 298,900 . net sales orders increased 13 % to 52,740 homes , and the value of net sales orders increased 13 % to $ 15.8 billion . sales order backlog increased 8 % to 13,371 homes , and the value of sales order backlog increased 8 % to $ 4.0 billion . home sales gross margin increased 130 basis points to 21.3 % . homebuilding sg & a expenses as a percentage of homebuilding revenues decreased by 30 basis points to 8.6 % . homebuilding pre-tax income increased 31 % to $ 2.0 billion compared to $ 1.5 billion . homebuilding pre-tax income as a percentage of homebuilding revenues improved to 12.5 % compared to 10.8 % . homebuilding return on inventory improved 360 basis points to 20.2 % . net cash provided by homebuilding operations increased to $ 1.0 billion compared to $ 303.7 million . homebuilding cash and cash equivalents totaled $ 1.1 billion compared to $ 973.0 million . homebuilding inventories totaled $ 9.9 billion compared to $ 9.2 billion . homes in inventory totaled 29,700 compared to 26,200 . owned lots totaled 124,300 compared to 125,000 , and lots controlled through option purchase contracts totaled 164,200 compared to 124,000 .
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58 overview we were incorporated on october 15 , 2012 as a maryland corporation and elected and qualified to be taxed as a real estate investment trust ( `` reit '' ) for u.s. federal income tax purposes beginning with our taxable year ended december 31 , 2013. on february 14 , 2013 , we commenced our initial public offering ( the `` ipo '' ) on a `` reasonable best efforts '' basis of up to $ 1.7 billion of common stock , $ 0.01 par value per share , at a price of $ 25.00 per share , subject to certain volume and other discounts , pursuant to a registration statement on form s-11 , as amended ( file no . 333-184677 ) ( the `` registration statement '' ) , filed with the u.s. securities and exchange commission ( the `` sec '' ) under the securities act of 1933 , as amended . the registration statement also covers up to 14.7 million shares of common stock available pursuant to a distribution reinvestment plan ( the `` drip '' ) under which common stockholders may elect to have their distributions reinvested in additional shares of common stock . on august 1 , 2014 , we registered an additional 25.0 million shares to be issued under the drip pursuant to a registration statement on form s-3 ( file no . 333- 197802 ) . in august 2014 , we completed our issuance of the $ 1.7 billion of common stock registered in connection with our ipo and , as permitted , reallocated the remaining 13.9 million drip shares available under the registration statement to our ipo . in november 2014 , we closed our ipo following the successful achievement of our target equity raise , including shares reallocated from the drip . as of december 31 , 2014 , we had 83.7 million shares of common stock outstanding , including unvested restricted shares and shares issued pursuant to the drip , and had received total gross proceeds from our ipo and the drip of $ 2.1 billion . as of december 31 , 2014 , the aggregate value of all share issuances and subscriptions of common stock outstanding was $ 2.1 billion based on a per share value of $ 25.00 ( or $ 23.75 for shares issued under the drip ) . we were formed to acquire a diversified portfolio of healthcare-related real estate assets , including medical office buildings ( `` mob '' ) , seniors housing communities and other healthcare-related facilities . all such properties may be acquired and operated by us alone or jointly with another party . we may also originate or acquire first mortgage loans secured by real estate . we purchased our first property and commenced real estate operations in may 2013. as of december 31 , 2014 , we owned 118 properties consisting of 6.3 million rentable square feet . our mobs , triple-net leased healthcare facilities and seniors housing communities were 94.1 % , 86.0 % and 89.9 % leased , respectively , as of december 31 , 2014 . our mobs had a weighted-average remaining lease term of 8.0 years as of december 31 , 2014 . substantially all of our business is conducted through american realty capital healthcare trust ii operating partnership , lp ( the `` op '' ) , a delaware limited partnership . we have no direct employees . we have retained american realty capital healthcare ii advisors , llc ( the `` advisor '' ) to manage our affairs on a day-to-day basis . we have retained american realty capital healthcare ii properties , llc ( the `` property manager '' ) to serve as our property manager . realty capital securities , llc ( the `` dealer manager '' ) served as the dealer manager of our ipo and continues to provide us with various services . the advisor , the property manager and the dealer manager are under common control with ar capital , llc , the parent of our sponsor , american realty capital vii , llc ( the `` sponsor '' ) , as a result of which , they are related parties , and each of which have or will receive compensation , fees and expense reimbursements for services related to our ipo and the investment and management of our assets . the advisor , property manager and dealer manager have or will also receive compensation , fees and expense reimbursements during our offering , acquisition , operational and liquidation stages . significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : offering and related costs offering and related costs include all expenses incurred in connection with our ipo . offering costs ( other than selling commissions and the dealer manager fees ) include costs that may be paid by the advisor , the dealer manager or their affiliates on our behalf . these costs include but are not limited to ( i ) legal , accounting , printing , mailing , and filing fees ; ( ii ) escrow service related fees ; ( iii ) reimbursement of the dealer manager for amounts it may pay to reimburse the itemized and detailed due diligence expenses of broker-dealers ; and ( iv ) reimbursement to the advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities . story_separator_special_tag location , size , demographics , value and comparative rental rates , tenant credit profile and the importance of the location of the real estate to the operations of the tenant 's business . 60 we are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the consolidated statements of operations and comprehensive income ( loss ) at the lesser of the carrying amount or fair value less estimated selling costs for all periods presented to the extent the disposal of a component represents a strategic shift that has or will have a major effect on our operations and financial results . properties that are intended to be sold are to be designated as `` held for sale '' on the consolidated balance sheet when they meet specific criteria to be presented as held for sale . properties are no longer depreciated when they are classified as held for sale . depreciation and amortization we are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis . these assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments , we would depreciate these investments over fewer years , resulting in more depreciation expense and lower net income on an annual basis . depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements , and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . the assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining term of the respective mortgages . impairment of long lived assets when circumstances indicate that the carrying value of a property may not be recoverable , we review the asset for impairment . this review is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used . for properties held for sale , the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset . these assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income . recently issued accounting pronouncements in february 2013 , the financial accounting standards board ( `` fasb '' ) issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date . the new guidance was effective for fiscal years , and interim periods within those fiscal years , beginning on or after december 15 , 2013. the adoption of this guidance did not have a material impact on our consolidated financial position , results of operations or cash flows . in april 2014 , the fasb amended the requirements for reporting discontinued operations . under the revised guidance , in addition to other disclosure requirements , a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has ( or will have ) a major effect on an entity 's operations and financial results when the component or group of components meets the criteria to be classified as held for sale , disposed of by sale or other than by sale . the revised guidance is effective for annual periods beginning on or after december 15 , 2014 , and interim periods within annual periods beginning on or after december 15 , 2015. we have adopted the provisions of this guidance effective january 1 , 2014 , and have applied the provisions prospectively . the adoption of this guidance did not have a material impact on our consolidated financial position , results of operations or cash flows . 61 in may 2014 , the fasb issued revised guidance relating to revenue recognition . under the revised guidance , an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services .
| results of operations we purchased our first property and commenced our real estate operations in may 2013. as of december 31 , 2014 , we owned 118 properties with an aggregate purchase price of $ 1.6 billion , comprised of 6.3 million rentable square feet . as of december 31 , 2013 , we owned seven properties with an aggregate purchase price of $ 46.2 million , comprised of 0.1 million rentable square feet . accordingly , our results of operations for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 reflect significant increases in most categories . comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 rental income rental income was $ 52.1 million for the year ended december 31 , 2014 , compared to $ 1.6 million for the year ended december 31 , 2013 . the increase in rental income was directly related to our acquisitions . operating expense reimbursements operating expense reimbursements were $ 3.6 million for the year ended december 31 , 2014 , compared to $ 0.3 million for the year ended december 31 , 2013 . pursuant to many of our lease agreements , tenants are required to pay their pro rata share of property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are generally directly responsible for all operating costs of the respective properties . the increase in operating expense reimbursements was directly related to acquisitions . 62 resident services and fee income resident services and fee income of $ 2.8 million for the year ended december 31 , 2014 relates to services offered to residents in our seniors housing communities depending on the level of care required , as well as fees associated with other ancillary services .
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we are the world 's leading provider of diagnostic information services . we provide interpretive consultation with one of the largest medical and scientific staffs in the industry . our dis business makes up greater than 95 % of our consolidated net revenues . during 2020 , we processed approximately 187 million test requisitions through our extensive laboratory network . the clinical testing that we perform is an essential element in the delivery of healthcare services . clinicians use clinical testing for predisposition , screening , monitoring , diagnosis , prognosis and treatment choices of diseases and other medical conditions . the united states clinical testing industry consists of two segments . one segment , which we believe makes up approximately 36 % of the total industry , includes hospital inpatient and outpatient testing . the second segment , which we believe makes up approximately 64 % of the total industry , includes testing of persons who are not hospital patients , including testing done in commercial clinical laboratories , physician-office laboratories and other locations , as well as hospital outreach ( non-hospital patients ) testing . we believe that hospital-affiliated laboratories account for approximately 36 % of the second segment , commercial clinical laboratories approximately 53 % and physician-office laboratories and other locations account for the balance . our estimates of the clinical laboratories industry do not include the impact of covid-19 testing . the clinical testing industry is subject to seasonal fluctuations in operating results and cash flows . typically , testing volume declines during vacation and major holiday periods , reducing net revenues and operating cash flows below annual averages . testing volume is also subject to declines due to severe weather or other events ( such as public health emergencies and health pandemics ) , which can deter patients from having testing performed and which can vary in duration and severity from year to year . additionally , orders for clinical testing generated from clinician offices , hospitals and employers can be affected by factors such as changes in the united states economy and regulatory environment , which affect the number of unemployed and uninsured , and design changes in healthcare plans , which affect utilization as well as patient responsibility for healthcare costs . we assess our revenue performance for the dis business based upon , among other factors , volume ( measured by test requisitions ) and revenue per requisition . each requisition accompanies patient specimens , indicating the test ( s ) to be performed and the party to be billed for the test ( s ) . revenue per requisition is impacted by various factors , including , among other items , the impact of fee schedule changes ( i.e . unit price ) , test mix , payer mix , and the number of tests per requisition . management uses number of requisitions and revenue per requisition data to assist with assessing the growth and performance of the business , including understanding trends affecting number of requisitions , pricing and test mix . therefore , we believe that information related to changes in these metrics from period to period are useful information for investors as it allows them to assess the performance of the business . 63 table of contents a summary of our revenue performance over the past three years is as follows : replace_table_token_5_th the impact that the covid-19 pandemic had on our dis revenues , including requisition volume and revenue per requisition are discussed further below under `` 2020 highlights '' and `` impact of covid-19 '' . diagnostic solutions in our diagnostic solutions ( `` ds '' ) businesses , which represent the balance of our consolidated net revenues , we offer a variety of solutions for life insurers and healthcare organizations and clinicians . we are the leading provider of risk assessment services for the life insurance industry . in addition , we offer healthcare organizations and clinicians robust information technology solutions . 2020 highlights our total net revenues of $ 9.4 billion were up 22.1 % from the prior year . in dis : ◦ revenues of $ 9.1 billion increased by 23.4 % compared to the prior year , driven by demand for covid-19 molecular and antibody testing , and , to a lesser extent , the impact of recent acquisitions , partially offset by a decline in testing volume in our base business ( which excludes covid-19 molecular and antibody testing ) . ◦ volume , measured by the number of requisitions , increased by 6.6 % compared to the prior year , with organic growth ( which excludes the impact of recent acquisitions ) and acquisitions contributing approximately 4.5 % and 2.1 % , respectively . organic volume growth was driven by demand for covid-19 molecular testing , partially offset by declines in testing volume in the base business . testing volume in the base business were negatively impacted by the covid-19 pandemic and declined by 11.4 % compared to the prior year . ◦ revenue per requisition increased by 16.2 % compared to the prior year driven , in large part , by covid-19 molecular testing . ds revenues of $ 298 million decreased by 7.0 % compared to the prior year and were negatively impacted by the covid-19 pandemic . income from continuing operations attributable to quest diagnostics ' stockholders was $ 1,431 million , or $ 10.47 per diluted share , in 2020 , compared to $ 838 million , or $ 6.13 per diluted share , in 2019. net cash provided by operating activities was approximately $ 2.0 billion in 2020 , compared to $ 1.2 billion in 2019. impact of covid - 19 as a novel strain of coronavirus ( covid-19 ) continues to spread and severely impact the economy of the united states and other countries around the world , we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge . story_separator_special_tag the cares act also includes a number of benefits that are applicable to us and other healthcare providers including , but not limited to : providing coverage for covid-19 testing at no out-of-pocket cost to nearly all patients ; providing clinical laboratories a one-year reprieve from the reporting requirements under the protecting access to medicare act ( `` pama '' ) as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under medicare that were scheduled to take place in 2021. further revisions of the medicare clinical 65 table of contents laboratory fee schedule for years after 2022 will be based on future surveys of market rates . reimbursement reduction from 2022-2024 is capped by pama at 15 % annually ; appropriating $ 100 billion to healthcare providers for related expenses or lost revenues that are attributable to the covid-19 pandemic . in april 2020 and august 2020 , we received approximately $ 65 million and $ 73 million , respectively , of funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the covid-19 pandemic under the cares act . during the fourth quarter of 2020 , we returned the entire $ 138 million of funds ; and suspending medicare sequestration from may 2020 to december 2020. in december 2020 , the suspension of the medicare sequestration , which has resulted in a small benefit to us in the form of higher reimbursement rates for diagnostic testing services performed on behalf of medicare beneficiaries , was extended through march 2021. senior notes offerings and retirement of debt during january 2020 , we redeemed in full the outstanding indebtedness under our senior notes due january 2020 and senior notes due march 2020 using the net proceeds from the issuance , in december 2019 , of $ 800 million aggregate principal amount of 2.95 % senior notes due june 2030 ( the `` 2030 senior notes '' ) , along with cash on hand . for the year ended december 31 , 2020 , we recorded a loss on retirement of debt in connection with the transaction , principally comprised of premiums paid , of $ 1 million in other income ( expense ) , net . during may 2020 , we completed a senior notes offering , consisting of $ 550 million aggregate principal amount of 2.80 % senior notes due june 2031 ( the “ 2031 senior notes ” ) , which were issued at an original issue discount of $ 1 million . during november 2020 , the net proceeds from the 2031 senior notes , along with cash on hand , were used to redeem in full the outstanding indebtedness under our senior notes due april 2021. for the year ended december 31 , 2020 , we recorded a loss on retirement of debt in connection with the transaction , principally comprised of premiums paid , of $ 8 million in other income ( expense ) , net . for further details regarding our debt , see note 13 to the audited consolidated financial statements . two point strategy our two point strategy is described in detail in `` item 1. business : our strategy . '' we continued to execute our strategy during 2020 as follows : acquisition of blueprint genetics oy on january 21 , 2020 , we completed the acquisition of blueprint genetics oy ( `` blueprint genetics '' ) , in an all cash transaction for $ 108 million , net of $ 3 million cash acquired . blueprint genetics is a leading specialty genetic testing company with expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics . through the acquisition , we acquired all of blueprint genetics ' operations . the acquired business is included in our dis business . acquisition of the outreach laboratory services business of memorial hermann health system on april 6 , 2020 , we completed the acquisition of select assets which constitute substantially all of the operations of memorial hermann diagnostic laboratories , the outreach laboratory division of memorial hermann health system ( `` memorial hermann '' ) in an all cash transaction for $ 120 million . memorial hermann is a not-for-profit health system in southeast texas . the acquired business is included in our dis business . acquisition of the remaining 56 % interest in mid america clinical laboratories , llc 66 table of contents on august 1 , 2020 , we completed the acquisition of the remaining 56 % interest in mid america clinical laboratories , llc ( `` macl '' ) from our joint venture partners in an all cash transaction for $ 93 million , net of $ 18 million cash acquired . macl is the largest independent clinical laboratory provider in indiana . prior to the acquisition , we accounted for our 44 % interest in macl as an equity method investment , which was remeasured to its fair value of $ 87 million on the acquisition date , resulting in a gain of $ 70 million that was recognized in other income ( expense ) , net in the consolidated statements of operations . as a result of the acquisition , macl became our wholly owned subsidiary . the acquired business is included in our dis business . for further details regarding our acquisitions , see note 6 to the audited consolidated financial statements . invigorate program we are engaged in a multi-year program called invigorate , which is designed to reduce our cost structure and improve our performance . we currently aim annually to save approximately 3 % of our costs , and in 2020 we achieved that goal . invigorate has consisted of several flagship programs , with structured plans in each , to drive savings and improve performance across the customer value chain . these flagship programs include : organization excellence ; information technology excellence ; procurement excellence ; field and customer service excellence ; lab excellence ; and revenue services excellence .
| results of operations for the discussions on the year-over-year changes for the year ended december 31 , 2019 compared to december 31 , 2018 and the results of operations for the year ended december 31 , 2018 , see item 7 - management 's discussion and analysis of financial condition and result of operations of our annual report on form 10-k for the year ended december 31 , 2019. basis of presentation our dis business currently represents our one reportable business segment . the dis business for the years ended december 31 , 2020 and 2019 accounted for greater than 95 % of our consolidated net revenues . our other operating segments consist of our ds businesses . for further details regarding our business segment information , see note 19 to the audited consolidated financial statements . results of operations the following table sets forth certain results of operations data for the periods presented : replace_table_token_7_th 72 table of contents replace_table_token_8_th nm - not meaningful the following table sets forth certain results of operations data as a percentage of net revenues for the periods presented : replace_table_token_9_th 73 table of contents operating results results for the year ended december 31 , 2020 were affected by certain items that on a net basis decreased diluted earnings per share from continuing operations by $ 0.71 as follows : pre-tax amortization expense of $ 114 million ( $ 103 million in amortization of intangible assets and $ 11 million in equity in earnings of equity method investees , net of taxes ) or $ 0.63 per diluted share ; net pre-tax charges of $ 72 million ( $ 57 million of charges in cost of services , $ 10 million of charges in selling , general and administrative expenses and $ 9 million of charges in other operating expense ( income ) , net , partially offset by a $ 4 million gain in equity in earnings of equity method investees , net of taxes )
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for saas , the fee is considered fixed or determinable if it is not subject to refund or adjustment . collectability is probable . the company assesses collectability based primarily on the creditworthiness of the customer . management 's judgment is required in assessing the probability of collection , which is generally based on an evaluation of customer specific information , historical experience and economic market conditions . if the company determines from the outset of an arrangement that collectability is not probable story_separator_special_tag overview we are leading the transition to software-defining the workplace , uniting virtualization , mobility management , networking and saas solutions to enable new ways for businesses and people to work better . citrix solutions power business mobility through secure , mobile workspaces that provide people with instant access to apps , desktops , data and communications on any device , over any network or cloud . we market and license our products directly to customers , over the web , and through systems integrators , or sis , in addition to indirectly through value-added resellers , or vars , value-added distributors , or vads , original equipment manufacturers , or oems and service providers . we are a delaware corporation founded on april 17 , 1989. executive summary we have positioned , scaled and transformed through significant growth phases - from remote access , to web app delivery , to virtualization , to mobile workspaces - and , now , we are focused on enabling a software-defined workplace where people can securely and effortlessly collaborate across any device over any network and cloud , resulting in increased business productivity for our customers . our technologies mobilize desktops , apps , data , and people to help our customers drive value . we continue driving innovation in the datacenter with our unique technologies across both physical and software defined networking platforms while powering some of the world 's largest clouds and giving enterprises the capabilities to combine best-in-class application networking services on a single , consolidated footprint . in 2014 , we continued to see an uneven spending environment in markets around the world and encountered hesitancy on the part of customers in initiating large capital projects . in addition , we introduced new product offerings within our desktop and application virtualization business . these offerings are focused on simplifying the installation and management process while delivering new capabilities to enhance the user experience for audio , video and graphics . although we expect a multi-year product cycle from these offerings , we have experienced longer than normal customer evaluations of these solutions , causing longer than anticipated sales-cycles . in the delivery networking business , investments that we have been making in increasing go-to-market coverage has led to growth in our netscaler products , which partially offsets the results in our desktop and application virtualization business which have been impacted by increased competition and alternative products on new platforms . in the second half of 2014 , we outlined our vision for the software-defined workplace recognizing that our customers are looking for a better way to mobilize their businesses while creating a more secure , flexible and easy-to-use infrastructure . in 2015 , we will be investing in areas that will power long-term growth ; mobility , cloud services and networking . we will continue to refine our delivery of the software-defined workspace solution that will deliver the quick , tangible return on investment , or roi for our customers . we believe that continued economic uncertainty and the transition of computing and legacy platforms to mobile , cloud , saas and social solutions may adversely affect sales of our products and services and may result in longer sales cycles , slower adoption of technologies and increased price competition . in january 2015 , we announced the implementation of a restructuring program designed to increase strategic focus and operational efficiency , the 2015 restructuring program . the restructuring will affect approximately 700 full-time and 200 contractor positions . it is anticipated that the aggregate total pre-tax restructuring charges will be in the range of $ 49.0 million to $ 55.0 million . included in these pre-tax charges are approximately $ 40.0 million to $ 45.0 million related to employee severance arrangements and approximately $ 9.0 million to $ 10.0 million related to the consolidation of leased facilities during fiscal year 2015. the majority of the activities related to the 2015 restructuring program are anticipated to be completed by the end of 2015. in april 2014 , we completed a private placement of $ 1.25 billion principal amount of 0.500 % convertible senior notes due 2019 , or the convertible notes . in may 2014 , we issued an additional $ 187.5 million principal amount of convertible notes pursuant to the full exercise of the over-allotment option granted to the initial purchasers in the offering , or the over-allotment option . the net proceeds from this offering were approximately $ 1.42 billion ( including the proceeds from the over-allotment option ) , after deducting the initial purchasers ' discounts and commissions and the offering expenses payable by us . in addition , in april 2014 , in connection with the $ 1.5 billion increase in repurchase authority granted to us under our ongoing stock repurchase program , we used approximately $ 101.0 million to purchase 1.7 million shares of our common stock from certain purchasers of the convertible notes in privately negotiated transactions concurrently with the closing of the convertible notes offering , and an additional $ 1.4 billion to purchase additional shares of our common stock through our asr agreement with citibank . under the asr agreement , we paid approximately $ 1.4 billion to citibank upon consummation of the asr and 33 received , in the aggregate , approximately 21.8 million shares of our common stock , including approximately 2.6 million shares delivered in october 2014 in final settlement in connection with citibank 's election to accelerate the asr . story_separator_special_tag revenue recognition we recognize revenue when it is earned and when all of the following criteria are met : persuasive evidence of the arrangement exists ; delivery has occurred or the service has been provided and we have no remaining obligations ; the fee is fixed or determinable ; and collectability is probable . we define these four criteria as follows : persuasive evidence of the arrangement exists . evidence of an arrangement generally consists of a purchase order issued pursuant to the terms and conditions of a distributor , reseller or end user agreement . for saas , we generally require the customer or the reseller to electronically accept the terms of an online services agreement or execute a contract . delivery has occurred and we have no remaining obligations . we consider delivery of licenses under electronic licensing agreements to have occurred when the related products are shipped and the end-user has been electronically provided the software activation keys that allow the end-user to take immediate possession of the product . for hardware appliance sales , our standard delivery method is free-on-board shipping point . consequently , we consider delivery of appliances to have occurred when the products are shipped pursuant to an agreement and purchase order . for saas , delivery occurs upon providing the users with their login id and password . for product training and consulting services , we fulfill our obligation when the services are performed . for license updates and maintenance , 36 we assume that our obligation is satisfied ratably over the respective terms of the agreements , which are typically 12 to 24 months . for saas , we assume that our obligation is satisfied ratably over the respective terms of the agreements , which are typically 12 months . the fee is fixed or determinable . in the normal course of business , we do not provide customers with the right to a refund of any portion of their license fees or extended payment terms . the fees are considered fixed or determinable upon establishment of an arrangement that contains the final terms of the sale including description , quantity and price of each product or service purchased . for saas , the fee is considered fixed or determinable if it is not subject to refund or adjustment . collectability is probable . we assess collectability based primarily on the creditworthiness of the customer . management 's judgment is required in assessing the probability of collection , which is generally based on an evaluation of customer specific information , historical experience and economic market conditions . if we determine from the outset of an arrangement that collectability is not probable , revenue recognition is deferred until customer payment is received and the other parameters of revenue recognition described above have been achieved . the majority of our product and license revenue consists of revenue from the sale of software products . software sales generally include a perpetual license to our software and are subject to the industry specific software revenue recognition guidance . in accordance with this guidance , we allocate revenue to license updates related to our software and any other undelivered elements of the arrangement based on vsoe of fair value of each element and such amounts are deferred until the applicable delivery criteria and other revenue recognition criteria described above have been met . the balance of the revenues , net of any discounts inherent in the arrangement , is recognized at the outset of the arrangement using the residual method as the product licenses are delivered . if management can not objectively determine the fair value of each undelivered element based on vsoe of fair value , revenue recognition is deferred until all elements are delivered , all services have been performed , or until fair value can be objectively determined . we also make certain judgments to record estimated reductions to revenue for customer programs and incentive offerings including volume-based incentives , at the time sales are recorded . for hardware appliance and software transactions , the arrangement consideration is allocated to stand-alone software deliverables as a group and the non-software deliverables based on the relative selling prices of using the selling price hierarchy in the revenue recognition guidance . the selling price hierarchy for a deliverable is based on its vsoe if available , third-party evidence , or tpe , if vsoe is not available , or estimated selling price 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 of selling price 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 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 . the estimate of selling price is established considering multiple factors including , but not limited to , pricing practices in different geographies and through different sales channels and competitor pricing strategies . for our non-software transactions we allocate the arrangement consideration based on the relative selling price of the deliverables . for our hardware appliances we use esp as our selling price . for our support and services , we generally use vsoe as our selling price . when we are unable to establish selling price using vsoe for our support and services , we use esp in our allocation of arrangement consideration .
| summary of results for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , we delivered the following financial performance : product and license revenue increased 0.9 % to $ 899.7 million ; software as a service revenue increased 11.8 % to $ 651.6 million ; license updates and maintenance revenue increased 8.5 % to $ 1,416.0 million ; professional services revenue increased 26.4 % to $ 175.5 million ; gross margin as a percentage of revenue decreased 2.5 % to 80.3 % ; operating income decreased 20.6 % to $ 302.3 million ; and diluted earnings per share decreased 18.3 % to $ 1.47 . the increase in our product and licenses revenue was primarily driven by sales of our delivery networking products , led by netscaler , partially offset by a decrease in sales of our desktop and application virtualization products . our software as a service revenues increased due to increased sales of our communications cloud products , led by gotomeeting and our documents cloud product , sharefile . the increase in license updates and maintenance revenue was primarily due to an increase in maintenance revenues , primarily driven by increased sales of maintenance and support across all of our enterprise and service provider division 's products and increased renewals of our subscription advantage product . the increase in professional services revenue was primarily due to increased participation in our product training and certification programs . we currently target total revenue to increase when comparing the first quarter of 2015 to the first quarter of 2014. in addition , when comparing the 2015 fiscal year to the 2014 fiscal year we target total revenue to increase .
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in december 2014 , we adopted the calyxt , inc. equity incentive plan ( 2014 plan ) , which allowed for the grant of stock options , and story_separator_special_tag executive overview we are a technology company focused on delivering plant-based innovations and solutions with substantial disruption potential across multiple industries . we are a leader in gene editing with exclusive access to proprietary talen technology for use in plants , which we used to successfully commercialize the first gene edited food product in the united states . we have a robust development pipeline that spans multiple crops and that is focused on several important trends , including functional nutrition , regenerative agriculture , sustainability , plant-based protein , and animal nutrition . our strategy is based on focusing on our core strengths in research and development , gene editing , and trait development . we deploy a capital-efficient , streamlined business model comprising three differentiated go-to-market strategies . specific deal structure and the amount and timing of cash flows and revenues are expected to vary depending upon several factors , including cost to develop , size of the opportunity , and the stage at which a partner or licensee enters the development process . across each of our go-to-market strategies , we seek to develop relationships with strategic customers where our product candidates are most likely to benefit from the counterparty 's deep agronomy , product management , and commercialization expertise . our business is described in greater detail in “ item 1. business—company overview. ” selected achievements and developments in august 2020 , as part of the broader transition of our business model , we announced a change in the go-to-market strategy for our high oleic soybean products . in the fourth quarter of 2020 , we announced that we had contracted to sell all 2020 grain production of our high oleic soybean to archer daniels midland ( adm ) . the total purchases represent approximately four million bushels of high oleic soybean grain . sales began in the third quarter of 2020 and will continue throughout 2021 , with prices to be determined on the basis of agricultural commodity market prices in effect at the time our planned deliveries of grain are agreed upon . in the fourth quarter of 2020 , we entered into a research collaboration with nrgene® that includes the adoption of nrgene 's cloud-based genomics platform to support several of our research projects . the genomics solutions , including nrgene 's quickgenetics technology , which analyzes breeding populations , delivers high resolution genetic mapping , and generates unique genetic markers for high value traits , are expected to allow for more comprehensive evaluations to accelerate trait discovery and breeding across multiple crops . we are integrating nrgene 's genomic resources to build out our proprietary predictive data analytics , which combines insights , scientific data , predictive algorithms , and data visualization tools to develop customized products to meet specific customer requirements . additionally , in the fourth quarter of 2020 , we executed a commercialization agreement with s & w seed company , a global agricultural company headquartered in longmont , colorado , for the exclusive license of an improved quality alfalfa seed in the united states and several geographies outside the united states excluding the european union , united kingdom , ukraine , russia , and india . the new alfalfa seed will be sold as part of the s & w seed portfolio and branded iqa . this marks our first commercial trait license agreement . in the second quarter of 2020 , our holl soybean was deemed a non-regulated article under the “ am i regulated ? ” process by biotechnology regulatory services of the animal and plant health inspection service , an agency of the united states department of agriculture . this product represents our second-generation high oleic soybean . also in the second quarter of 2020 , we released our non-edited hemp germplasm by selling plants directly to a grower , driving several thousand dollars of revenue . this project leveraged our plant breeding expertise to quickly purify and stabilize key varieties of a partner 's germplasm . while not significant to our financial results , this successful project enabled the gathering of valuable insights and data , and it is expected to serve as the base germplasm for the development of other hemp projects expected to launch beginning in 2023. during the first quarter of 2020 , we were notified that a significant portion of our high fiber wheat plants were damaged in field trials due to improper aerial chemical applications by unaffiliated third parties . while we are continuing to assess the impact of this damage on the overall development process and timeline for this product candidate , it has delayed development by at least one year . this product candidate is currently in phase 3 of our development pipeline . our phase 3 development activities in 2021 will include testing the product concept in field conditions , completing food application studies , and voluntarily consulting with fda . given the damage to our field trials described above , the timeline for the trait to be available 34 for a commercial launch is uncertain , but not expected before 2023. in line with our strategic advancement of the business model in high oleic soybeans , we plan to introduce our high fiber wheat innovation as a licensed trait through leading wheat ingredient companies . we are an early-stage company and have incurred net losses since our inception . as of december 31 , 2020 , we had an accumulated deficit of $ 166.9 million . our net losses were $ 44.8 million for the year ended december 31 , 2020. we expect to continue to incur significant expenses and operating losses for the next several years . those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year . story_separator_special_tag following these adjustments , we expect our s & sc expenses will decrease significantly from 2020 to 2021 , and then expect low-single digit growth in these cash expenses over time . general and administrative expense general and administrative ( g & a ) expenses consist primarily of employee-related expenses for our executive , legal , intellectual property , information technology , finance , and human resources functions . other g & a expenses include facility and information technology expenses not otherwise allocated to r & d or s & sc expenses , professional fees for auditing , tax and legal services , expenses associated with maintaining patents , consulting costs and other costs of our information systems . we expect low-single digit growth in these cash expenses over time as we believe we have the necessary foundation to grow and scale up our business . interest , net interest , net is comprised of interest income resulting from investments of cash and cash equivalents , short-term investments , unrealized gains and losses on short-term investments , and interest expense on our financing lease obligations . it is also driven by balances , yields , and timing of financing and other capital raising activities . 36 non-operating expenses non-operating expenses are expenses that are not directly related to our ongoing operations and are primarily comprised of gains and losses from foreign exchange-related transactions and disposals of land , buildings , and equipment . anticipated changes between revenues and costs as we execute upon our streamlined business model with differentiated go-to-market strategies , we expect the composition of our revenues and costs to evolve . future cash and revenue-generating opportunities are expected to primarily arise from seed sales , trait development and licensing activities , and licensing arrangements . under trait development and licensing activities , revenues are expected to arise from up-front , annual or milestone , and royalty payments upon the licensees ' commercial sale of products . under licensing arrangements , revenues are expected to arise from up-front , annual and royalty payments upon the licensees ' commercial sale of products . because our strategy is based on focusing on our core strengths in research and development , gene editing , and trait development , we expect r & d expenses to be the primary area of increase in our expenses . at the same time , because our streamlined business model relies on third parties assuming responsibility for agronomy infrastructure , product management , and commercialization , we expect that s & sc expense will decline as the new models are fully implemented . recent developments – covid-19 update as previously reported , our operations in minnesota are classified as critical sector work under the state of minnesota 's covid-19 executive orders . accordingly , most of our laboratory workers have continued to work onsite at our headquarters throughout the pandemic , and our r & d programs and seed distribution activities have not experienced material delays . in accordance with our covid-19 preparedness plan , minnesota executive order requirements , and cdc guidelines , we have implemented health and safety measures for the protection of our onsite workers , have maintained remote work arrangements for our non-laboratory personnel and have implemented , as necessary , appropriate self-quarantine precautions for potentially affected laboratory personnel . during 2020 , supply chain disruptions did not have a material impact on our operations . however , a resurgence or prolonging of the covid-19 pandemic , governmental response measures , and resulting disruptions could rapidly offset such improvements . moreover , the effects of the covid-19 pandemic on the financial markets remain substantial and broader economic uncertainties persist , which may make obtaining capital challenging and have exacerbated the risk that such capital , if available , may not be available on terms acceptable to us . there continues to be significant uncertainty relating to the covid-19 pandemic and its impact , and many factors could affect our results and operations , including , but not limited to , those discussed under the caption “ risk factors ” in the reports we file with the sec . results of operations for year ended december 31 , 2020 compared to the year ended december 31 , 2019 during 2020 we purchased soybeans and then either further processed them and sold the resulting oil and meal or , following our announcement in august 2020 to move our soybean go-to-market strategy to seed sales , sold grain outright . as of the end of the year we had sold all our 2019 grain and nearly all of the grain delivered to us at harvest in 2020. as of december 31 , 2020 , our receivables were from two of the world 's largest soybean processors and nearly all were collected shortly after year-end . we have sold all our soybean meal and oil and have exited nearly all of our soybean transportation and processing agreements . we will purchase the remainder of the 2020 harvest between january 1 , 2021 and august 31 , 2021. as we announced in december 2020 , adm has committed to purchase over four million bushels of our grain , which includes all the 2020 crop . we expect to sell that grain throughout 2021. we expect to sell the remaining grain to adm at market prices , and as a result , we will continue to hedge our fixed price grain inventories and fixed price forward purchase contracts to mitigate the risk changing market prices may have on our margins . in the fourth quarter of 2020 , our gross margins and adjusted gross margins ( a non-gaap measure ) were negative 47 percent and negative 30 percent , respectively , which reflects our current business strategy and go-to-market strategies . the following discussion of results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 should be read together with “ —financial operations overview—anticipated changes between revenues and costs.
| general and administrative expense g & a expenses were $ 16.2 million , a decrease of $ 2.8 million from 2019 , driven by a decrease in non-cash stock compensation of $ 1.4 million as a result of fewer stock awards issued and lower stock award values , and lower personnel costs of $ 1.4 million , partially offset by an increase in insurance costs . management fees management fees were $ 0.3 million in 2020 , a decrease of $ 1.1 million from 2019 , as we previously internalized certain services provided by cellectis , including investor relations , information technology , human resources , legal , and communications . restructuring costs restructuring costs were $ 0.7 million in 2020 and reflect the impact of severance and other expenses resulting from the action we initiated in august 2020 to advance our soybean product line go-to-market strategy . there were no restructuring costs in 2019. interest , net interest , net was $ 0.9 million expense , a decrease of $ 1.0 million from 2019 , driven by lower yields and lower cash balances . net loss net loss was $ 44.8 million in 2020 , an increase of $ 5.2 million from 2019 , driven by a $ 9.3 million decrease in gross margin following the launch of our high oleic soybean products and the higher costs we experienced during the product 's proof of concept period , a $ 1.1 million decrease in management fees , a $ 1.0 decrease in interest , net , and $ 0.7 million of restructuring costs , partially offset by $ 4.2 million of lower non-cash stock compensation expenses as a result of a recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards , as well as the impact from fewer stock awards issued and lower stock award values , and a $ 0.6 million decrease in section 16 officer transition expenses . the same period in 2019 also included $ 0.4
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the unaudited pro forma statement of operations of story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide information that is supplemental to , and shall be read together with , the consolidated financial statements and the accompanying notes contained in this form 10-k. information in md & a is intended to assist the reader in obtaining an understanding of ( i ) the consolidated financial statements , ( ii ) the company 's business segments and how the results of those segments impact the company 's results of operations and financial condition as a whole and ( iii ) how certain accounting principles affect the company 's consolidated financial statements . executive summary the company is a leading global manufacturer and supplier of ( i ) vehicles and equipment for maintenance and infrastructure end-markets , including sewer cleaners , vacuum trucks , street sweepers , dump truck bodies and trailers and ( ii ) safety , security and communication equipment , such as lights , sirens and warning systems . in addition , we sell parts and provide service , repair , equipment rentals and training as part of a comprehensive aftermarket offering to our customer base . we operate 14 manufacturing facilities in five countries and provide products and integrated solutions to municipal , governmental , industrial and commercial customers in all regions of the world . as described in note 16 – segment information to the accompanying consolidated financial statements , the company 's business units are organized in two reportable segments : the environmental solutions group and the safety and security systems group . during 2018 , the company continued to focus on executing against its key long-term objectives , including the following : creating disciplined growth ; improving manufacturing efficiencies and costs ; leveraging invested capital ; and diversifying our customer base . highlights of the company 's achievement against these objectives in 2018 include the following : with the traction on our organic growth initiatives , and benefits from the 2017 acquisition of tbei , we accelerated the achievement of our goal of profitably growing our revenues in excess of $ 1 billion by 2020. our net sales for the year ended december 31 , 2018 increased to $ 1,089.5 million . we generated $ 93.7 million of income from continuing operations during the year ended december 31 , 2018 , an increase of $ 33.2 million , or 55 % , compared with $ 60.5 million in 2017 . on a consolidated basis , our adjusted ebitda * increased by $ 47.0 million , or 41 % , and our adjusted ebitda margin * for 2018 was 14.7 % , up from 12.6 % in 2017 . both of our groups reported significant improvement in net sales and earnings , delivering adjusted ebitda margins * towards the high end of our target ranges . we have continued to focus on new product development and are encouraged that these efforts will provide additional opportunities to further diversify our customer base . in particular , we are pleased with the market reaction to our new hydro-excavator vehicle designed for utility markets . our eighty-twenty improvement ( “ eti ” ) initiatives remain a critical part of our culture and we continue to focus on reducing product costs and improving manufacturing efficiencies across all our businesses . with $ 92.8 million of cash being generated from continuing operations during 2018 , we have been able to pay down $ 62.1 million of debt in 2018 , bringing our total debt repayment since the completion of the tbei acquisition in june 2017 to approximately $ 96.0 million . during the year , we demonstrated our commitment to returning value to stockholders by paying increased cash dividends of $ 18.7 million in 2018 , up from $ 16.8 million in 2017 . we also spent $ 1.2 million repurchasing shares under our authorized repurchase program . at the end of 2018 , we had $ 30.2 million of authorization remaining under our existing share repurchase program , which represents approximately 2 % of our market capitalization . with our strong balance sheet and positive operating cash flow , we are well positioned to continue to invest in internal growth initiatives , pursue strategic acquisitions and consider ways to return value to stockholders . 15 our consolidated financial results in 2018 reflected year-over-year improvement in many areas , driven by both organic growth and benefits from our recent acquisitions : net sales for the year ended december 31 , 2018 increased by $ 191.0 million , or 21 % , to $ 1,089.5 million , with organic sales growth of approximately 12 % . operating income for the year ended december 31 , 2018 increased by $ 47.9 million , or 65 % , to $ 121.5 million . adjusted ebitda * for the year ended december 31 , 2018 was $ 160.5 million , up $ 47.0 million , or 41 % , and our adjusted ebitda margin * for the year ended december 31 , 2018 was 14.7 % , up from 12.6 % in 2017 . income from continuing operations for the year ended december 31 , 2018 was $ 93.7 million , up $ 33.2 million , or 55 % , from $ 60.5 million in the prior year . this equated to diluted earnings per share of $ 1.53 , up 53 % from $ 1.00 per share last year . cash flow from continuing operating activities for the year ended december 31 , 2018 was $ 92.8 million , an increase of $ 19.3 million , or 26 % . total orders for the year ended december 31 , 2018 were $ 1,173.2 million , an increase of $ 155.2 million , or 15 % . story_separator_special_tag 19 selling , engineering , general and administrative expenses for the year ended december 31 , 2017 , seg & a expenses increased by $ 24.8 million , or 21 % , primarily represented by a $ 21.1 million increase within the environmental solutions group , largely the result of the addition of expenses of businesses acquired , a $ 4.7 million increase in amortization expense and strategic investments in our sales force to support our organic growth initiatives . seg & a expenses with the safety and security systems group increased by $ 0.3 million in comparison to the prior year , while corporate seg & a expenses increased by $ 3.4 million , primarily driven by the recognition of $ 0.7 million in executive severance costs , increased legal expenses associated with hearing loss litigation and higher employee incentive compensation costs . operating income operating income for the year ended december 31 , 2017 increased by $ 12.8 million , or 21 % , to $ 73.6 million , primarily driven by a $ 17.9 million operating income improvement within the environmental solutions group , associated with increased sales volumes , a $ 6.2 million operating income contribution from tbei and the effects of including a full year of operating income from jje in 2017 , compared to only seven months in 2016 . tbei 's operating income contribution in 2017 included the effects of amortization expense on intangible assets acquired , which , coupled with the increased jje activity , contributed to an increase in the environmental solutions group 's depreciation and amortization expense of $ 11.2 million . in addition , there was a $ 0.8 million increase in purchase accounting expense effects and a $ 0.5 million increase in acquisition-related costs in 2017. within the safety and security systems group , operating income in the year ended december 31 , 2017 decreased by $ 0.9 million , with the $ 1.7 million decrease in gross profit and $ 0.3 million increase in seg & a expenses being partially offset by a $ 1.1 million reduction in restructuring charges . in addition to the $ 3.4 million increase in seg & a expenses , corporate expenses in the year ended december 31 , 2017 also included a $ 0.8 million increase in acquisition-related expenses . consolidated operating margin for the year ended december 31 , 2017 , inclusive of the incremental depreciation and amortization , purchase accounting expense effects , hearing loss settlement charges and acquisition costs , was 8.2 % , compared to 8.6 % in the prior year . interest expense interest expense for the year ended december 31 , 2017 increased by $ 5.4 million compared to the prior year , largely due to higher average debt levels following the acquisition of tbei . pension settlement charges during the year ended december 31 , 2017 , the company announced a limited-time voluntary lump-sum pension offering to eligible , terminated , vested participants of its u.s. defined benefit plan , paying a total of $ 13.7 million in lump-sum benefit payments to individuals that elected to receive a lump-sum settlement payment , using assets of the plan . as total benefit payments during the year ended december 31 , 2017 exceeded the sum of the service and interest cost , the company was required to measure the liabilities of the benefit plans and recognize a pension settlement charge of $ 6.1 million . for further discussion , see note 10 – pensions to the accompanying consolidated financial statements . other ( income ) expense , net for the year ended december 31 , 2017 , other ( income ) expense , net , totaled $ 0.8 million of income , largely due to foreign currency transaction gains , partially offset by $ 0.4 million of net periodic pension expense . for the year ended december 31 , 2016 , $ 1.8 million of expense was reported , largely related to $ 3.1 million of net periodic pension expense , partially offset by a gain on the settlement of a foreign currency forward contract and interest income on a loan provided to a customer . income tax expense the company recognized income tax expense of $ 0.5 million for the year ended december 31 , 2017 , compared to $ 17.4 million for the year ended december 31 , 2016 . the decrease in expense was primarily due to the recognition of a $ 23.0 million net tax benefit associated with the revaluation of the company 's net deferred tax liabilities in the u.s. following the reduction of the federal corporate tax rate included in the 2017 tax act , partially offset by a $ 2.2 million net increase in valuation allowance , inclusive of a $ 3.0 million valuation allowance recorded against the company 's foreign tax credits as a result of the enactment of the 2017 tax act , the recognition of $ 0.6 million of additional tax expense associated with a change in the state tax rate in illinois , and additional taxes resulting from higher pre-tax earnings . the company 's effective tax rate for the year ended december 31 , 2017 was 0.8 % , compared to 30.6 % in 2016 . the 2017 effective tax rate included the aforementioned impacts resulting from the 2017 tax act . the effective tax rate for 2016 included a $ 2.2 million net benefit from canadian and u.k. valuation allowance changes .
| results of operations the following table summarizes our consolidated statements of operations and illustrates the key financial indicators used to assess our consolidated financial results : replace_table_token_4_th ( a ) the company uses adjusted ebitda and adjusted ebitda margin as additional measures which are representative of its underlying performance and to improve the comparability of results across reporting periods . refer to item 6. selected financial data for further discussion regarding these non-gaap metrics and a reconciliation of each to the most comparable gaap measure for each of the periods presented . year ended december 31 , 2018 vs. year ended december 31 , 2017 net sales net sales increased by $ 191.0 million , or 21 % , for the year ended december 31 , 2018 , compared to the prior year . within the environmental solutions group , net sales increased by $ 170.9 million , or 25 % , largely due to $ 98.1 million of incremental net sales resulting from the prior-year tbei acquisition and organic sales growth of $ 72.8 million , or 12 % . the organic growth was primarily due to improved shipments of vacuum trucks and sewer cleaners , in addition to higher aftermarket revenues , represented by increases in rental income , parts and services revenues and sales of used equipment . these improvements included benefits from pricing actions and were partially offset by lower sales of products manufactured by other companies , such as refuse trucks . in the safety and security systems group , net sales increased by $ 20.1 million , or 10 % , primarily due to higher sales into global public safety markets and improved international sales of outdoor warning systems .
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we develop and manufacture precision-engineered flow control equipment integral to the movement , control and protection of the flow of materials in our customers ' critical processes . our product portfolio of pumps , valves , seals , automation and aftermarket services supports global infrastructure industries , including oil and gas , chemical , power generation and water management , as well as general industrial markets where our products and services add value . through our manufacturing platform and global network of quick response centers ( `` qrcs '' ) , we offer a broad array of aftermarket equipment services , such as installation , advanced diagnostics , repair and retrofitting . we currently employ approximately 18,000 employees in more than 50 countries . our business model is significantly influenced by the capital spending of global infrastructure industries for the placement of new products into service and aftermarket services for existing operations . the worldwide installed base of our products is an important source of aftermarket revenue , where products are expected to ensure the maximum operating time of many key industrial processes . over the past several years , we have significantly invested in our aftermarket strategy to provide local support to drive customer investments in our offerings and use of our services to replace or repair installed products . the aftermarket portion of our business also helps provide business stability during various economic periods . the aftermarket business , which is served by our network of 175 qrcs located around the globe , provides a variety of service offerings for our customers including spare parts , service solutions , product life cycle solutions and other value-added services . it is generally a higher margin business compared to our original equipment business and a key component of our profitable growth strategy . our operations are conducted through three business segments that are referenced throughout this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) : engineered product division ( `` epd '' ) for long lead time , custom and other highly-engineered pumps and pump systems , mechanical seals , auxiliary systems and replacement parts and related services ; industrial product division ( `` ipd '' ) for pre-configured engineered pumps and pump systems and related products and services ; and flow control division ( `` fcd '' ) for engineered and industrial valves , control valves , actuators and controls and related services . our business segments share a focus on industrial flow control technology and have a high number of common customers . these segments also have complementary product offerings and technologies that are often combined in applications that provide us a net competitive advantage . our segments also benefit from our global footprint and our economies of scale in reducing administrative and overhead costs to serve customers more cost effectively . for example , our segment leadership reports to our chief operating officer ( `` coo '' ) , and the segments share leadership for operational support functions such as research and development , marketing and supply chain . the reputation of our product portfolio is built on more than 50 well-respected brand names such as worthington , idp , valtek , limitorque , durco , edward , anchor/darling and durametallic , which we believe to be one of the most comprehensive in the industry . our products and services are sold either directly or through designated channels to more than 10,000 companies , including some of the world 's leading engineering , procurement and construction ( `` epc '' ) firms , original equipment manufacturers , distributors and end users . we continue to build on our geographic breadth through our qrc network with the goal to be positioned as near to customers as possible for service and support in order to capture valuable aftermarket business . along with ensuring that we have the local capability to sell , install and service our equipment in remote regions , it is equally imperative to continuously improve our global operations . we continue to expand our global supply chain capability to meet global customer demands and ensure the quality and timely delivery of our products . we continue to devote resources to improving the supply chain processes across our business segments to find areas of synergy and cost reduction and to improve our supply chain management capability to ensure it can meet 25 global customer demands . we also remain focused on improving on-time delivery and quality , while managing warranty costs as a percentage of sales across our global operations , through the assistance of a focused continuous improvement process ( `` cip '' ) initiative . the goal of the cip initiative , which includes lean manufacturing , six sigma business management strategy and value engineering , is to maximize service fulfillment to customers through on-time delivery , reduced cycle time and quality at the highest internal productivity . we experienced improved bookings in 2013 as the chemical , oil and gas and general industries saw increased activity despite an environment of continued global macroeconomic uncertainty . the growth in the chemical industry was driven by asia pacific countries investing in their chemical processing capabilities and north america producers investing to utilize natural gas as a low-cost feedstock . we experienced a modest increase in bookings into europe , as economic conditions in the region stabilized . in the power generation industry , we experienced a stable level of investment during 2013 due to low levels of economic growth and continued uncertainty related to environmental regulations . in 2013 , continued favorable conditions in our aftermarket business were driven by our customers ' need to maintain continuing operations across several industries and the expansion of our aftermarket capabilities through our integrated solutions offerings . our pursuit of major capital projects globally and our investments in localized customer service remain key components of our long-term growth strategy , and also provide stability during various economic periods . story_separator_special_tag as global economies stabilize and unemployment conditions improve , a rise in consumer spending should follow . an increase in spending would drive greater demand for chemical-based products supporting improved levels of capital investment . we believe the chemical industry in the near-term will continue to invest in maintenance and upgrades for optimization of existing assets and that developing regions will continue investing in capital infrastructure to meet current and future indigenous demand . we believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry . power generation the power generation industry represented approximately 13 % and 14 % of our bookings in 2013 and 2012 , respectively . in 2013 , the power generation industry continued to experience some softness in capital spending in the mature regions driven by the uncertainty related to environmental regulations , as well as potential regulatory impacts to the overall civilian nuclear market . in the developing regions , capital investment remained in place driven by increased demand forecasts for electricity in countries such as china and india . global concerns about the environment continue to support an increase in desired future capacity from renewable energy sources . the majority of the active and planned construction throughout 2013 continued to utilize designs based on fossil fuels . natural gas increased its percentage of utilization driven by market prices for gas remaining low and relatively stable . with the potential of unconventional sources of gas , such as shale gas , the power generation industry is forecasting an increased use of this form of fuel for power generation plants . we believe the outlook for the power generation industry remains favorable . current legislative efforts to limit the emissions of carbon dioxide may have an adverse effect on investment plans depending on the potential requirements imposed and the timing of compliance by country . however , we believe that proposed methods of limiting carbon dioxide emissions offer business opportunities for our products and services . we believe the long-term fundamentals for the power generation industry remain solid based on projected increases in demand for electricity driven by global population growth , advancements of industrialization and growth of urbanization in developing markets . we also believe that our long-standing reputation in the power generation industry , our portfolio of offerings for the various generating methods , our advancements in serving the renewable energy market and carbon capture methodologies , as well as our global service and support structure , position us well for the future opportunities in this important industry . water management the water management industry represented approximately 4 % our bookings in both 2013 and 2012 . although the water management industry displayed weakness in spending levels in 2013 as projects continued to be delayed , worldwide demand for fresh water and water treatment continues to create requirements for new facilities or for upgrades of existing systems , many of which require products that we offer , particularly pumps . the proportion of people living in regions that find it difficult to meet water requirements is expected to double by 2025. we believe that the persistent demand for fresh water during all economic cycles supports continued investments . 27 general industries general industries represented , in the aggregate , approximately 22 % of our bookings in both 2013 and 2012 . general industries comprises a variety of different businesses , including mining and ore processing , pharmaceuticals , pulp and paper , food and beverage and other smaller applications , none of which individually represented more than 5 % of total bookings in 2013 and 2012 . general industries also includes sales to distributors , whose end customers operate in the industries we primarily serve . the outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels . the long-term fundamentals of many of these industries remain sound , as many of the products produced by these industries are common staples of industrialized and urbanized economies . we believe that our specialty product offerings designed for these industries and our aftermarket service capabilities will provide continued business opportunities . our results of operations throughout this discussion of our results of operations , we discuss the impact of fluctuations in foreign currency exchange rates . we have calculated currency effects by translating current year results on a monthly basis at prior year exchange rates for the same periods . effective december 10 , 2013 , we acquired for inclusion in industrial product division ( `` ipd '' ) , innovative mag-drive , llc ( `` innomag '' ) , a privately-owned , united states ( `` u.s. '' ) based company specializing in advanced sealless magnetic drive centrifugal pumps in the chemical and general industries . effective march 28 , 2013 , we and our joint venture partner agreed to exit our joint venture , audco india , limited ( “ ail ” ) , which manufactures integrated industrial valves in india . to effect the exit flow control division ( `` fcd '' ) acquired 100 % ownership of ail 's plug valve manufacturing business in an asset purchase and sold its 50 % equity interest in ail to the joint venture partner . effective october 28 , 2011 we acquired for inclusion in epd , lawrence pumps , inc. ( `` lpi '' ) , a privately-owned , u.s.-based company specializing in the design , development and manufacture of engineered centrifugal slurry pumps for critical services within the petroleum refining , petrochemical , pulp and paper and energy markets . the results of operations of innomag , ail and lpi have been consolidated since the applicable acquisition dates . no pro forma information has been provided for these acquisitions due to immateriality . note 2 to our consolidated financial statements included in item 8 . `` financial statements and supplementary data '' ( `` item 8 '' ) of this annual report discusses the details of these acquisitions and the exit of the joint venture .
| flow control division segment results our second largest business segment is fcd , which designs , manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves , control valves , valve automation products , boiler controls and related services . fcd leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio . fcd has a total of 60 manufacturing facilities and qrcs in 25 countries around the world , with five of its 27 manufacturing operations located in the u.s. , 14 located in europe and seven located in asia pacific . based on independent industry sources , we believe that fcd is the fourth largest industrial valve supplier on a global basis . replace_table_token_22_th _ bookings in 2013 increased $ 135.1 million , or 8.8 % , as compared with 2012 . the increase included currency benefits of approximately $ 5 million . the increase in customer bookings was primarily attributable to the oil and gas , general and chemical industries , partially offset by a decrease in the power generation industry . increased customer bookings of $ 60.1 million into north america , $ 47.3 million into latin america , $ 35.2 million into europe and $ 9.6 million in to asia pacific were partially offset by a decrease of $ 16.6 million into the middle east . the increase was primarily driven by increased customer original equipment bookings . of the $ 1.7 billion of bookings in 2013 , approximately 32 % were from oil and gas , 27 % from chemical , 26 % from general industries , 13 % from power generation and 2 % from water management . bookings in 2012 decreased $ 76.2 million , or 4.8 % , as compared with 2011. the decrease included negative currency effects of approximately $ 63 million .
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we strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. historically , we have been a community-oriented provider of traditional banking products and services to business organizations and individuals , including products such as residential and commercial real estate loans , consumer loans and a variety of deposit products . we meet the needs of our local community through a community-based and service-oriented approach to banking . we have adopted a growth-oriented strategy that has focused on increasing commercial lending while decreasing our securities portfolio . our strategy also calls for increasing deposit relationships and broadening our product lines and services . we believe that this business strategy is best for our long-term success and viability , and complements our existing commitment to high quality customer service . in connection with our overall growth strategy , we seek to : ● grow our commercial and industrial and commercial real estate loan portfolio by targeting businesses in our primary market area and in northern connecticut as a means to increase the yield on and diversify our loan portfolio and build transactional deposit account relationships ; ● focus on expanding our retail banking franchise and increase the number of households served within our market area ; ● supplement the commercial focus , grow the residential loan portfolio to diversify risk and deepen customer relationships ; and ● grow through acquisitions . we may pursue expansion opportunities in our existing market areas or adjacent areas in strategic locations that maximize growth opportunities or with companies that add complementary products to our existing business and we will look to be opportunistic to expand through the acquisition of banks or other financial service companies . you should read the following financial results for the year ended december 31 , 2016 in the context of this strategy . ● net income was $ 4.8 million , or $ 0.24 per diluted share , for the year ended december 31 , 2016 , compared to $ 5.7 million , or $ 0.33 per diluted share , for the same period in 2015. the results for the year ended december 31 , 2016 showed increases in net interest and dividend income and noninterest income , however , these were partially offset by an increase in noninterest expense primarily due to $ 4.1 million in merger expenses related to the acquisition of chicopee . ● we had provision for loan loss expense of $ 575,000 for the year ended december 31 , 2016 , compared to $ 1.3 million for the year ended december 31 , 2015. the allowance was $ 10.1 million for december 31 , 2016 and $ 8.8 million for december 31 , 2015 , or 0.64 % and 1.09 % of total loans , respectively . the 2016 allowance as a percentage of loans was impacted by the addition of $ 640.9 million in loans acquired from chicopee that were recorded at fair value on october 21 , 2016 and required no further allowance subsequent to the acquisition . ● net interest and dividend income increased $ 5.6 million to $ 37.3 million for the year ended december 31 , 2016 , compared to $ 31.7 million for the year ended december 31 , 2015 primarily due to a $ 6.1 million increase in interest income resulting from a $ 247.1 million increase in the average balance of loans from the comparable 2015 period resulting from the acquisition of chicopee on october 21 , 2016. noninterest income increased $ 1.1 million to $ 6.0 million for the year ended december 31 , 2016 , compared to $ 4.9 million for the same period in 2015 primarily driven by an increase in service charges and fee income . 42 ● noninterest expense increased $ 7.9 million to $ 35.3 million at december 31 , 2016 , compared to $ 27.4 million at december 31 , 2015. the increase in noninterest expense for the year ended december 31 , 2016 was primarily due to $ 4.1 million in merger expenses related to the acquisition of chicopee as well as increases in cost for the integration and operation of the chicopee branch network , which management expects to have cost savings associated with this integration to be fully-phased in during the first half of 2017. general . our consolidated results of operations depend primarily on net interest and dividend income . net interest and dividend income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities . interest-earning assets consist primarily of commercial real estate loans , commercial and industrial loans , residential real estate loans and securities . interest-bearing liabilities consist primarily of certificates of deposit and money market account , demand deposit accounts and savings account deposits , borrowings from the fhlbb and securities sold under repurchase agreements . the consolidated results of operations also depend on the provision for loan losses , noninterest income , and noninterest expense . noninterest expense includes salaries and employee benefits , occupancy expenses and other general and administrative expenses . noninterest income includes service fees and charges , income on bank-owned life insurance , and gains ( losses ) on securities . critical accounting policies . our accounting policies are disclosed in note 1 to our consolidated financial statements . given our current business strategy and asset/liability structure , the more critical policies are the allowance for loan losses and provision for loan losses , accounting for nonperforming loans , the valuation of deferred taxes and other-than-temporary impairment of securities . in addition to the informational disclosure in the notes to the consolidated financial statements , our policy on each of these accounting policies is described in detail in the applicable sections of “ management 's discussion and analysis of financial condition and results of operations. story_separator_special_tag ( 2 ) securities income , loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported in the statements of income . ( 3 ) short-term investments include federal funds sold . ( 4 ) net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities . ( 5 ) net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets . 45 rate/volume analysis . the following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated . information is provided in each category with respect to : ( 1 ) interest income changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( 2 ) interest income changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( 3 ) the net change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_26_th ( 1 ) securities and loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the statements of income . 46 comparison of financial condition at december 31 , 2016 and december 31 , 2015 total assets increased $ 736.1 million to $ 2.1 billion at december 31 , 2016 due to the acquisition of chicopee on october 21 , 2016. net loans increased by $ 747.0 million to $ 1.6 billion at december 31 , 2016 from $ 809.4 million at december 31 , 2015 , primarily due to net loans of $ 640.9 million acquired from chicopee at december 31 , 2016. the increase in loans was partially offset by a $ 119.7 million decrease in the securities portfolio to $ 316.2 million at december 31 , 2016. the decrease in securities from december 2015 was primarily due to the sales of securities to fund loan growth . net loans increased by $ 747.0 million to $ 1.6 billion at december 31 , 2016 from $ 809.4 million at december 31 , 2015. the increase in net loans was primarily the result of increases in commercial real estate loans , residential real estate loans and commercial and industrial loans . commercial real estate loans increased $ 417.7 million to $ 720.7 million at december 31 , 2016 from $ 303.0 million at december 31 , 2015. non-owner occupied commercial real estate loans totaled $ 374.7 million at december 31 , 2016 and $ 189.2 million at december 31 , 2015 , while owner occupied commercial real estate loans totaled $ 346.0 million at december 31 , 2016 and $ 113.8 million at december 31 , 2015. residential real estate and home equity loans increased $ 272.6 million to $ 614.2 million at december 31 , 2016 from $ 341.6 million at december 31 , 2015. we purchased $ 108.4 million in residential loans from new england-based banks as a means of supplementing our loan growth . commercial and industrial loans increased $ 54.0 million to $ 222.3 million at december 31 , 2015 from $ 168.3 million at december 31 , 2015. the growth in commercial and industrial loans was the result of new loans acquired from chicopee as well as originations and customers increasing balances on their lines of credit , which were both partially offset by normal loan payments and payoffs . securities decreased $ 119.7 million to $ 316.2 million at december 31 , 2016 from $ 435.9 million at december 31 , 2015. the securities portfolio is primarily comprised of mortgage-backed securities , which totaled $ 197.5 million at december 31 , 2016 and $ 324.1 million at december 31 , 2015 , the majority of which were issued by government-sponsored enterprises such as the federal national mortgage association . there were no privately issued mortgage-backed securities in the portfolio at december 31 , 2016 and 2015. debt securities issued by government-sponsored enterprises were $ 42.0 million at december 31 , 2016 and $ 34.1 million at december 31 , 2015. securities issued by government-sponsored enterprises include bonds issued by the federal national mortgage association and the federal home loan mortgage corporation . corporate bonds totaled $ 50.3 million and $ 45.1 million at december 31 , 2016 and 2015 , respectively . the securities portfolio includes investment-grade corporate bonds which help to diversify our securities portfolio while also increasing the average yield on the portfolio . we also invest in municipal bonds primarily issued by cities and towns in massachusetts that are rated as investment grade by moody 's , standard & poor 's or fitch , and the majority of which are also independently insured . municipal bonds were $ 4.0 million at december 31 , 2016 and $ 9.6 million at december 31 , 2015. in addition , we have investments in fhlbb stock , common stock and mutual funds that invest only in securities allowed by the occ . during the first quarter of 2016 , the company transferred its held-to-maturity portfolio of $ 232.8 million to available-for-sale , and subsequently sold $ 136.8 million in securities available-for-sale . as a result of this transfer , the company has tainted their held-to-maturity portfolio and is prohibited from classifying future purchases as held-to-maturity .
| general . net income for the year ended december 31 , 2016 was $ 4.8 million , or $ 0.24 per diluted share , compared to $ 5.7 million , or $ 0.33 per diluted share , for the same period in 2015. contributing to the lower net income for the year ended december 31 , 2016 were $ 4.1 million in pretax costs associated with the chicopee acquisition . interest and dividend income . total interest and dividend income increased $ 6.1 million to $ 48.6 million for the year ended december 31 , 2016 compared to $ 42.5 million for the same period in 2015. the increase in interest and dividend income was primarily the result of an increase in the average interest-earning balance of our loan portfolio resulting from the acquisition of loans from chicopee on october 21 , 2016 as well as executing on our strategy to improve the balance sheet mix by decreasing securities while increasing loan growth . at december 31 , 2016 , the average balance of loans increased $ 247.1 million to $ 1.0 billion , while the average balance of securities decreased $ 146.6 million to $ 326.0 million . the balance of interest-earning assets increased $ 127.6 million to $ 1.4 billion for the year ended december 31 , 2016 , compared to $ 1.3 billion for the same period in 2015. the average yield on interest-earning assets , on a tax-equivalent basis , increased 12 basis points to 3.50 % for the year ended december 31 , 2016 from 3.38 % for the same period in 2015. interest income on loans increased $ 9.7 million to $ 40.2 million for the year ended december 31 , 2016 from $ 30.5 million for the year ended december 31 , 2015. the tax-equivalent yield on loans decreased 1 basis point from 4.00 % for the year 2015 to 3.99 % for the same
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as a result , the company recorded an $ 18.1 million gain on the settlement of arbitration , which represented the value of a potential future arbitration outcome . this amount was valued based on a probability weighted scenario analysis that took into consideration the probability of each potential future alternative outcomes of the arbitration between story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with selected consolidated financial data and our consolidated financial statements and related notes appearing in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k 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 the risk factors section of this report and elsewhere in this annual report on form 10-k. overview vanda pharmaceuticals inc. ( we , our or vanda ) is a biopharmaceutical company focused on the development and commercialization of novel therapies addressing high unmet medical needs . we commenced operations in 2003 and our product portfolio includes : hetlioz ® ( tasimelteon ) , a product for the treatment of non-24-hour sleep-wake disorder ( non-24 ) , was approved by the u.s. food and drug administration ( fda ) in january 2014 and launched commercially in the u.s. in april 2014. in july 2015 , the european commission ( ec ) granted centralized marketing authorization with unified labeling for hetlioz ® for the treatment of non-24 in totally blind adults . this authorization is valid in the 28 countries that are members of the european union , as well as european economic area members iceland , liechtenstein and norway . we are preparing to launch hetlioz ® in germany in 2016. hetlioz ® has potential utility in a number of other circadian rhythm disorders and is presently in clinical development for the treatment of jet lag disorder and smith-magenis syndrome ( sms ) . fanapt ® ( iloperidone ) , a product for the treatment of schizophrenia , the oral formulation of which was being marketed and sold in the u.s. by novartis pharma ag ( novartis ) until december 31 , 2014. on december 31 , 2014 , novartis transferred all of the u.s. and canadian commercial rights to the fanapt ® franchise to us . see note 3 , settlement agreement with novartis , to the consolidated financial statements included in part ii of in this annual report on form 10-k for additional information . in september 2015 , the fda accepted for review a supplemental new drug application ( snda ) for fanapt ® for the maintenance treatment of schizophrenia in adults . in december 2015 , we refiled with the european medicines agency ( ema ) a marketing authorization application ( maa ) for fanaptum ® oral . additionally , our distribution partners launched fanapt ® in israel and mexico in 2014. tradipitant ( vly-686 ) , a small molecule neurokinin-1 receptor ( nk-1r ) antagonist , which is presently in clinical development for the treatment of chronic pruritus in atopic dermatitis . trichostatin a , a small molecule histone deacetylase ( hdac ) inhibitor . aqw051 , a phase ii alpha-7 nicotinic acetylcholine receptor partial agonist . operational highlights hetlioz ® ( tasimelteon ) hetlioz ® net product sales grew to $ 15.1 million in the fourth quarter of 2015 , a 30 % increase compared to $ 11.7 million in the third quarter of 2015 and a 152 % increase compared to $ 6.0 million reported in the fourth quarter of 2014. hetlioz ® net product sales were $ 44.3 million for the full year 2015 , a 246 % increase compared to $ 12.8 million reported for the full year 2014. during the fourth quarter of 2015 , we initiated an open label interventional study of tasimelteon for the treatment of sms . a placebo controlled , phase iii study is planned to begin in the second half of 2016 . 50 during the fourth quarter of 2015 , we completed an observational study of jet lag disorder . a placebo controlled , phase iii study is planned to begin in the second half of 2016. fanapt ® ( iloperidone ) fanapt ® net product sales were $ 16.7 million for the fourth quarter of 2015 , compared to $ 16.7 million in the third quarter of 2015. fanapt ® net product sales were $ 65.6 million for the full year 2015 , compared to $ 65.0 million in 2014 , as reported by novartis . in december 2015 , the maa for oral fanaptum ® tablets was accepted for evaluation by the ema for the treatment of schizophrenia in adults . the fda review of the snda for fanapt ® for the maintenance treatment of schizophrenia in adults is ongoing . the fda has set a pdufa goal date in may 2016. since we began operations in march 2003 , 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 ability to successfully commercialize 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 . the results of our operations will vary significantly from year-to-year and quarter-to-quarter and depend on a number of factors , including risks related to our business , risks related to our industry , and other risks which are detailed in risk factors reported in item 1a of part i of this annual report on form 10-k. story_separator_special_tag estimates for expected medicare part d coverage gap are based in part on historical activity and , where available , actual and pending prescriptions for which we have validated the insurance benefits . funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarter activity . if actual future funding varies from estimates , we may need to adjust accruals , which would affect net sales in the period of adjustment . service fees : we also incur specialty pharmacy fees and wholesaler for services and their data . 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 receives an identifiable and separate benefit for the consideration and it can reasonably estimate the fair value of the benefit received . in which case , service fees 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 . the allowance for co-pay assistance is based on actual sales and an estimate for pending sales based on either historical activity or pending sales for which we have validated the insurance benefits . 52 prompt-pay : specialty pharmacies and wholesalers are offered discounts for prompt payment . we expect that the specialty pharmacies and wholesalers will earn prompt payment discounts and , therefore , deduct the full amount of these discounts from total product sales when revenues are recognized . product returns : consistent with industry practice , we generally offer direct customers a limited right to return as defined within our returns policy . we consider several factors in the estimation process , including historical return activity , expiration dates of product shipped to specialty pharmacies , inventory levels within the distribution channel , product shelf life , prescription trends and other relevant factors . the following table summarizes sales discounts and allowance activity as of and for the years ended december 31 , 2015 and 2014. replace_table_token_4_th the provision of $ 57.4 million for rebates and chargebacks for the year ended december 31 , 2015 primarily represents medicaid rebates and contracted rebate programs applicable to sales of fanapt ® . the provision of $ 17.9 million for discounts , returns and other for the year ended december 31 , 2015 primarily represents wholesaler distribution fees applicable to sales of fanapt ® and co-pay assistance costs and prompt pay discounts applicable to the sales of both hetlioz ® and fanapt ® . license revenue . our license revenues in 2014 and prior years were derived from the amended and restated sublicense agreement with novartis and include an upfront payment and future milestone and royalty payments . pursuant to the amended and restated sublicense agreement , novartis had the right to commercialize and develop fanapt ® in the u.s. and canada . under the amended and restated sublicense agreement , we received an upfront payment of $ 200.0 million . revenue related to the upfront payment was recognized ratably from the date the amended and restated sublicense agreement became effective ( november 2009 ) through the expected duration of the novartis commercialization of fanapt ® in the u.s. which was estimated to be through the expiry of the fanapt ® composition of patent , including a granted hatch-waxman extension ( november 2016 ) . in connection with the settlement agreement , we recognized the remaining deferred revenue as of december 31 , 2014 as part of the gain on arbitration settlement . see note 3 , settlement agreement with novartis , to the consolidated financial statements included in part ii of this annual report on form 10-k for additional information . stock-based compensation . 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 not paid dividends to our stockholders since our inception ( other than a dividend of preferred share purchase rights which was declared in september 2008 ) and do not plan to pay dividends in the foreseeable future . stock-based compensation expense is also 53 affected by the expected forfeiture rate for the respective option grants . if our estimates of the fair value of these equity instruments or expected forfeitures are too high or too low , it would have the effect of overstating or understating expenses . stock-based compensation expense related to stock-based awards for the years ended december 31 , 2015 , 2014 and 2013 , was included in the following : replace_table_token_5_th stock-based compensation expense increased by $ 2.1 million , or 36 % , for the year ended december 31 , 2015 to $ 8.0 million compared to $ 5.9 million for the year ended december 31 , 2014. the increase in expense was primarily the result of an increase in the number of employees during 2015 due to the hiring of new members of the executive management team , the field-based sales team and the medical affairs team .
| 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 successfully commercialize our products , any possible payments made or received pursuant to license or collaboration agreements , progress of our research and development efforts , the timing and outcome of clinical trials and related possible regulatory approvals . our limited operating history makes predictions of future operations difficult . since our inception , we have incurred significant losses resulting in an accumulated deficit of $ 327.8 million as of december 31 , 2015. our total stockholders ' equity was $ 133.0 million as of december 31 , 2015 , and reflects net proceeds of $ 62.3 million from the public offering of common stock completed in october 2014 and $ 25.0 million from the issuance of common stock to novartis in december 2014. year ended december 31 , 2015 compared to year ended december 31 , 2014 revenues . total revenues increased by $ 59.7 million , or 119 % , to $ 109.9 million for the year ended december 31 , 2015 compared to $ 50.2 million for the year ended december 31 , 2014. during the years ended december 31 , 2015 and 2014 , revenues consisted of the following : replace_table_token_8_th hetlioz ® was commercially launched in the u.s. in april 2014. pursuant to the terms of the settlement agreement , novartis transferred all u.s. and canadian rights in the fanapt ® franchise to us in december 2014. we began selling fanapt ® commercially in the u.s. in january 2015. fanapt ® royalty revenue for the year ended december 31 , 2014 represented amounts due from novartis based on quarterly u.s. sales of fanapt ® by novartis , and fanapt ® license revenue for the year ended december 31 , 2014 represented amortization of 56 deferred revenue from the $ 200.0 million up-front
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as of june 30 , 2015 , the company was in compliance with all financial covenants under its credit facility . the company 's yen denominated line of credit is a 500 million yen ( $ 4.1 million ) facility that has a five-year term through june 2016 and has an interest rate equal to libor , as defined in the loan agreement , plus story_separator_special_tag forward-looking statements certain statements contained in this management 's discussion and analysis of financial condition and results of operations are forward-looking statements . forward-looking statements are also identified by words such as “ expects , ” “ anticipates , ” “ believes , ” “ intends , ” “ plans , ” “ projects ” or similar expressions . actual results could differ materially from those anticipated in these forward-looking statements for many reasons , including those potential risks set forth in item 1a , of this annual report on form 10-k , which are incorporated herein by reference . overview the company generates revenues , earnings and cash flows from developing , manufacturing and marketing engineered materials and opto-electronic components for precision use in industrial , optical communications , military , semiconductor , medical and life science , and consumer applications . we also generate revenue , earnings and cash flows from government funded research and development contracts relating to the development and manufacture of new technologies , materials and products . 31 our customer base includes oems , laser end users , system integrators of high-power lasers , manufacturers of equipment and devices for the industrial , optica l communications , military , semiconductor , medical and life science markets , u.s. government prime contractors , various u.s. government agencies and thermoelectric integrators . critical accounting estimates the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and the company 's discussion and analysis of its financial condition and results of operations requires the company 's management to make judgments , assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 1 of the notes to our consolidated financial statements contained in item 8 of this annual report on form 10-k describes the significant accounting policies and accounting methods used in the preparation of the company 's consolidated financial statements . management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates . management believes the company 's critical accounting estimates are those related to revenue recognition , allowance for doubtful accounts , warranty reserves , inventory valuation , business combinations , valuation of long-lived assets including acquired intangibles and goodwill , accrual of bonus and profit sharing estimates , accrual of income tax liability estimates and accounting for share-based compensation . management believes these estimates to be critical because they are both important to the portrayal of the company 's financial condition and results of operations , and they require management to make judgments and estimates about matters that are inherently uncertain . management has discussed the development and selection of these critical accounting estimates with the audit committee of the board of directors and the audit committee has reviewed the foregoing disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as described above . changes in estimates used in these and other items could have a material impact on the financial statements . the company recognizes revenues in accordance with u.s. gaap . revenues for product shipments are realizable when we have persuasive evidence of a sales arrangement , the product has been shipped or delivered , the sales price is fixed or determinable and collectability is reasonably assured . title and risk of loss passes from the company to its customer at the time of shipment in most cases , with the exception of certain customers for whom customer 's title does not pass and revenue is not recognized until the customer has received the product at its physical location . the company 's revenue recognition policy is consistently applied across the company 's segments , product lines and geographical locations . further for the periods covered herein , we did not have post shipment obligations such as training or installation , customer acceptance provisions , credits and discounts , rebates and price protection or other similar privileges . our distributors and agents are not granted price protection . our distributors and agents , who comprise less than 10 % of consolidated revenue , have no additional product return rights beyond the right to return defective products covered by our warranty policy . we believe our revenue recognition practices are consistent with staff accounting bulletin ( “ sab ” ) 104 and that we have adequately considered the requirements of accounting standards codification ( “ asc ” ) 605 revenue recognition . revenues generated from transactions other than product shipments are contract-related and have historically accounted for less than 2 % of the company 's consolidated revenues . the company establishes an allowance for doubtful accounts based on historical experience and believes the collection of revenues , net of this reserve , is reasonably assured . the allowance for doubtful accounts is an estimate for potential non-collection of accounts receivable based on historical experience . the company did not experience a non-collection of accounts receivable materially affecting its financial condition or results of operations as of and for each of the fiscal years ended june 30 , 2015 , 2014 and 2013. if the financial condition of the company 's customers were to deteriorate , causing an impairment of their ability to make payments , additional provisions for bad debts could be required in future periods . story_separator_special_tag based upon our annual quantitative goodwill impairment test , the company did not record any impairments of goodwill for the fiscal years ended june 30 , 2015 , 2014 or 2013. as the estimated fair value of the ii-vi photonics reporting unit was approximately 5 % greater than its carrying value , the company has concluded that this reporting unit is at risk of not passing step one of future goodwill impairment tests . in the event of unfavorable changes to the existing assumptions used in the impairment test , such as the weighted average cost of capital ( discount rate ) , growth rates and market multiples as well as changes in our internal structure , the carrying value of the company 's goodwill could be impaired . although the company believes that the current assumptions and estimates are reasonable , supportable and appropriate , the ii-vi photonics reporting unit competes in a challenging environment with significant pricing pressure and rapidly changing technology and there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment test will prove to be accurate predictions of future performance . during the year ended june 30 , 2015 , the company recognized an impairment charge on two of its indefinite lived trademarks in the ii-vi photonics reporting unit , as these trademarks were abandoned as a result of the company 's re-branding efforts . total impairment recorded during the year ended june 30 , 2015 was $ 2.0 million , which represented the entire carrying value of these two trademarks and was recorded in other expense ( income ) , net in the consolidated statements of earnings . 33 the company records certain bonus and profit sha ring estimates as a charge against earnings . these estimates are adjusted to actual based on final results of operations achieved during the fiscal year . certain partial bonus amounts are paid quarterly based on interim company performance , and the remaind er is paid after fiscal year end . other bonuses are paid annually . the company prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations . in the normal course of business , the company 's tax returns are subject to examination by various taxing authorities , which may result in future tax , interest and penalty assessments by these authorities . inherent uncertainties exist in estimates of many tax positions due to changes in tax law resulting from legislation , regulation and or as concluded through the various jurisdictions ' tax court systems . the company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate resolution . the amount of unrecognized tax benefits is adjusted for changes in facts and circumstances . for example , adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities , new information obtained during a tax examination , or resolution of an examination . the company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns . the company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense . the company has recorded valuation allowances against certain of its deferred tax assets , primarily those that have been generated from net operating losses in certain foreign taxing jurisdictions . in evaluating whether the company would more likely than not recover these deferred tax assets , it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carry-forwards where history does not support such an assumption . implementation of tax planning strategies to recover these deferred tax assets or future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense . in accordance with u.s. gaap , the company recognizes share-based compensation expense over the requisite service period of the individual grantees , which generally equals the vesting period . the company utilized the black-scholes valuation model for estimating the fair value of stock option expense using assumptions such as the risk-free interest rate , expected stock price volatility , expected stock option life and expected dividend yield . the risk-free interest rate is derived from the average u.s. treasury note rate during the period , which approximates the rate in effect at the time of grant related to the expected life of the options . expected volatility is based on the historical volatility of the company 's common stock over the period commensurate with the expected life of the options . the expected life calculation is based on the observed time to post-vesting exercise and or forfeitures of options by our employees . the dividend yield is zero , based on the fact the company has never paid cash dividends and has no current intention to pay cash dividends in the future . fiscal year 2015 compared to fiscal year 2014 effective july 1 , 2014 , the company realigned its organizational structure into the following three reporting segments for the purpose of making operational decisions and assessing financial performance : ( i ) ii-vi laser solutions , ( ii ) ii-vi photonics , and ( iii ) ii-vi performance products . the company is reporting financial information ( revenue through operating income ) for these new reporting segments in this annual report on form 10-k , which management believes provides enhanced visibility and transparency into the operations , business drivers and the value of the enterprise .
| executive summary net earnings for fiscal year 2015 were $ 66.0 million ( $ 1.05 per-share diluted ) , compared to $ 38.4 million ( $ 0.60 per-share diluted ) for the same period last fiscal year . during fiscal year 2015 , the company began to realize synergies from prior year acquisitions , resulting in increased market share and revenues as well as operational efficiencies that are reflected in the company 's 340 basis point increase in gross margin percentage compared to fiscal year 2014. during the current fiscal year , the company continued its restructuring program within the ii-vi photonics and ii-vi performance products segments to right-size its business operations . total after-tax restructuring charges recorded in fiscal year 2015 were $ 4.1 million compared to $ 3.4 million in fiscal year 2014. net earnings were also favorably impacted in the current fiscal year as a result of a one-time settlement relating to certain payment obligations from prior year acquisitions in the amount of $ 7.1 million ( after-tax ) or $ 0.11 per share-diluted . financial results for fiscal year 2014 were negatively impacted by one-time transaction and purchase accounting expenses of approximately $ 8.0 million . consolidated bookings . bookings are defined as customer orders received that are expected to be converted to revenues over the next twelve months . for long-term customer orders , the company does not include in bookings the portion of the customer order that is beyond twelve months , due to the inherent uncertainty of such an order that far out in the future . bookings for the year ended june 30 , 2015 increased 10 % to $ 761.7 million , compared to $ 691.3 million for the same period last fiscal year . the increase in bookings was mostly attributable to a full year of bookings from the prior year acquisitions of ii-vi laser enterprise and ii-vi network solutions .
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and cost of labor ; the potential impact of the company 's assemble-to-ship program on earnings ; market demand ; the company 's ability to position itself in the market ; references to current and future investments in and utilization of infrastructure ; statements relating to management 's beliefs that cash flow from current operations , existing cash reserves , and available lines of credit will be sufficient to support the company 's working capital requirements to fund existing operations ; references to expectations of future revenues ; pricing ; and seasonality . such statements involve known and unknown risks , uncertainties , assumptions and other factors , many of which are outside of the company 's control and difficult to forecast , that may cause actual results to differ materially from those which are anticipated . such factors include , but are not limited to , changes in , or the company 's ability to predict , general economic conditions , the markets for school and office furniture generally and specifically in areas and with customers with which the company conducts its principal business activities , the rate of approval of school bonds for the construction of new schools , the extent to which existing schools order replacement furniture , customer confidence , competition and other factors included in the risk factors section of this report . in this report , words such as anticipates , believes , expects , will continue , future , intends , plans , estimates , projects , potential , budgets , may , could and similar expressions identify forward-looking statements . readers are cautioned not to place undue reliance on forward-looking statements , which speak only as of the date hereof . story_separator_special_tag may adversely affect funding for education . the company expects that completion of bond-funded school and college construction projects will be lower in 2012 than in each of 2008 , 2009 , 2010 , and 2011. completions of k-12 projects are anticipated to decline by approximately 15 % and completions of college projects may be comparable to the prior year . as a much larger portion of the company 's annual sales are to the k-12 schools , the market for bond-funded construction projects in which the company competes may be smaller in 2012. management also anticipates a continued lower level of demand for replacement furniture due to the significant financial pressures being placed on school operating budgets . during 2011 , in an effort to bring the company 's cost structure in line with decreased revenues , the company offered early retirement and voluntary separation packages to its employees in arkansas and california . combined with normal attrition , the company reduced its workforce by approximately 205 persons ( 20 % ) . the annual cost savings from this reduction in force when including overtime , taxes , and benefits is expected to range between $ 9-10 million per year . these savings will be offset somewhat by the cost of temporary direct labor employees hired to meet production requirements 20 during 2012. the company plans to maintain its core work force at current levels for the near future , supplemented with temporary labor as necessary in order to produce , warehouse , deliver , and install furniture during the coming summer . because the company has not closed any manufacturing or distribution facilities that are utilized in operations , any increase in demand for our products can be met without any required investment in physical infrastructure . while the company anticipates challenging economic conditions to continue to impact its core customer base in the near term , there are certain underlying demographics , customer responses , and changes in the competitive landscape that provide opportunities . first , the underlying demographics of the student population are stable compared to the volatility of school budgets , and the related level of furniture and equipment purchases . this volatility is attributable to the financial health of the school systems . virco management believes that there is a pent-up demand for quality school furniture ( though it is unclear when and to what extent that pent-up demand will be converted into a meaningful increase in purchases ) . second , management believes that parents and voters will demand that we educate our children and make this an ongoing priority for future government spending . third , many schools have responded to the budget strains by reducing their support infrastructure . school districts historically have operated central warehouses and professional purchasing departments in a central business office . in order to retain teaching staff , many school districts have shut down the warehouses and reduced their purchasing departments and janitorial staffs . this change provides opportunities to sell services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses , and installation of furniture in classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . finally , many suppliers have shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to provide custom colors or finishes during a tight seasonal summer delivery window when they are reliant upon a supply chain extending to china . unlike its primary competitors , virco has maintained and expanded its domestic manufacturing capabilities , recently adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers . virco 's domestic factories are a strategic resource for providing its customers with timely delivery of a broad selection of colors , finishes , laminates , and product styles . during 2012 the company also anticipates continued uncertainty and volatility in commodity costs , particularly in the areas of certain raw materials , transportation , and energy . story_separator_special_tag the retroactive effect of the change in our inventory costing method , including the indirect effect of such change , increased the february 1 , 2008 , opening retained earnings balance by $ 4.1 million , and increased our inventory and retained earnings balances by $ 8.5 million and $ 5.4 million as of january 31 , 2009 , by $ 6.9 million and $ 4.3 million as of january 31 , 2010 , and by $ 7.6 million and $ 4.7 million as of january 31 , 2011 , respectively . in addition , the change in our inventory costing method , including the indirect effect of such change , increased ( decreased ) net income by $ ( 1.0 ) and $ 0.4 million for the years ending january 31 , 2010 and 2011 , respectively . self-insured retention : for 2009 , 2010 , and 2011 the company was self-insured for product liability losses ranging up to $ 250,000 per occurrence , for workers ' compensation losses up to $ 250,000 per occurrence , and for auto liability up to $ 50,000 per occurrence . the company obtains annual actuarial valuations for the self-insured retentions . product liability , workers ' compensation , and auto reserves for known and unknown incurred but not reported ( ibnr ) losses are recorded at the net present value of the estimated losses using a discount rate ranging from 4.5 % -6.0 % for 2011 , 2010 , and 2009. given the relatively short term over which the ibnr losses are discounted , the sensitivity to the discount rate is not significant . estimated workers ' compensation losses are funded during the insurance year and subject to retroactive loss adjustments . the company 's exposure to self-insured retentions varies depending upon the market conditions in the insurance industry and the availability of cost-effective insurance coverage . self-insured retentions for 2012 will be comparable to the retention levels for 2011. warranty reserve : the company provides a warranty against all substantial defects in material and workmanship . the company 's warranty is not a guarantee of service life , which depends upon events outside the company 's control and may be different from the warranty period . the standard warranty offered on products sold through january 31 , 2005 , is five years . effective february 1 , 2005 , the standard warranty was increased to 10 years on products sold after february 1 , 2005. the company warranties generally provide that customers can return a defective product during the specified warranty period following purchase in exchange for a replacement product or that the company can repair the product at no charge to the customer . the company determines whether replacement or repair is appropriate in each circumstance . the company uses historic data to estimate appropriate levels of warranty reserves . because product mix , production methods , and raw material sources change over time , historic data may not always provide precise estimates for future warranty expense . defined benefit obligations : the company has three defined benefit plans , the virco employees retirement plan ( the employee plan ) , the virco important performers plan ( the vip plan ) and the non-employee directors retirement plan ( the directors plan ) , which provide retirement benefits to employees and outside directors . virco discounted the pension obligations for the various plans using the following rates : replace_table_token_6_th because the company froze benefit accruals for all three plans in 2003 , the assumed rate of increase in compensation has no effect on the accounting for the plans . the company estimated a 6.5 % return on plan assets for the employee plan for all three years . the vip plan and directors plan are unfunded and have no plan assets . these rate assumptions can vary due to changes in interest rates , the employment market , and expected returns in the stock market . in prior years , the discount rate and the anticipated rate of return on plan assets have decreased by several percentage points , causing pension expense and pension obligations to increase . in 2008 , the company incurred significant losses on investments held in trust to fund the employee plan . these investment losses will cause future pension costs to increase , and will require future cash contributions to adequately fund the employee plan . in the third quarter of 2011 the company offered an early retirement program to employees who voluntarily terminated their employment with the company . the incentive offered was a cash incentive and did not include additional retirement benefits , but was heavily directed toward employees with significant years of service . approximately 150 employees accepted this offer . due to the volume of lump sum payments processed during the third and fourth quarters of 2011 , the company incurred a pension settlement cost for the employee plan . 22 although the company does not anticipate any change in these rates in the coming year , any moderate change should not have a significant effect on the company 's financial position , results of operations or cash flows . effective december 31 , 2003 , the company froze new benefit accruals under all three plans . the company obtains annual actuarial valuations for all three plans . deferred tax assets and liabilities : the company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of fasb asc topic 740 income taxes. deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date .
| executive overview management 's strategy is to position virco as the overall value supplier of educational furniture and equipment . the markets that virco serves include the education market ( the company 's primary market ) , which is made up of public and private schools ( preschool through 12th grade ) , junior and community colleges , four-year colleges and universities ; trade , technical and vocational schools ; convention centers and arenas ; the hospitality industry , with respect to their banquet and meeting facilities ; government facilities at the federal , state , county and municipal levels ; and places of worship . in addition , the company sells to wholesalers , distributors , retailers and catalog retailers that serve these same markets . these institutions are frequently characterized by extreme seasonality and or a bid-based purchasing function . the company 's business model , which is designed to support this strategy , includes the development of several competencies to enable superior service to the markets in which virco competes . an important element of virco 's business model is the company 's emphasis on developing and maintaining key manufacturing , warehousing , distribution , installation , project management , and service capabilities . the company has developed a comprehensive product offering for the furniture , fixtures and equipment needs of the k-12 education market , enabling a school to procure all of its ff & e requirements from one source . virco 's product offering consists primarily of items manufactured by virco , complemented with product sourced from other furniture manufacturers . the product offering is continually enhanced with an ongoing new product development program that incorporates internally developed product as well as product lines developed with accomplished designers . finally , management continues to hone virco 's ability to 19 forecast , finance , manufacture , warehouse , deliver , and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales .
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the company also participates in joint ventures in taiwan , hong kong and the philippines , and maintains offices in singapore , italy , china , india , mexico , south korea , chile , and countries in the middle east . the company employed approximately 19,700 individuals worldwide as of december 31 , 2018 . the company 's reporting segments consist of the electrical segment and the power segment . results for 2018 , 2017 and 2016 by segment are included under “ segment results ” within this management 's discussion and analysis . the company 's long-term strategy is to serve its customers with reliable and innovative electrical and related infrastructure solutions with desired brands , high-quality service , delivered through a competitive cost structure ; to complement organic revenue growth with acquisitions that enhance its product offerings ; and to allocate capital effectively to create shareholder value . our strategy to complement organic revenue growth with acquisitions focuses on acquiring assets that extend our capabilities , expand our product offerings , and present opportunities to compete in core , adjacent or complementary markets . our acquisition strategy also provides the opportunity to advance our revenue growth objectives during periods of weakness or inconsistency in our end-markets . our strategy to deliver products through a competitive cost structure has resulted in past and ongoing restructuring and related activities . our restructuring and related efforts include the consolidation of manufacturing and distribution facilities , and workforce actions , as well as streamlining and consolidating our back-office functions . the primary objectives of our restructuring and related activities are to optimize our manufacturing footprint , cost structure , and effectiveness and efficiency of our workforce . productivity improvement also continues to be a key area of focus for the company and efforts to drive productivity complement our restructuring and related activities to minimize the impact of rising material costs and administrative cost inflation . material costs are approximately two-thirds of our cost of goods sold therefore volatility in this area can significantly impact profitability . our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas . productivity programs impact virtually all functional areas within the company by reducing or eliminating waste and improving processes . we continue to expand our efforts surrounding global product and component sourcing and supplier cost reduction programs . value engineering efforts , product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency . in addition , we continue to build upon the benefits of our enterprise resource planning system across all functions . acquisition of aclara on february 2 , 2018 the company acquired aclara for approximately $ 1.1 billion . aclara is a leading global provider of smart infrastructure solutions for electric , gas , and water utilities , with advanced metering solutions and grid monitoring sensor technology , as well as leading software enabled installation services . the acquisition extends the power segment 's capabilities into smart automation technologies , accelerates ongoing innovation efforts to address utility customer demand for data and integrated solutions , and expands the segment 's reach to a broader set of utility customers . for additional information about the aclara acquisition , refer to note 3 — business acquisitions in the notes to the consolidated financial statements . hubbell incorporated - form 10-k 19 results of operations our operations are classified into two reportable segments : electrical and power . for a complete description of the company 's segments , see part i , item 1 of this annual report on form 10-k. within these segments , hubbell serves customers in five primary end markets ; non-residential construction , residential construction , industrial , energy-related markets ( also referred to as oil and gas markets ) and utility markets ( also referred to as the electrical transmission and distribution ( t & d ) market ) . in order of magnitude of net sales , the company 's served markets are electrical t & d , non-residential construction , industrial , oil and gas , and residential construction . our end markets experienced strong growth in 2018 , driving organic net sales growth of 4.4 % , including the traction we gained in the latter half of the year on price realization . we saw notable strength in 2018 in energy-related markets , including gas distribution , the core industrial market , and non-residential markets , as well as growth within the residential lighting market that accelerated in the second half of the year . utility markets grew primarily within t & d and outside-the-plant telecommunications . net sales growth from acquisitions was a highlight , as aclara delivered strong revenue performance in 2018 , demand for its products was strong and the aclara acquisition has added a robust backlog and project pipeline . earnings growth was also strong as our operating income grew by seven percent in 2018 ; however , inflationary pressures and material cost increases , including tariffs , pressured operating margins . during the second half of 2018 , many of our businesses took pricing actions to mitigate the impact of material cost increases and the effect of section 301 tariffs resulting from changes in u.s. trade policy in 2018 ( the `` tariffs '' referred to in the following discussion of results of operations ) . see part i , item 1a `` risk factors '' for additional discussion of developments stemming from the recent and potential changes in trade policies . adjusted net income and adjusted diluted earnings per share , each grew by 29 % in 2018 and reflect our strong operating income performance as well as the benefit of a lower effective tax rate resulting from the enactment of the tcja . summary of consolidated results ( in millions , except per share data ) replace_table_token_3_th in the following discussion of results of operations , we refer to `` adjusted '' operating measures . story_separator_special_tag total other expense total other expense in 2018 was $ 89.9 million and increased by $ 14.2 million compared to the prior year , primarily due to higher interest expense from the issuance of $ 450 million of 2028 notes and placement of the $ 500 million term loan , each in the first quarter of 2018 , to finance the aclara acquisition , partially offset by the loss on extinguishment of debt recognized in 2017 ( which did not repeat in 2018 ) . income taxes the effective tax rate was 21.6 % in 2018 as compared to 43.6 % in 2017. the decrease is primarily attributable to the absence of the $ 56.5 million provisional income tax expense associated with the tcja recognized in the 2017 financial statements , the reduction of the federal income tax rate from 35 % to 21 % and net favorable adjustments to the 2017 provisional income tax expense associated with tcja recognized in the current year . during 2018 , the company completed its analysis of the specific income tax effects of tcja and recorded a net tax benefit of approximately $ 6 million related to adjustments to the prior provisional estimates and to record amounts related to items for which a prior provisional estimate had not been made . additional information related to the company 's effective tax rate is included in note 13 — income taxes in the notes to consolidated financial statements net income attributable to hubbell and earnings per diluted share net income attributable to hubbell was $ 360.2 million in 2018 and increased 48 % as compared to 2017 . the increase reflects a lower effective tax rate , higher operating income and the loss on extinguishment of debt in 2017 ( which did not repeat in 2018 ) , offset partially by higher interest expense . adjusted net income attributable to hubbell was $ 401.7 million in 2018 and increased 29 % as compared to 2017 . earnings per diluted share in 2018 increased 49 % compared to 2017 . adjusted earnings per diluted share in 2018 increased 29 % as compared to 2017. story_separator_special_tag style= '' font-family : arial ; font-size:9pt ; '' > net income attributable to hubbell was $ 243.1 million in 2017 and decreased 17 % as compared to 2016. adjusted net income attributable to hubbell was $ 311.9 million in 2017 and increased 6 % as compared to 2016. earnings per diluted share in 2017 decreased 16 % compared to 2016. adjusted earnings per diluted share in 2017 increased 8 % and reflects the increase in adjusted operating income in 2017 as well as a 0.6 million decline in the average number of diluted shares outstanding as compared to the prior year . segment results electrical segment replace_table_token_8_th net sales in the electrical segment were $ 2.5 billion , up three percent in 2017 as compared with 2016 due to two percentage points of net sales growth from higher organic volume , including the impact of pricing headwinds , and one percentage point contributed by acquisitions . within the segment , the aggregate net sales of our commercial and industrial and construction and energy business groups increased by six percentage points , due to four percentage points of organic growth , and two percentage points of net sales growth from acquisitions . organic net sales growth of these businesses was driven primarily by our products serving the energy-related markets as well as the non-residential and residential construction markets . net sales of our lighting business group decreased one percent in 2017 as two percentage points of headwind from pricing , was only partially offset by one percentage point of volume growth . within the lighting business group , net sales of residential lighting products increased by three percent , while net sales of commercial and industrial lighting products declined by two percentage points , primarily due to headwinds on pricing . operating income in the electrical segment for 2017 was $ 294.0 million and increased 6.4 % compared to 2016. operating margin in 2017 increased 40 basis points compared to 2016 as greater realized savings from our restructuring and related actions , lower restructuring and related costs , and the benefit from higher net sales volume , were partially offset by price and material cost headwinds and acquisitions . acquisitions reduced the adjusted operating margin by approximately 50 basis points in 2017 , and includes our investment in iot capabilities through the acquisition of idevices . power segment replace_table_token_9_th net sales in the power segment were $ 1.1 billion , up nine percent compared to 2016 , primarily due to higher organic volume and net sales from acquisitions . the increase in organic volume contributed six percentage points driven by growth in the distribution and telecommunications markets , including storm-related sales associated with hurricanes in 2017 , and acquisitions which contributed three percentage points to net sales growth . operating income in the power segment increased 5.3 percent to $ 224.8 million in 2017. operating margin in 2017 decreased by 60 basis points to 19.8 % primarily due to price and material cost headwinds , aclara transaction costs , and higher restructuring and related costs . the impact of those items was partially offset by gains from productivity initiatives in excess of cost inflation as well as from incremental earnings on higher net sales volume . in 2016 , operating margin included a benefit within cost inflation from the reduction of an environmental liability , and in 2017 operating margin includes a similarly-sized benefit within cost inflation from an insurance recovery . hubbell incorporated - form 10-k 25 financial condition , liquidity and capital resources cash flow replace_table_token_10_th comparable periods have been recast to reflect the adoption of the new accounting pronouncement for share-based payments ( asu 2016-09 ) .
| segment results electrical segment replace_table_token_6_th net sales in the electrical segment were $ 2.7 billion , up five percent in 2018 as compared with 2017 due to approximately five percentage points of net sales growth from higher organic volume , including favorable price realization for the segment . acquisitions increased net sales by less than one percentage point and the effect of foreign currency translation was flat . within the segment , the aggregate net sales of our commercial and industrial and construction and energy business groups increased by seven percentage points , due to approximately six percentage points of organic growth , and approximately one percentage point of net sales growth from acquisitions . organic net sales growth of these businesses was driven primarily by our products serving the energy-related markets as well as the non-residential and residential construction markets . net sales of our lighting business group increased approximately two percent in 2018 due to higher organic volume , partially offset by pricing headwinds . within the lighting business group , net sales of residential lighting products increased by 12 % , driven by strong unit volume growth , while net sales of commercial and industrial lighting products declined by 2 % as a result of lower volume and pricing headwinds . operating income in the electrical segment for 2018 was $ 320.8 million and increased nine percent compared to 2017 . operating margin in 2018 increased by 50 basis points to 12.1 % . the increase in operating margin is primarily due to incremental earnings on higher net sales , as discussed above , and productivity gains in excess of cost increases , partially offset by material cost headwinds ( including the impact of tariffs ) that outpaced price realization .
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dental provides a virtually complete range of consumable dental products , equipment and software , turnkey digital solutions and value-added services to dentists and dental laboratories throughout north america . animal health is a leading , full-line distributor in north america and the u.k. of animal health products , services and technologies to both the production-animal and companion-pet markets . our corporate segment is comprised of general and administrative expenses , including home office support costs in areas such as information technology , finance , legal , human resources and facilities . in addition , customer financing and other miscellaneous sales are reported within corporate results . operating margins of the animal health business are considerably lower than the dental business . while operating expenses run at a lower rate in the animal health business when compared to the dental business , gross margins in the animal health business are substantially lower due generally to the low margins experienced on the sale of pharmaceutical products . we operate with a 52-53 week accounting convention with our fiscal year ending on the last saturday in april . fiscal 2018 , 2017 and 2016 ended on april 28 , 2018 , april 29 , 2017 and april 30 , 2016 , respectively . fiscal 2018 and 2017 consisted of 52 weeks , while fiscal 2016 consisted of 53 weeks . fiscal 2019 will end on april 27 , 2019 and will consist of 52 weeks . we believe there are several important aspects of our business that are useful in analyzing it , including : ( 1 ) growth in the various markets in which we operate ; ( 2 ) internal growth ; ( 3 ) growth through acquisition ; and ( 4 ) continued focus on controlling costs and enhancing efficiency . management defines internal growth as the increase in net sales from period to period , adjusting for differences in the number of weeks in fiscal years , excluding the impact of changes in currency exchange rates , and excluding the net sales , for a period of twelve months following the transaction date , of businesses we have acquired . factors affecting our results enterprise resource planning system initiatives . in the third quarter of fiscal 2017 , we completed the application development stage of our enterprise resource planning ( `` erp '' ) system , and we began depreciating our investment in such system . we incurred increased depreciation and other operating expenses of approximately $ 25.0 million in the fiscal year ended april 29 , 2017 as compared to the fiscal year ended april 30 , 2016 related to this implementation . depreciation and other operating expenses related to this implementation were approximately the same in fiscal 2018 and fiscal 2017. intangible asset impairment . in fiscal 2006 , we extended our exclusive north american distribution relationship with sirona for its cerec 3d dental restorative system . at that time , we paid a $ 100.0 million distribution fee to extend the existing exclusive relationship for at least a 10-year period beginning in 2007. this distribution fee has been accounted for as an intangible asset that has been amortized since 2007. based on our november 2016 decision not to extend sales exclusivity for the full sirona portfolio of products , we recorded a pre-tax non-cash impairment charge of $ 36.3 million , or $ 23.0 million after taxes or $ 0.24 per diluted share in our dental segment in the third quarter of fiscal 2017 , related to the distribution fee associated with the cerec product component of this arrangement . u.s. tax reform . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) . the tax act significantly revises the future ongoing u.s. federal corporate income tax by , among other things , lowering u.s. federal corporate tax rates and implementing a territorial tax system . effective january 1 , 2018 , the tax act reduced the u.s. federal corporate tax rate from 35.0 % to 21.0 % . for our fiscal year ending april 28 , 2018 , we utilized a blended rate of approximately 30.5 % . for fiscal 2018 , these impacts resulted in a provisional discrete net tax benefit of $ 76.6 million , which included provisional amounts of $ 81.9 million of tax benefit on u.s. deferred tax assets and liabilities , $ 4.0 million of tax expense for a one-time transition tax on unremitted foreign earnings and $ 1.2 million in withholding taxes paid on current year distributions . 35 animal health international acquisition . in june 2015 , we completed the acquisition of animal health international , inc. , a leading production animal health distribution company in the u.s. prior to our acquisition , animal health international , inc. generated sales and earnings before interest , income taxes , depreciation and amortization of $ 1.5 billion and $ 68 million , respectively , during the 12 months ended march 2015. our acquisition more than doubled the revenue of our legacy animal health business , which was previously focused on the companion animal market . our animal health business now offers an expanded range of products and services to a broader base of customers in north america and the u.k. during fiscal 2016 , we incurred $ 10.4 million , or $ 0.11 per diluted share , on an after-tax basis , of transaction costs related to the acquisition of animal health international , inc. cash repatriation . in fiscal 2016 , we approved a one-time repatriation of approximately $ 200.0 million of foreign earnings . this one-time repatriation reduced the overall cost of funding the acquisition of animal health international , inc. in addition , certain foreign cash at patterson medical was required to be repatriated as part of the sale transaction . a continuing operations tax impact of $ 12.3 million from the repatriation was recorded during fiscal 2016. during fiscal 2017 , we recorded a $ 2.4 story_separator_special_tag discontinued operations net loss from discontinued operations was $ 2.9 million in fiscal 2017 , compared to net income from discontinued operations of $ 1.5 million in fiscal 2016. the net loss incurred during fiscal 2017 was due to a change in estimate of the tax impact of the sale of patterson medical . liquidity and capital resources patterson 's operating cash flow has been our principal source of liquidity in the last three fiscal years . during each of these fiscal years , we used our revolving credit facility as a source of liquidity in addition to operating cash flow . net cash provided by operating activities was $ 178.9 million in fiscal 2018 , compared to $ 162.7 million in fiscal 2017 and $ 156.3 million in fiscal 2016 . our cash flows from operating activities are primarily driven by net income from continuing operations . net cash flows provided by investing activities were $ 17.0 million in fiscal 2018 , compared to net cash flows provided by investing activities of $ 1.2 million in fiscal 2017 and net cash flows used in investing activities of $ 400.6 million in fiscal 2016 . collections of deferred purchase price receivables were $ 49.7 million , $ 51.4 million and $ 22.3 million in fiscal 2018 , 2017 and 2016 , respectively.capital expenditures were $ 43.3 million , $ 47.0 million and $ 79.4 million in fiscal 2018 , 2017 and 2016 , respectively . significant expenditures in each year included investments in our erp system initiatives . fiscal 2016 included the purchase of animal health international , inc. for $ 1,106.6 million , which was partially offset by the receipt of net cash proceeds of $ 714.4 million from completion of the sale of patterson medical . in addition , fiscal 2016 included the sale of securities of $ 48.7 million . we expect to use a total of approximately $ 75 million for capital expenditures in fiscal 2019. in march 2018 , we issued fixed-rate senior notes with an aggregate principal amount of $ 150.0 million , due fiscal 2028. the proceeds were used to repay $ 150.0 million of senior notes that came due in march 2018. during fiscal 2016 , we entered into a credit agreement ( `` credit agreement '' ) , under which the lenders provided us with senior unsecured lending facilities of up to $ 1.5 billion , consisting of a $ 1.0 billion unsecured term loan and a $ 500 million unsecured revolving line of credit . in fiscal 2017 , we entered into an amendment of the credit agreement ( “ amended credit agreement ” ) , consisting of a $ 295.1 million term loan and a $ 750 million revolving line of credit . interest on borrowings is variable and is determined as a base rate plus a spread . this spread , as well as a commitment fee on the unused portion of the facility , is based on our leverage ratio , as defined in the amended credit agreement . the term loan and revolving credit facilities will mature no later than january 2022. as of april 28 , 2018 , $ 276.6 million of the amended credit agreement unsecured term loan was outstanding at an interest rate of 3.40 % , and $ 16.0 million was outstanding under the amended credit agreement revolving line of credit at an interest rate of 2.95 % . at april 29 , 2017 , $ 291.4 million was outstanding under the amended credit agreement unsecured term loan at an interest rate of 2.24 % , and $ 59.0 million was outstanding under the amended credit agreement revolving line of credit at an interest rate of 2.19 % . total dividends paid in fiscal 2018 , 2017 and 2016 were $ 99.2 million , $ 95.9 million and $ 90.6 million , respectively . we expect to continue to pay a quarterly cash dividend for the foreseeable future . in fiscal 2018 , we repurchased 2.1 million shares of common stock for $ 87.5 million . in fiscal 2017 , we repurchased 2.9 million shares of common stock for $ 125.4 million . in fiscal 2016 , we repurchased 4.4 million shares of common stock for $ 200.0 million . on march 13 , 2018 , the board of directors authorized a new $ 500 million share repurchase program through march 13 , 2021. the new repurchase program replaced the remaining authorization from our march 2013 plan to purchase up to 25 million shares , which was scheduled to expire on march 19 , 2018. as of april 28 , 2018 , $ 500 million remains available under the current repurchase authorization . we have $ 63.0 million in cash and cash equivalents as of april 28 , 2018 , of which $ 7.9 million is in foreign bank accounts . see note 11 to the consolidated financial statements for further information regarding our intention to permanently reinvest these funds . included in cash and cash equivalents as of april 28 , 2018 is $ 35.7 million of cash 39 collected from previously sold customer financing arrangements that have not yet been settled with the third party . see note 7 to the consolidated financial statements for further information . we expect funds generated from operations , existing cash balances and credit availability under existing debt facilities will be sufficient to meet our working capital needs and to finance anticipated expansion plans and strategic initiatives over the next fiscal year . we expect to continue to obtain liquidity from the sale of equipment finance contracts . patterson sells a significant portion of our finance contracts ( see below ) to a commercial paper funded conduit managed by a third party bank , and as a result , commercial paper is indirectly an important source of liquidity for patterson . patterson is allowed to participate in the conduit due to the quality of our finance contracts and our financial strength .
| results of operations fiscal 2018 compared to fiscal 2017 continuing operations the following table summarizes our results from continuing operations as a percent of net sales from continuing operations : replace_table_token_6_th net sales . consolidated net sales in fiscal 2018 were $ 5,465.7 million , a decrease of 2.3 % from $ 5,593.1 million in fiscal 2017 . foreign exchange rate changes had a favorable impact of 0.5 % on fiscal 2018 sales . dental segment sales decreased 8.1 % to $ 2,196.1 million in fiscal 2018 from $ 2,390.2 million in fiscal 2017 . foreign exchange rate changes had a favorable impact of 0.3 % on current year sales . sales of consumables decreased 5.3 % , due primarily to the impact of our sales force realignment and erp system initiatives . dental equipment and software sales decreased 15.4 % , due primarily to a decrease in sales of digital technology products , which was driven by the market transition to new technology offerings , and our decision to broaden our portfolio of those offerings . sales of other dental services and products decreased 1.2 % in fiscal 2018 . animal health segment sales grew 2.6 % to $ 3,242.6 million in fiscal 2018 from $ 3,159.8 million in fiscal 2017 . foreign exchange rate changes had a favorable impact of 0.7 % on fiscal 2018 sales . sales of certain products previously recognized on a gross basis were recognized on a net basis during fiscal 2018 , resulting in an estimated 2.1 % unfavorable impact to sales . gross profit . consolidated gross profit margin decreased 140 basis points from the prior year to 21.9 % . gross profit margin rates decreased in both the dental and animal health segment .
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risk factors in this annual report on form 10-k. through this discussion and analysis , we intend to provide the reader with some narrative context for how our management views our consolidated financial statements , additional context within which to assess our operating results , and information on the quality and variability of our earnings , liquidity and cash flows . selected historical financial information and ratios although slm bankco is the entity that distributed the shares of navient common stock to slm bankco common stockholders , for financial reporting purposes , navient is treated as the accounting spinnor and therefore navient , and not slm bankco , is the accounting successor to old slm . hence , the following gaap financial information to the extent related to periods on or prior to april 30 , 2014 reflects the historical results of operations and financial condition of old slm , which is the accounting predecessor of navient . for a discussion of how core earnings results are different than gaap results , see core earnings ' definition and limitations and differences between core earnings ' and gaap. replace_table_token_6_th ( 1 ) core earnings are non-gaap financial measures and do not represent a comprehensive basis of accounting . for a greater explanation of core earnings , see the section titled core earnings ' definition and limitations and subsequent sections . 38 overview the following discussion and analysis presents a review of our business and operations as of and for the year ended december 31 , 2014. we monitor and assess our ongoing operations and results based on the following four reportable segments : ( 1 ) ffelp loans ( 2 ) private education loans , ( 3 ) business services and ( 4 ) other . our segment presentation excludes the results of the consumer banking business distributed on april 30 , 2014. see core earnings ' definition and limitations for further discussion . ffelp loans segment in the ffelp loans segment , we acquire and finance ffelp loans . even though ffelp loans are no longer originated due to changes in federal law that took effect in 2010 , we continue to pursue acquisitions of ffelp loan portfolios that leverage our servicing scale to generate incremental earnings and cash flow . in this segment , we primarily earn net interest income on the ffelp loan portfolio . this segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes . private education loans segment in this segment , we acquire , finance and service private education loans . even though we no longer originate private education loans , we continue to pursue acquisitions of private education loan portfolios that leverage our servicing scale to generate incremental earnings and cash flow . in this segment , we primarily earn net interest income on the private education loan portfolio ( after provision for loan losses ) . this segment is expected to generate significant amounts of cash as the portfolio amortizes . business services segment our business services segment generates its revenue from servicing our ffelp loan portfolio as well as providing servicing and asset recovery services for loans on behalf of guarantors of ffelp loans and other institutions , including ed , higher education institutions and other federal , state , court and municipal clients . other our other segment primarily consists of activities of our holding company , including the repurchase of debt , the corporate liquidity portfolio and all unallocated overhead . we also include results from certain smaller wind-down and discontinued operations within this segment . key financial measures our operating results are primarily driven by net interest income from our student loan portfolios ( which include financing costs ) , provision for loan losses , the revenues and expenses generated by our servicing and asset recovery businesses , and gains and losses on subsidiary sales , loan sales and debt repurchases . we manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services . a brief summary of our key financial measures are listed below . net interest income the most significant portion of our earnings is generated by the spread earned between the interest income we receive on assets in our student loan portfolios and the interest expense on debt funding these loans . we report these earnings as net interest income . net interest income in our ffelp loans and private education loans segments are driven by significantly different factors . 39 ffelp loans segment net interest income will be the primary source of cash flow generated by this segment over the next approximately 20 years as this portfolio amortizes . interest earned on our ffelp loans is indexed to one-month libor rates and our cost of funds is primarily indexed to three-month libor , creating the possibility of basis and repricing risk related to these assets . as of december 31 , 2014 , we had $ 104.5 billion of ffelp loans outstanding , compared with $ 103.2 billion outstanding at december 31 , 2013 on a core earnings basis . the ffelp loans segment 's core earnings net interest margin was 0.90 percent in 2014 compared with 0.88 percent in 2013. the major source of variability in net interest income is expected to be floor income we earn on certain ffelp loans . pursuant to the terms of the ffelp , certain ffelp loans can earn interest at the stated fixed rate of interest as underlying debt costs decrease during low interest rate environments . we refer to this additional spread income as floor income. floor income can be volatile . we frequently hedge this volatility with derivatives which lock in the value of the floor income over the term of the contract . at december 31 , 2014 , 80 percent of our ffelp loan portfolio was funded to term with non-recourse , long-term securitization debt . story_separator_special_tag the primary contributors to each of the identified drivers of changes in net income for the current year-end period compared with the year-ago period are as follows : net interest income decreased by $ 500 million , of which $ 259 million related to the deemed distribution of slm bankco on april 30 , 2014. also contributing to the decrease was a reduction in ffelp net interest income resulting from an $ 11 billion decline in average ffelp loans outstanding . this decline in ffelp loans was due , in part , to the sale of residual interests in ffelp loan securitization trusts in the first half of 2013. there were approximately $ 12 billion of ffelp loans in these trusts at the time of sale . provisions for loan losses declined $ 211 million , of which $ 20 million related to the deemed distribution of slm bankco on april 30 , 2014. the remaining $ 191 million decrease was primarily the result of the overall improvement in private education loans ' credit quality , delinquency and charge-off trends leading to decreases in expected future charge-offs . gains on sales of loans and investments decreased by $ 302 million primarily as the result of $ 312 million in gains on the sales of the residual interests in ffelp loan securitization trusts in the first-half of 2013. there were no sales in the current year-end period . gains ( losses ) on derivative and hedging activities , net , increased $ 407 million . the primary factors affecting the change were interest rate and foreign currency fluctuations , which primarily affected the valuations of our floor income contracts , basis swaps and foreign currency hedges during each period . valuations of derivative instruments vary based upon many factors including changes in interest rates , credit risk , foreign currency fluctuations and other market factors . as a result , net gains and losses on derivative and hedging activities may continue to vary significantly in future periods . gains on debt repurchases decreased $ 42 million . debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy . in 2014 and 2013 , we recognized $ 112 million and $ 65 million of expense , respectively , related to the settlement of regulatory matters ( for additional information , see item 3 . legal proceedings regulatory matters ) . excluding these expenses , operating expenses decreased $ 102 million . this decrease was primarily due to $ 171 million related to the deemed distribution of slm bankco on april 30 , 2014 , partially offset by incremental costs post-spin-off resulting from operating as a new separate company , increased third-party servicing and asset recovery activities , increased account resolution efforts on our education loan portfolios , as well as additional external servicing costs related to loan acquisitions during the year . restructuring and other reorganization expenses increased $ 41 million to $ 113 million . these expenses were primarily related to costs incurred in connection with the spin-off . we expect the costs associated with the spin-off to be minimal after december 31 , 2014. income from discontinued operations decreased by $ 106 million primarily as a result of the sale of our campus solutions business in the second quarter of 2013 and our 529 college savings plan administration business in the fourth quarter of 2013 , which resulted in after-tax gains of $ 38 million and $ 65 million , respectively . 44 we repurchased 30.4 million shares and 27.0 million shares of our common stock during the years ended december 31 , 2014 and 2013 , respectively , as part of our common share repurchase program . primarily as a result of ongoing common share repurchases , our average outstanding diluted shares decreased by 24 million common shares from the year-ago period . year ended december 31 , 2013 compared with year ended december 31 , 2012 for the years ended december 31 , 2013 and 2012 , net income was $ 1.4 billion , or $ 3.12 diluted earnings per common share , and $ 939 million , or $ 1.90 diluted earnings per common share , respectively . the increase in net income was primarily due to a $ 360 million decrease in net losses on derivative and hedging activities , a $ 302 million increase in gains on sales of loans and investments , a $ 241 million decrease in provisions for loan losses , and a $ 108 million after-tax increase in income from discontinued operations , which were partially offset by $ 103 million of lower gains on debt repurchases , higher operating expenses of $ 145 million and higher restructuring and other reorganization expenses of $ 61 million . the primary contributors to each of the identified drivers of changes in net income for 2013 compared with 2012 are as follows : net interest income decreased by $ 41 million in the current year compared with the prior year primarily due to a reduction in ffelp net interest income from a $ 20 billion decline in average ffelp loans outstanding in part due to the sale of residual interests in ffelp loan securitization trusts in the first half of 2013. there were approximately $ 12 billion of ffelp loans in these trusts . provisions for loan losses decreased by $ 241 million primarily as a result of the overall improvement in private education loans ' credit quality , delinquency and charge-off trends leading to decreases in expected future charge-offs . gains on sales of loans and investments increased by $ 302 million as a result of $ 312 million in gains on the sales of the residual interests in ffelp loan securitization trusts in 2013. see the section titled business segment earnings summary core earnings ' basis ffelp loans segment for further discussion .
| 2014 summary of results 2014 gaap net income was $ 1.1 billion ( $ 2.69 diluted earnings per share ) , versus net income of $ 1.4 billion ( $ 3.12 diluted earnings per share ) in the prior year . the changes in gaap net income are impacted by the same core earnings items discussed below , as well as changes in net income attributable to ( 1 ) the financial results attributable to the operations of the consumer banking business prior to the spin-off on april 30 , 2014 and related restructuring and reorganization expense incurred in connection with the spin-off , ( 2 ) unrealized , mark-to-market gains/losses on derivatives and ( 3 ) goodwill and acquired intangible asset amortization and impairment . these items are recognized in gaap but have not been included in core 41 earnings results . in 2014 , gaap results included gains of $ 573 million from derivative accounting treatment that are excluded from core earnings results , compared with gains of $ 243 million in the prior year . see core earnings ' definition and limitations differences between core earnings ' and gaap for a complete reconciliation between gaap net income and core earnings. core earnings for 2014 were $ 818 million ( $ 1.93 diluted earnings per share ) , compared with $ 1.2 billion ( $ 2.77 diluted earnings per share ) in 2013. excluding expenses associated with regulatory matters ( $ 120 million in 2014 and $ 54 million in 2013 ) , 2014 and 2013 diluted core earnings per share were $ 2.10 and $ 2.85 , respectively . the results for 2013 include $ 312 million of pre-tax gains from the sale of residual interests in ffelp securitization trusts , $ 109 million of after-tax gains from the divestiture of two subsidiaries and $ 48 million of pre-tax gains from debt repurchases .
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all employees of nu skin japan , after certain years of service , are entitled to pension plan benefits when they terminate employment with nu skin japan . the accrued pension liability was $ 5.9 million , $ 7.4 million and $ 8.4 million as of december 31 , 2009 , 2010 and 2011 , respectively . although nu skin japan has not specifically funded this obligation , as it is not required to do story_separator_special_tag the following discussion of our financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto , which are included in this annual report on form 10-k. overview we are a leading , global direct selling company with operations in 52 markets worldwide . we develop and distribute innovative , premium-quality anti-aging personal care products and nutritional supplements under our nu skin and pharmanex brands , respectively . we strive to secure competitive advantage in four key areas : our people , our products , the culture we promote , and the business opportunities we offer . in 2011 , we posted record revenue of $ 1.74 billion . revenue in 2011 grew 13 % , driven by sustained interest in our product portfolio , including our ageloc anti-aging products , healthy distributor sponsoring and retention and continued growth in our emerging markets , including china , south asia and south korea . as of december 31 , 2011 , we had a global network of more than 850,000 active independent distributors . more than 40,000 of our distributors were qualified sales leaders we refer to as “ executive distributors. ” our executive distributors play a critical leadership role in the growth and development of our business . approximately 88 % of our 2011 revenue came from markets outside the united states . while we have become more geographically diverse over the past decade , japan , our largest revenue market , accounted for approximately 27 % of our 2011 total revenue . due to the size of our foreign operations , our results are often impacted by foreign currency fluctuations . in addition , our results are generally impacted by global economic , political , demographic and business conditions . our revenue depends on the number and productivity of our active distributors and executive distributor leaders . we have been successful in attracting and motivating distributors by : developing and marketing innovative , technologically and scientifically advanced products ; providing compelling initiatives and strong distributor support ; and offering attractive incentives that motivate distributors to build sales organizations . our distributors market and sell our products and recruit new distributors based on the distinguishing benefits and innovative characteristics of our products . as a result , it is vital to our business that we continuously leverage our research and development resources to develop and introduce innovative products and provide our distributors with an attractive portfolio of products . over the last four years , we have successfully introduced a suite of innovative ageloc anti-aging skin care and nutritional products , including our ageloc transformation daily skin care system , galvanic spa gels with ageloc , ageloc galvanic spa body shaping gel and ageloc dermatic effects body contouring lotion ageloc vitality nutritional supplement , ageloc r 2 anti-aging nutritional supplement system . we are currently developing additional ageloc anti-aging products for the future . our ageloc products are designed to positively influence the expression of genes that we believe play a critical role in the aging process . we also offer unique initiatives , products , and business tools , such as our ageloc galvanic spa systems and pharmanex biophotonic scanner , to help distributors effectively differentiate our earnings opportunity and product offering . any delays or difficulties in introducing compelling products or attractive initiatives or tools into our markets may have a negative impact on our revenue and distributor recruiting . we generally introduce a new product , in all markets where the product is registered , through limited offerings in connection with global and regional distributor events . the limited offerings typically generate significant distributor activity and a high level of distributor purchasing . this generally results in a higher than normal increase in revenue during the quarter of the limited offerings . for example , limited offerings of ageloc r 2 in connection with our global convention in october 2011 generated over $ 78 million in the fourth quarter of 2011. we typically launch a product for general sales a few months following the limited offerings . information regarding product launches below refers to the launch of the product for general sales and not to the limited offering used to introduce the product . - 48 - our extensive global distributor network helps us to rapidly introduce products and penetrate our markets with little up-front promotional expense . similar to other companies in our industry , we experience a high level of turnover among our distributors . as a result , it is important that we regularly introduce innovative and compelling products and initiatives in order to maintain a compelling business opportunity that will attract new distributors . we have also developed , and continue to promote in many of our markets , product subscription and loyalty programs that provide incentives for customers to commit to purchase a specific amount of products on a monthly basis . we believe these subscription programs have improved customer retention , have had a stabilizing impact on revenue , and have helped generate recurring sales for our distributors . subscription orders represented 56 % of our revenue in 2011. despite difficult economic conditions , we experienced healthy growth in 2011. we believe we have benefited from the nature of our distribution model and strong execution around a demonstrative product/opportunity initiative , which has helped offset to some degree the impact of weaker consumer spending . story_separator_special_tag because our various distributor conventions are not always held during each fiscal year , or in the same period each year , their impact on our general and administrative expenses may vary from year to year and from quarter to quarter . for example , we held our global convention in october 2011 and will have another global convention in the fall of 2013 as we currently plan to hold a global convention every other year . in addition , we hold regional conventions and conventions in our major markets at different times during the year . these conventions have significant expenses associated with them . because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods , year-over-year comparisons have been impacted accordingly . provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate . for example , statutory tax rates in 2011 were approximately 16.5 % in hong kong , 17 % in taiwan , 24.5 % in south korea , 45 % in japan and 25 % in china . we are subject to taxation in the united states at the statutory corporate federal tax rate of 35 % and we pay taxes in multiple states within the united states at various tax rates . our overall effective tax rate was 32.4 % for the year ended december 31 , 2011 . - 51 - critical accounting policies the following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto . management considers our critical accounting policies to be the recognition of revenue , accounting for income taxes , accounting for intangible assets and accounting for stock-based compensation . in each of these areas , management makes estimates based on historical results , current trends and future projections . revenue . we recognize revenue when products are shipped , which is when title and risk of loss pass to our independent distributors and preferred customers who are our customers . with some exceptions in various countries , we offer a return policy whereby distributors can return unopened and unused product for up to 12 months subject to a 10 % restocking fee . reported revenue is net of returns , which have historically been less than 5 % of annual revenue . a reserve for product returns is accrued based on historical experience . we classify selling discounts as a reduction of revenue . our selling expenses are computed pursuant to our global compensation plan for our distributors , which is focused on remunerating distributors based primarily upon the selling efforts of the distributors and the volume of products purchased by their downlines , and not their personal purchases . income taxes . we account for income taxes in accordance with the income taxes topic of the financial accounting standards codification . these standards establish financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . we take an asset and liability approach for financial accounting and reporting of income taxes . we pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions , which can be significantly impacted by terms of intercompany transactions among our affiliates around the world . deferred tax assets and liabilities are created in this process . as of december 31 , 2011 , we had net deferred tax assets of $ 51.4 million . these net deferred tax assets assume sufficient future earnings will exist for their realization , as well as the continued application of current tax rates . in certain foreign jurisdictions valuation allowances have been recorded against the deferred tax assets specifically related to use of net operating losses . when we determine that there is sufficient taxable income to utilize the net operating losses , the valuation allowances will be released . in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made . we file income tax returns in the u.s. federal jurisdiction , and in various state and foreign jurisdictions . during 2011 , we entered into a closing agreement with the united states internal revenue service ( the “ irs ” ) for all adjustments for the 2005 through 2008 tax years . with a few exceptions , we are no longer subject to u.s. , federal , state and local income tax examination by tax authorities for the years before 2005. in 2009 , we entered into a voluntary program with the irs called compliance assurance process ( “ cap ” ) . the objective of cap is to contemporaneously work with the irs to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return . we have elected to participate in the cap program for 2012 and may elect to continue participating in cap for future tax years ; we may withdraw from the program at any time . in major foreign jurisdictions , we are no longer subject to income tax examinations for years before 2005. along with the irs examination , we are currently under examination in certain foreign jurisdictions ; however , the outcomes of those reviews are not yet determinable . - 52 - at december 31 , 2011 , we had $ 7.4 million in unrecognized tax benefits of which $ 3.1 million , if recognized , would affect the effective tax rate . in comparison , at december 31 , 2010 , we had $ 14.8 million in unrecognized tax benefits of which $ 2.4 million , if recognized , would affect the effective tax rate . during each of the years ended december 31 , 2011 and 2010 , we recognized approximately $ ( 0.8
| quarterly results the following table sets forth selected unaudited quarterly data for the periods shown ( u.s. dollars in millions , except per share amounts ) : replace_table_token_27_th - 66 - recent accounting pronouncements in may 2011 , the fasb issued asu 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrs . asu 2011-04 provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between u.s. gaap and international financial reporting standards . asu 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements . this guidance will be effective for interim and annual reporting periods beginning after december 15 , 2011 , and will be applied prospectively . we are currently evaluating the impact of adopting asu 2011-04 , but believe there will be no significant impact on our consolidated financial statements . in june 2011 , the fasb issued asu 2011-05 as amended by asu 2011-12 , presentation of comprehensive income . asu 2011-05 requires entities to present items of net income and other comprehensive income either in one continuous statement , referred to as the statement of comprehensive income , or in two separate , but consecutive , statements of net income and other comprehensive income . this guidance will be effective as of january 1 , 2012 for us and is not expected to have a significant impact on our financial statements , other than presentation . in september 2011 , the fasb ratified asu no . 2011-08 , intangibles-goodwill and other ( topic 350 ) : testing goodwill for impairment . asu 2011-08 allows an entity the option of performing a qualitative assessment before calculating the fair value of its reporting units .
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at december 31 , 2017 , the company had federal and state tax credit carry forwards of approximately $ 936,228 , and $ 1,192,688 , respectively , after reduction for uncertain tax positions . the company has not performed a formal research and development credit study with respect to certain of these credits . the federal credits will begin to expire in 2026 , if unused , and the state credits carry forward indefinitely . pursuant to the internal revenue code of 1986 , as amended ( irc ) , specifically irc §382 and irc §383 , the company 's story_separator_special_tag story_separator_special_tag address . we discuss many of these risks , uncertainties and other factors in this annual report in greater detail under the section entitled “ risk factors. ” key components of our results of operations and financial condition sales we primarily generate revenue from the sales of our products . as discussed further in “ critical accounting policies and significant judgments and estimates ” below , we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is reasonably assured . we generally recognize sales at the time of shipment to our customers , provided that all other revenue recognition criteria have been met . although currently insignificant , we may also generate service revenue derived from agreements to provide design , engineering , and testing for a customer . cost of goods sold the cost of goods sold reflects the cost of producing antenna products that are shipped for our customers ' devices . this primarily includes manufacturing costs of our products payable to our third-party contract manufacturers , as well as manufacturing costs incurred at our manufacturing facility in arizona . the cost of goods sold that we generate from services provided to customers primarily includes personnel costs . operating expenses our operating expenses are classified into three categories : research and development , sales and marketing , and general and administrative . for each category , the largest component is personnel costs , which includes salaries , employee benefit costs , bonuses , and stock-based compensation . operating expenses also include allocated overhead costs for depreciation of equipment , facilities and information technology . allocated costs for facilities consist of leasehold improvements and rent . operating expenses are generally recognized as incurred . 41 research and development . research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering resear ch and development personnel . these expenses include work related to the design , engineering and testing of antenna designs , and antenna integration , validation and testing of customer devices . these expenses include salaries , including stock-based compens ation , benefits , bonuses , travel , communications , and similar costs , and depreciation and allocated operating expenses such as office supplies , premises expenses , insurance and corporate legal expenses . we may also incur expenses from consultants and for p rototyping new antenna solutions . we expect research and development expense to increase in absolute dollars as we increase our research and development headcount to further strengthen and enhance our antenna design and integration capabilities and invest in the development of new solutions and markets , although our research and development expense may fluctuate as a percentage of total sales . sales and marketing . sales and marketing expenses primarily consist of personnel and facility-related costs for our sales , marketing , and business development personnel , stock-based compensation and bonuses earned by our sales personnel , and commissions earned by our third-party sales representative firms . sales and marketing expense also includes the costs of trade shows , marketing programs , promotional materials , demonstration equipment , travel , recruiting , and allocated costs for certain facilities . we expect sales and marketing expense to increase in absolute dollars as we increase investments in strategic partnerships and increase the size of our sales and marketing organizations in support of our investment in our growth opportunities , although our sales and marketing expense may fluctuate as a percentage of total sales . general and administrative . general and administrative expenses primarily consist of personnel and facility- related costs for our executive , finance , and administrative personnel , including stock-based compensation , as well as legal , accounting , and other professional services fees , depreciation , and other corporate expenses . we have recently incurred , and expect to continue to incur , additional expenses as we grow our operations and operate as a public company , including higher legal , corporate insurance and accounting expenses , and the additional costs of achieving and maintaining regulatory compliance . we expect general and administrative expense to increase in absolute dollars due to additional legal fees and accounting , insurance , investor relations , and other costs associated with being a public company , as well as , due to costs associated with growing our business , although our general and administrative expense may fluctuate as a percentage of total sales . other income interest income . interest income consists of interest from our cash and cash equivalents and our short-term investments . interest expense . interest expense consists of interest on our outstanding debt and amortization of loan fees . fair market value adjustments—warrants . consists of the change in fair value of our convertible preferred stock warrant liability . the preferred stock warrants are classified as liabilities on our balance sheets and their estimated fair value is re-measured at each balance sheet date using a combination of an option-pricing model and current value model under the probability-weighted return method , with the corresponding change recorded within other expense ( income ) . in may 2016 , the warrants were amended such that they became immediately exercisable into shares of our common stock . story_separator_special_tag gross profit replace_table_token_5_th replace_table_token_6_th gross profit as a percentage of sales increased 2.7 % for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. the increase in gross profit as a percentage of sales was primarily driven by a shift in the sales mix for the year ended december 31 , 2017 when compared to the year ended december 31 , 2016 . 44 gross profit as a percentage of sales increased 2 . 5 % for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 due primarily to an increase in sales of board mounted antennas , which do not require cables or connectors . board mounted antennas tend to have lower per unit pricing and higher gross margins . we anticipate the sales of board mounted ante nnas as a percentage of sales mix will be lower in future periods which may cause gross profit as a percentage of sales to decline . operating expenses replace_table_token_7_th replace_table_token_8_th research and development research and development expense increased $ 1.7 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a $ 0.7 million increase in operating expenses associated with the acquisition of the antenna plus assets , $ 0.7 million increase in personnel expenses associated with headcount increases and $ 0.3 million increase miscellaneous research and development expenses . research and development expense increased $ 1.4 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to a $ 0.8 million increase in personnel expenses associated with headcount increases , $ 0.2 million increase in product development , and $ 0.3 million increase in miscellaneous research and development expenses . sales and marketing sales and marketing expense increased $ 1.3 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a $ 0.6 million increase in operating expenses associated with the acquisition of the antenna plus assets , $ 0.5 million increase in personnel expenses associated with headcount increases , $ 0.1 million increase in travel and entertainment and $ 0.1 million increase in miscellaneous sales and marketing expenses . sales and marketing expense increased $ 1.6 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to a $ 1.1 million increase in personnel expenses associated with headcount increases , $ 0.2 million increase in travel and entertainment expenses , and $ 0.2 million increase in miscellaneous sales and marketing expenses . 45 general and administrative general and administrative expense increased $ 3.5 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a $ 0.9 million increase in acquisitions costs , $ 0.8 million increase in costs of being a public company , $ 0.7 million increase in operating expenses associated with the acquisition of the antenna plus assets , $ 0.6 million increase in personnel expenses associated with headcount increases , $ 0.2 million increase in expenses due to the completion of the r & d tax credit study and $ 0.1 million increase in corporate legal expenses . general and administrative expense increased $ 1.1 million for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to an increase of $ 0.4 million due to the amortization of the intangible assets acquired with the acquisition of certain north american assets from skycross , an increase of $ 0.3 million in personnel expenses associated with headcount increases and bonus payouts and an increase of $ 0.2 million of indirect costs related to our public equity offerings . other expense ( income ) replace_table_token_9_th replace_table_token_10_th other income decreased $ 0.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a decrease in the warrant fair market value adjustment in the amount of $ 0.5 million and an increase in interest expense in the amount of $ 0.8 million , offset by an increase in interest income in the amount of $ 0.3 million . other income increased $ 0.2 million from december 31 , 2015 to december 31 , 2016 primarily due to the conversion of warrants into common stock and related adjustments to record the warrants to their fair market value in 2016. this increase was offset by $ 0.1 million increase in interest expense on our outstanding loans . liquidity and capital resources we had cash and cash equivalents of $ 15.0 million and $ 21.3 million in short-term investments at december 31 , 2017. in august 2017 , we transferred a portion of our cash into an investment account . in april 2017 , we paid approximately $ 6.3 million in cash , net of post-closing working capital adjustments , in connection with the acquisition of the antenna plus assets . in august 2016 , we completed our initial public offering , or ipo , and received net proceeds of approximately $ 11.0 million , including the sale of shares pursuant to the exercise of the underwriters ' over-allotment option and after deducting underwriting discounts and commissions and offering-related transaction costs . in december 2016 , we completed our public offering of common stock and received net proceeds of approximately $ 26.0 million , including the sale of shares pursuant to the exercise of the underwriters ' over-allotment option and after deducting underwriting discounts and commissions and estimated offering-related transaction costs . 46 before 2013 , we had incurred net losses in each year since our inception .
| of financial condition and results of operations you should read the following discussion and analysis of our financial condition and operating results together with our financial statements and related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ risk factors ” or in other parts of this annual report . overview we are a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad range of devices and markets , including connected home , enterprise , automotive , and internet of things , or iot . our innovative antenna systems are designed to address key challenges with wireless system performance faced by our customers . we provide solutions to complex radio frequency , or rf , engineering challenges and help improve wireless services that require higher throughput , broad coverage footprint , and carrier grade quality . our antennas are deployed in carrier , fleet , enterprise , residential , private , government , and public safety wireless networks and systems , including set-top boxes , access points , routers , modems , gateways , media adapters , portables , digital televisions , sensors , fleet and asset tracking devices . through our pedigree in the design , integration , and testing of high performance embedded antenna technology , we have become a leading provider to the residential wireless local area networking , also known as wlan , market , supplying to leading carriers , original equipment manufacturers , or oems , original design manufacturers , or odms , and system designers who depend on us to achieve their wireless performance goals .
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there can be no assurances , however , that we will be able to raise additional capital as may be needed or upon acceptable terms , or that current economic conditions will not negatively impact us . if the current economic conditions negatively impact us and we are unable to raise additional capital that may be needed on terms acceptable to us , it could have a material adverse effect on the company . principles of consolidation the consolidated financial statements include the accounts of glowpoint and our 100 % -owned subsidiaries , gpav merger sub inc. , a delaware corporation and gp communications , llc , whose business function is to provide interstate telecommunications services for regulatory purposes . all material inter-company balances and transactions have been eliminated in consolidation . use of estimates preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts - f 8 - 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 . actual amounts could differ from the estimates made . we continually evaluate estimates used in the preparation of the consolidated financial statements for reasonableness . appropriate adjustments , if any , to the estimates used are made prospectively based upon such periodic evaluation . the significant areas of estimation include determining the allowance for doubtful accounts , deferred tax valuation allowance , accrued sales taxes , the estimated life of customer relationships , the estimated lives and recoverability of property and equipment , and the allocation of intangible assets . allowance for doubtful accounts we perform ongoing credit evaluations of our customers . we record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible . we also record additional allowances based on our aged receivables , which are determined based on historical experience and an assessment of the general financial conditions affecting our customer base . if our actual collections experience changes , revisions to our allowance may be required . after all attempts to collect a receivable have failed , the receivable is written off against the allowance . we do not obtain collateral from our customers to secure accounts receivable . the allowance for doubtful accounts was $ 151,000 and $ 147,000 at december 31 , 2012 and 2011 , respectively . fair value of financial instruments the company considers its cash , accounts receivable and accounts payable to meet the definition of financial instruments . the carrying amount of cash , accounts receivable and accounts payable approximated their fair value due to the short maturities of these instruments . the fair values of the revolving loan facility and long-term debt are based on borrowing rates story_separator_special_tag the following discussion should be read in conjunction with our consolidated balance sheets as of december 31 , 2012 and 2011 and the related consolidated statements of operations , stockholders ' equity and cash flows for the years ended december 31 , 2012 and 2011 and the related notes attached hereto . all statements contained herein that are not historical facts , including , but not limited to , statements regarding anticipated future capital requirements , our future development plans , our ability to obtain debt , equity or other financing , and our ability to generate cash from operations , are based on current expectations . the discussion of results , causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future . overview glowpoint , inc. ( “ glowpoint ” or “ we ” or “ us ” or the “ company ” ) is a provider of cloud and managed visual communication services . our services , delivered via our cloud-based openvideo ® platform ( as discussed in further detail below ) , are securely accessible via any network ( private or public ) and are technology-agnostic . the company delivers services to more than 600 different enterprises in over 68 countries supporting thousands of video endpoints , immersive telepresence rooms , and infrastructure for business-quality , real-time , two-way visual communications . on october 1 , 2012 , the company completed the acquisition of privately held affinity videonet , inc. ( `` affinity '' ) , a provider of public videoconferencing rooms and managed videoconferencing services to professional service organizations globally during 2012 , we continued our strategy to transition glowpoint to a cloud-based services company , focusing our sales and marketing efforts on growing the market awareness and adoption of our next-generation virtual meeting solutions based on ouropenvideo ® architecture . our continuing operations reflect only our meeting solutions . as a result and except as provided herein , the following discussion and analysis reflects our results from continuing operations . - 15 - key highlights of our financial and strategic accomplishments for 2012 include : generated 4.5 % growth in our net revenues over 2011 , expanded our services and customer base by over 1,000 customers through the acquisition of affinity , launched openvideo room as our next generation platform for reservationless video conferencing . our primary corporate objectives in 2013 are focused on continuing to : expand our global distribution through a more focused sales approach , add new agents , resellers and strategic alliances with service providers worldwide , in order to further our market reach and accelerate customer awareness and adoption of our services ; develop and release additional upgrades and enhancements to openvideo ® to increase functionality , improve competitive positioning and grow market opportunities ; and transition our network-only customers to a more converged set of services that provide a richer , more productiveuser experience . story_separator_special_tag in october 2012 , the revolving loan facility with svb was terminated in connection with repayment of outstanding amounts due and replaced with a revolving line of credit with comerica bank ( the `` comerica revolver '' ) pursuant to which the company can borrow , for working capital needs an amount up to the lesser of ( i ) 80 % of eligible accounts receivable and ( ii ) $ 3.0 million . the comerica revolver bears interest at a rate equal to the prime rate ( as defined in the comerica loan agreement ) plus 2.00 % and matures on april 1 , 2014. as of december 31 , 2012 , we had unused borrowing availability of approximately $ 2,220,000 . also in october 2012 , loan and security agreements ( `` loan agreement '' ) were entered into with comerica bank and escalate capital partners sbic i , l.p. ( “ escalate ” ) in order to finance a portion of the affinity acquisition ( as discussed in note 3 to our consolidated financial statements attached hereto ) . the loan agreement with comerica bank provided the company with a $ 2.0 million term loan ( the “ comerica term loan ” ) and bears interest at a rate equal to the prime rate ( as defined in the comerica loan agreement ) plus 3.00 % . the comerica term loan matures on november 1 , 2015. the loan agreement with escalate provided the company with a $ 6.5 million term loan ( the “ escalate term loan ” ) for a term of 60 months and bears interest at a fixed rate of 12.0 % per annum , with interest-only payable monthly for the first 24 months , commencing after such interest-only period , monthly payments of the outstanding principal amount , plus accrued interest , for the remainder of the term . on march 28 , 2013 , the company and comerica bank mutually agreed to amend the loan and security agreement , dated as of october 1 , 2012 ( the “ amendment ” ) , which amendment required the consent of escalate capital partners sbic i , l.p. ( `` escalate '' ) . in consideration of escalate 's consent to the amendment and entrance into an affirmation , the company issued 100,000 shares of its common stock to escalate . the amendment established revised financial covenants for future minimum levels of liquidity and ebitda to be more consistent with the company 's continuing operations . the financial covenants affected by the amendment were ( i ) the total funded debt to adjusted ebitda ratio , ( ii ) the senior funded debt to adjusted ebitda ratio and ( iii ) the fixed charge coverage ratio . the amendment also added two new financial covenants , a minimum cash requirement and an extraordinary expenses limitation . further , the amendment reduced funds available to the company under the comerica revolver so that advances under the comerica revolver can not exceed the lesser of the revolving line or the borrowing base , less in each case any amount outstanding under the comerica revolver up to $ 1,500,000. pursuant to the terms of our series a-2 preferred stock and series b-1 preferred stock , the company is not obligated to pay dividends on a current basis , however , must accrue them . the company has commenced accruing dividends as of january 1 , 2013 and is expected to be $ 420,000 for 2013. based primarily on our efforts to manage costs and our loan agreements , as amended , and come rica revolver , along with our cash flow projection , the company believes that it has , and will have , sufficient cash flow to fund its operations through at least march 31 , 2014. we have historically been able to raise capital in private placements as needed to fund operations and provide growth capital . there can be no assurances , however , that we will be able to raise additional capital as may be needed or upon acceptable terms , or that current economic conditions will not negatively impact us . if the current economic conditions negatively impact us and we are unable to raise additional capital that may be needed on terms acceptable to us , it could have a material adverse effect on the company . cash flows at december 31 , 2012 , we had positive working capital of $ 711,000 , compared to positive working capital of $ 477,000 at december 31 , 2011 , an increase of $ 234,000 . we had $ 2,218,000 in cash at december 31 , 2012 , compared to $ 1,818,000 at december 31 , 2011 , an increase of $ 400,000 . net cash provided by operating activities was $ 821,000 for the 2012 year . the primary components of the funds were payments of $ 393,000 to reduce accrued expenses and sales taxes and regulatory fees , $ 316,000 decrease in prepaid expense and other current assets , and a $ 410,000 decrease in accounts receivable . cash used in investing activities in the 2012 year was $ 8,291,000 , which includes $ 7,562,000 for the acquisition of affinity 's assets and liabilities plus $ 740,000 for the purchase of property , equipment and leasehold improvements . cash provided by financing activities in the 2012 year was comprised of $ 7,870,000 , which includes $ 205,000 of costs related to our capital leases offset by $ 30,000 proceeds from a revolving loan facility and $ 8,033,000 net proceeds from long-term debt . adjusted ebitda - 19 - adjusted ebitda is defined as income ( loss ) from continuing operations before depreciation , amortization , interest expense , interest income , taxes , severance , acquisition costs and stock-based compensation . adjusted ebitda is not intended to replace operating income ( loss ) , net income ( loss ) ,
| results of operations year ended december 31 , 2012 ( “ 2012 year ” ) versus year ended december 31 , 2011 ( `` 2011 year '' ) revenue . total revenue increased $ 1,264,000 , or 4.5 % , in the 2012 year to $ 29,070,000 from $ 27,806,000 in the 2011 year . the following are the changes in the components of our revenue : revenue for managed services combined , which represents subscription ( monitoring and management ) services generally tied to contracts of 12 months or more and usage based collaboration services , increased 16.5 % to $ 14,932,000 in the 2012 year , from $ 12,816,000 in the 2011 year . revenue for managed services combined accounted for 51.4 % of our total revenue in the 2012 year compared to 46.1 % for the 2011 year . the increase in revenue for managed services combined was primarily attributable to the acquisition of affinity . revenue for network services , which represents network sales and related services generally tied to contracts of 12 months or more , decreased 7.6 % to $ 12,366,000 in the 2012 year from $ 13,387,000 in the 2011 year . revenue for network services accounted for 42.5 % of total revenue in the 2012 year compared to 48.1 % for the 2011 year . the decrease in revenue for network services was primarily attributable to customers disconnecting or transitioning to managed service in their portfolio of glowpoint services . revenue for professional and other services , which represent non-recurring services , increased 10.5 % to $ 1,772,000 in the 2012 year from $ 1,603,000 in the 2011 year . revenue for professional and other services accounted for 6.1 % of revenue in the 2012 year compared to 5.8 % for the 2011 year . the increase in revenue for professional and other services was primarily attributable to the acquisition of affinity . replace_table_token_2_th network and infrastructure expenses .
| 3,789 |
as chief executive officer , mr. bailey will be paid an annual base salary of $ 650,000 , will be eligible to receive a target annual incentive bonus equal to 70 % of his base salary , commencing in 2021. for recognition of mr. bailey 's service as interim chief executive officer , mr. bailey will be paid a one-time bonus of $ 200,000 to be paid by december 31 , 2020 , subject to his continued employment ( the “ interim ceo bonus ” ) . the interim ceo bonus will be paid in lieu of a similar one-time bonus from his prior offer letter . in connection with the execution of the bailey agreement , the company ( i ) accelerated the vesting of all of mr. bailey 's unvested restricted stock units and stock options that were previously granted to mr. bailey in may 2020 in connection with his hiring as interim chief executive officer and ( ii ) granted mr. bailey stock options to purchase 840,000 shares of the company 's common stock and granted restricted stock units for 160,000 shares of common stock , each of which will vest in equal installments over a three year period beginning on the effective date . pursuant to the bailey agreement , in the event mr. bailey 's employment is terminated by the company without cause , by mr. bailey for good reason or as a result of mr. bailey 's death or permanent disability , subject to his signing and complying with a release agreement and the release agreement becoming effective , mr. bailey will be entitled to receive a lump sum cash payment equal to 100 % of mr. bailey 's annual base salary then in effect plus his pro-rated target annual performance bonus for the then-current year and any bonus for the prior year which was earned but not yet paid . in the event mr. bailey 's employment is terminated by the company without cause or by mr. bailey for good reason within 12 months after a change in control , subject to his signing and complying with a release agreement and the release agreement becoming effective , mr. bailey will be entitled to ( i ) receive a lump sum cash payment equal to 100 % of mr. bailey 's annual base salary then in effect , ( ii ) receive 100 % of his target annual performance bonus for the then-current year , ( iii ) maintain any rights granted pursuant to any retirement , profit sharing and savings , healthcare , 401 ( k ) and any other benefit plans sponsored by the company and ( iv ) full acceleration of vesting of any of his unvested equity awards . terry coelho , executive vice president and chief financial officer – ms. coelho 's employment agreement , dated january 10 , 2019 , as amended on december 4 , 2020 , includes a base salary of $ 385,000 , target bonus of up to 45 % of her base salary ( which is subject to modification by our compensation committee ) , and other employee benefits . during 2021 , the compensation committee approved to adjust ms. coelho 's base salary to $ 445,158 and her annual bonus target increased to 50 % of her annual base salary , which increases are consistent with our compensation philosophy . except in the event of a termination by us for cause ( as defined in the agreement ) , we or ms. coelho may terminate her agreement for any reason or no reason upon thirty ( 30 ) days prior written notice to the other . ms. coelho can not terminate her employment for good reason ( as defined in the agreement ) unless she has provided written notice to us of the existence of the 38 circumstances providing grounds for termination for good reason within sixty ( 60 ) days of the date ms. coelho learns of such grounds and we have had at least thirty ( 30 ) days from the date on which such notice is provided to cure such circumstances . if ms. coelho does not terminate her employment for good reason within ninety ( 90 ) days after the date ms. coelho learns of the first occurrence of the applicable grounds , then ms. coelho will be deemed to have waived her right to terminate for good reason with respect to such grounds . in the event of a termination by us for cause or ms. coelho 's resignation without story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report . all amounts and percentages are approximate due to rounding . when we cross-reference to a “ note , ” we are referring to our “ notes to consolidated financial statements , ” unless the context indicates otherwise . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in 25 these forward-looking statements as a result of certain factors , including , but not limited to , those which are not within our control . our strategy our strategy is evolving with the establishment of our commercial footprint . we seek to continue to build a well-balanced , diversified , high-growth specialty pharmaceutical company focused on delivering innovative therapies for individuals living with serious and debilitating chronic conditions . through our industry-leading commercialization infrastructure , we are executing the commercialization of our existing products . as part of our corporate growth strategy , we have licensed , and will continue to explore opportunities to acquire or license , additional products that meet the needs of patients living with debilitating chronic conditions . story_separator_special_tag the write-down is measured as the difference between the cost of the inventory on-hand and the expected demand of the inventory . at the point of the loss recognition , a charge to cost of sales is recorded and a reserve is established for that inventory . the inventory reserve is relieved upon the future sale or disposal of that inventory . stock-based compensation and other stock-based valuation issues we account for stock-based awards to employees and non-employees using fair value-based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation . fair values of equity securities issued are determined by management based predominantly on the trading price of our common stock . the values of these awards are based upon their grant-date fair value . that cost is recognized over the period during which the employee is required to provide service in exchange for the award . we use the black-scholes option pricing model to determine the fair value of stock option and warrant grants . refer to note 1 , “ nature of business and summary of significant accounting policies ” for more information related to assumptions in applying the black-scholes option pricing model . fair value of financial instruments we measure the fair value of instruments in accordance with gaap which defines fair value , establishes a framework for measuring fair value , and expands disclosures about fair value measurements . gaap defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . gaap also establishes a fair value hierarchy , which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . we consider the carrying amount of our cash and cash equivalents to approximate fair value due to short-term nature of this instrument . revenue recognition revenue from contracts with customers effective january 1 , 2018 , we adopted accounting standards codification , or asc , topic 606 , “ revenue from contracts with customers , ” using the modified retrospective approach . we utilized a comprehensive approach to assess the impact of the guidance on our contract portfolio . we reviewed our current accounting policies and practices to identify potential differences resulting from the application of the new requirements to our revenue contracts , including evaluation of performance obligations in the contract , estimating the amount of variable consideration to include in the transaction price , allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts . under the new guidance , we are required to evaluate the impact of estimating variable consideration related to our product sales and licensing contracts . we use the expected value method to estimate the total revenue of the contract , constrained by the 27 probability that there would not be a significant revenue reversal in a future period . we will continue to evaluate the expected value of revenue over the term of the contract and adjust revenue recognition as appropriate . refer to note 1 , “ nature of business and summary of significant accounting policies ” for more information related to , ( i ) product sales , ( ii ) performance obligations , ( iii ) adjustments to product sales and ( iv ) gross to net accruals . license and development agreements we periodically enter into license and development agreements to develop and commercialize our products . the arrangements typically are multi-deliverable arrangements that are funded through upfront payments , milestone payments and other forms of payment . depending on the nature of the contract these revenues are classified as research and development reimbursements or contract revenue . product royalty revenues product royalty revenue amounts are based on sales revenue of the painkyl product under the company 's license agreement with tty and the breakyl product under the company 's license agreement with mylan . cost of sales cost of sales in 2020 includes direct costs attributable to the production of belbuca , symproic , formerly bunavail , breakyl and painkyl . cost of sales also includes royalty expenses owed to third parties . for belbuca , symproic and formerly bunavail , cost of sales includes raw materials , production costs at our contract manufacturing sites , quality testing directly related to the product , lower of cost of market , and depreciation on equipment that we have purchased to produce belbuca , symproic and bunavail . it also includes any batches not meeting specifications and raw material yield loss . cost of sales for belbuca , symproic and bunavail are recognized when sold to the wholesaler from our distribution center . there was no deferred cost of sales for the years ended december 31 , 2020 nor 2019. yield losses and batches not meeting specifications are expensed as incurred . for the year ended december 31,2019 , depreciation expense included accelerated depreciation for bunavail specific equipment due to the discontinuation of marketing bunavail in june 2020. for breakyl and painkyl , we do not take ownership of the subject product as we do not have inventory . accordingly , raw material product is transferred to mylan , in the case of breakyl and tty in the case of painkyl , immediately in accordance with the terms of our contractual arrangements with mylan and tty . lts manufactures both products for us . mylan 's and tty 's royalty payments to us include an amount related to cost of sales .
| results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 product sales . we recognized $ 154.6 million and $ 107.9 million in product sales during the years ended 2020 and 2019 , respectively , from our products belbuca , symproic and bunavail . the increase in 2020 is principally due to growth of belbuca sales and the full period impact of the symproic acquisition . product royalty revenues . we recognized $ 1.9 million and $ 3.3 million in product royalty revenue during the years ended 2020 and 2019 , respectively , which are composed of breakyl sales from mylan and painkyl sales from tty . contract revenues . we recognized $ 0.2 million in contract revenue during the year ended 2019 related to milestone revenues associated with painkyl from tty . there was no such contract revenue recognized during the same period in 2020. cost of sales . we incurred $ 24.7 million and $ 21.6 million in cost of sales during the years ended 2020 and 2019 , respectively . cost of sales includes product cost , royalties paid , and yield adjustments . the increase in cost of sales in 2020 is driven by the overall increase in gross sales , as well as an increase in inventory obsolescence reserves for certain product 28 batches . cost of sales in 2019 included a one time acceleration of depreciation expense for certain bunavail specific equipment . selling , general and administrative expenses . during the years ended 2020 and 2019 , selling , general and administrative expenses totaled $ 98.8 million and $ 86.1 million , respectively . selling , general and administrative costs include belbuca , and symproic sales , marketing , commercial and amortization expenses . these costs also include legal expenses , professional fees , wages and stock-based compensation expense .
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deferred expenses also include financing fees we incurred in order to obtain long-term financing and are amortized as interest expense over the terms of the respective financing agreements using the straight-line method , which approximates the effective interest method . revenue recognition and related matters minimum rents are recognized on a straight-line basis over the terms of the related operating leases , including the effect of any free rent periods . minimum rents also include lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates , as well as , accretion related to above and below-market tenant leases on acquired properties and properties that were recorded at fair value at the effective date . the following is a f-15 general growth properties , inc. notes to consolidated financial statements ( continued ) story_separator_special_tag all references to numbered notes are to specific footnotes to our consolidated financial statements included in this annual report and whose descriptions are incorporated into the applicable response by reference . the following discussion should be read in conjunction with such consolidated financial statements and related notes . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) have the same meanings as in such notes . overviewintroduction our primary business is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities , retailers , employees , consumers and shareholders . our properties are predominantly located in the united states . as of december 31 , 2013 , we are the owner , either entirely or with joint venture partners , of 120 regional malls comprising approximately 125 million square feet of gla . we provide management and other services to substantially all of our properties , including properties which we own through joint venture arrangements and which are unconsolidated for gaap purposes . our management operating philosophies and strategies are the same whether the properties are consolidated or unconsolidated . we seek to increase long-term company noi ( as defined below ) growth through proactive management and leasing of our properties . our leasing strategy is to identify and provide the right stores to have appropriate merchandise mix . we believe that the most significant operating factor affecting incremental cash flow and company noi is increased rents earned from tenants at our properties . these rental revenue increases are primarily achieved by : increasing the permanent occupancy ; increasing rental revenues by leasing at higher rates than those expiring ; and increasing tenant sales , which will allow us to obtain higher rents , and in which we participate through overage rent . we may recycle capital by strategically disposing assets and opportunistically investing in high quality retail properties . controlling operating expenses by leveraging our scale to maximize synergies is a critical component to company noi growth . overview our company noi ( as defined below ) increased 5.0 % from $ 2.1 billion for the year ended december 31 , 2012 to $ 2.2 billion for the year ended december 31 , 2013. operating income increased 9.5 % from $ 759.6 million for the year ended december 31 , 2012 to $ 832.2 million for the year ended december 31 , 2013. our company ffo ( as defined below ) increased 15.7 % from $ 991.7 million for the year ended december 31 , 2012 to $ 1.1 billion for the year ended december 31 , 2013. net income ( loss ) attributable to general growth properties , inc. increased from $ ( 481.2 ) million for the year ended december 31 , 2012 to $ 302.5 million for the year ended december 31 , 2013. see non-gaap supplemental financial measures below for a discussion of company noi and company ffo , along with a reconciliation to the comparable gaap measures , operating income and net income ( loss ) attributable to general growth properties , inc. 29 during 2013 we completed transactions and achieved operational goals in order to promote our long-term strategy to enhance the quality of our overall portfolio as follows : sold our investment in aliansce ( note 6 ) ; acquired the 41,070,000 warrants held by fairholme and the 5,000,000 warrants held by blackstone for an aggregate purchase price of approximately $ 633 million ; acquired four retail properties for total consideration of $ 396.3 million , which included cash of $ 355.0 million and the assumption of debt of $ 41.3 million . the four retail properties acquired include a 50 % interest in a portfolio comprised of two properties in the union square area of san francisco ( note 3 ) ; acquired the remaining 50 % interest in quail springs mall , from our joint venture partner , for total consideration of $ 90.5 million , including $ 55.0 million of cash and the assumption of debt of $ 35.0 million ( note 3 ) ; sold our interests in six retail properties for total consideration of $ 142.6 million , which reduced our property level debt by $ 143.6 million . additionally , one property , which was previously transferred to a special servicer , was sold in a lender-directed sale in full satisfaction of the debt . this resulted in a gain on extinguishment of debt of $ 25.9 million and a reduction of property level debt of $ 96.9 million ; reinvested in our portfolio by acquiring 28,345,108 shares of our common stock for $ 566.9 million ( note 12 ) ; and invested $ 625.3 million to date on $ 2.1 billion of identified redevelopment projects . operating metrics same store operating metrics the following table summarizes selected operating metrics for our same store portfolio . replace_table_token_16_th ( 1 ) metrics exclude one asset that is being de-leased in preparation for redevelopment . ( 2 ) represents average rent over the term consisting of base minimum rent , common area costs and real estate taxes . story_separator_special_tag our key financing and capital raising objectives include : to refinance our maturing debt and certain debt that is prepayable without penalty , to manage future debt maturities coming due in any one year ; and to reduce the amount of debt that is recourse to us . we may also raise capital through public or private issuances of debt securities , preferred stock , common stock , common units of the operating partnership or other capital raising activities . during 2013 , we executed the following refinancing and capital transactions ( at our proportionate share ) : acquired 28,345,108 shares of our common stock for $ 566.9 million ( note 12 ) ; acquired the 41,070,000 warrants held by fairholme and the 5,000,000 warrants held by blackstone for an aggregate purchase price of approximately $ 633 million ; completed $ 5.6 billion of secured financings , including the $ 1.5 billion secured corporate loan , lowering the average interest rate , lengthening the term-to-maturity , and generating net proceeds of approximately $ 1.4 billion ; issued 10,000,000 shares of 6.375 % preferred stock , generating proceeds of approximately $ 250 million before issuance costs ; and redeemed $ 700.5 million of unsecured corporate bonds with a weighted-average interest rate of 6.57 % . the redeemed unsecured corporate bonds were scheduled to mature in 2013 and 2015. as of december 31 , 2013 , we have $ 2.8 billion of debt pre-payable at par . we may pursue opportunities to refinance this debt at lower interest rates and longer maturities . as a result of our financing efforts in 2013 , we have reduced the amount of debt due in the next three years from $ 5.3 billion to $ 1.9 billion , representing 10.7 % of our total debt at maturity . the maximum amount due in any one of the next ten years is no more than $ 3.0 billion or approximately 17.2 % of our total debt at maturity . as of december 31 , 2013 , our proportionate share of total debt aggregated $ 19.0 billion . our total debt consists of our share of consolidated debt of $ 15.7 billion , of which $ 15.5 billion is secured and $ 206.2 million is corporate unsecured , and $ 3.2 billion of our share of the secured debt of our unconsolidated real estate affiliates . of our proportionate share of total debt , $ 1.9 billion is recourse to the company or its subsidiaries due to guarantees or other security provisions for the benefit of the note holder . the following table illustrates the scheduled payments for our proportionate share of total debt as of december 31 , 2013. the $ 206.2 million of junior subordinated notes are due in 2041 , but we may 35 redeem them any time after april 30 , 2011 ( note 7 ) . as we do not expect to redeem the notes prior to maturity , they are included in the consolidated debt maturing subsequent to 2018. replace_table_token_20_th ( 1 ) excludes $ 1.0 million of adjustments related to special improvement district liabilities and debt market rate adjustment . we generally believe that we will be able to extend the maturity date , repay or refinance the consolidated debt that is scheduled to mature in 2014. we also believe that the joint ventures will be able to refinance the debt of our unconsolidated real estate affiliates upon maturity ; however there can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise , or that joint venture operations or contributions by us and or our partners will be sufficient to repay such loans . acquisitions and joint venture activity from time-to-time we may acquire whole or partial interests in high-quality retail properties that are consistent with our strategy of owning and operating best-in-class retail properties . such assets provide long-term embedded growth or potential redevelopment opportunities . during the year ended december 31 , 2013 , we executed the following transactions ( at our proportionate share ) : acquired four retail properties for total consideration of $ 396.3 million , which included cash of $ 355.0 million and the assumption of debt of $ 41.3 million . the four retail properties acquired include a 50 % interest in a portfolio comprised of two properties in the union square area of san francisco ( note 3 ) ; formed a joint venture with tiaacref , contributing the grand canal shops and the shoppes at the palazzo , which generated proceeds to ggp of $ 411.5 million net of debt assumed of $ 311.9 million ( note 3 ) ; and acquired the remaining 50 % interest in quail springs mall , from our joint venture partner , for total consideration of $ 90.5 million , including $ 55.5 million of cash and the assumption of debt of $ 35.0 million ( note 3 ) . warrants and brookfield ownership on january 28 , 2013 , ggplp acquired the 41,070,000 warrants held by fairholme and the 5,000,000 warrants held by blackstone for an aggregate purchase price of approximately $ 633 million . the warrants were exercisable into approximately 27 million common shares of the company at a weighted-average exercise price of $ 9.37 per share , assuming net share settlement . as a result of the ggplp/fairholme/blackstone transaction mentioned above , brookfield now owns or manages on behalf of third parties all of the company 's remaining outstanding warrants , 36 which are exercisable into approximately 46 million common shares of the company at a weighted-average exercise price of $ 9.29 per share , assuming net share settlement . the warrants will continue to adjust for dividends paid by the company . as of february 18 , 2014 , brookfield 's potential ownership of the company ( assuming full share settlement of the warrants ) is 40.9 % , which is stated in their form 13d filed on the same date .
| results of operations year ended december 31 , 2013 and 2012 the following table is a breakout of the components of minimum rents : replace_table_token_18_th base minimum rents increased by $ 34.5 million primarily due to increased permanent occupancy from 90.2 % as of december 31 , 2012 to 92.0 % as of december 31 , 2013. tenant recoveries increased $ 22.7 million primarily due to higher real estate tax recoveries in 2013 , which were driven by increased real estate tax expense and therefore increased recovery income . additionally in 2013 , we settled a multi-year real estate tax suit with a municipality at one operating property , which resulted in a $ 5.1 million recovery during the first quarter of 2013. tenant recoveries also increased due to increased permanent occupancy . overage rents decreased $ 13.5 million due in part to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture that was formed with tiaacref during the second quarter of 2013 ( note 3 ) . this resulted in $ 7.5 million less overage rents in 2013 compared to 2012 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . management fees and other corporate revenues decreased $ 3.2 million . this is primarily due to higher one-time development and finance fees earned during 2012 at various joint venture properties . other revenue increased $ 15.6 million due to a gain on sale of land to a municipality in the fourth quarter of 2013 for $ 9.6 million .
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” overview we are an innovative global medical technology company that develops , commercializes , and delivers minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related practice enhancement services . our aesthetic systems have been designed on a cost-effective , proprietary and flexible platform that enables us to expand beyond the aesthetic industry 's traditional markets of dermatology and plastic surgery , and into non-traditional markets , including family and general practitioners and aesthetic medical spas . in 2019 and 2018 , a substantial majority of venus concept ltd. 's systems delivered in north america were in non-traditional markets . in november 2019 , we completed our business combination with venus concept ltd. and the business of venus concept ltd. became the primary business of the company , as described in more detail below under the heading “ merger with venus concept ltd. ” the combination with restoration robotics , a global leader in hair restoration , significantly expanded our presence and capability in the hair restoration market . we have developed and commercialized a robotic device , the artas® system , that assists physicians in performing many of the repetitive tasks that are part of a follicular unit extraction surgery , or fue , a type of hair restoration surgery . in july 2018 , we introduced the artas® ix robotic hair restoration system , which we believe is the first and only robotic intelligent solution to offer precise , minimally invasive , repeatable harvesting and implantation functionality in one platform . the system delivers procedural analysis , precision , repeatability , and clinical workflow efficiency for hair restoration . through our neograft division , which we acquired in 2018 , we offer an automated hair restoration system that facilitates the harvesting of follicles during an fue process , improving the accuracy and speed over commonly used manual extraction instruments . our hair restoration systems are sold primarily to plastic surgeons and dermatologists , and in the united states we offer doctors using the neograft® system the services of a group of independently contracted technicians , whom we market as “ verografters ” . this group of approximately 50 technicians is available to assist the physician during a neograft® hair restoration procedure . the artas® ix system complements our neograft® hair restoration system and allows us to penetrate a broader segment of the hair restoration market . we expect to make the verografters service available in 2020 to physicians using the artas® system . we have had recurring net operating losses and negative cash flows from operations . as of december 31 , 2019 and 2018 , we had an accumulated deficit of $ 75.7 million and $ 35.1 million , respectively . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities . as of december 31 , 2019 and 2018 , we had cash and cash equivalents of $ 15.7 million and $ 6.8 million , respectively . in order to continue our operations , we must achieve profitable operations and or obtain additional equity investment or debt financing . we completed convertible notes offerings in june 2019 and august 2019 as described in the following paragraph and in more detail below under the heading “ convertible note financings ” and a private placement financing in november 2019 as described in the following paragraph and in more detail below under the heading “ concurrent financing ” . until we generate revenue at a level to support our cost structure , we expect to continue to incur substantial operating losses and net cash outflows . 102 on june 25 , 2019 , venus concept ltd. sold $ 7.8 million of convertible notes . on august 14 , 2019 , venus concept ltd. sold an additional $ 7.2 million of venus concept ltd. 's convertible notes to certain investors . on august 21 , 2019 , venus concept ltd. sold an additional $ 14.05 million to certain of the equity commitment letter investors . immediately after the merger ( as defined below ) we issued and sold securities in a private placement for approximately $ 28 . 1 million . s ee “ —c oncurrent financing ” . on march 18 , 2020 we issued and sold securities in a private placement for approximately $ 22.3 million . s ee “ —2020 private placement ” below . we believe that the net proceeds from the issuance of the securities issued in the 2020 private placement , together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months . we based this estimate on our current assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see ‘ ‘ —liquidity and capital resources `` . merger with venus concept ltd. in accordance with the terms of the agreement and plan of merger and reorganization , or the merger agreement , dated march 15 , 2019 , as amended , by and among venus concept ltd. , restoration robotics and radiant merger sub ltd. , a company organized under the laws of israel and a direct , wholly-owned subsidiary of restoration robotics , or merger sub , merger sub merged with and into venus concept ltd. , with venus concept ltd. surviving as a wholly-owned subsidiary of restoration robotics , or the merger . following the completion of the merger , restoration robotics changed its corporate name to “ venus concept inc. ” and the business conducted by venus concept ltd. became the primary business conducted by the company . story_separator_special_tag our medical aesthetic technology platforms have received regulatory clearance for indications such as treatment of facial wrinkles in certain skin types , temporary reduction of appearance of cellulite , non-invasive fat reduction ( lipolysis ) in the abdomen and flanks for certain body types and relief of minor muscle aches and pains , as well as other indications , that are cleared for marketing in overseas markets but not in the united states , including treatment of certain soft tissue injuries , temporary increase of skin tightening , temporary body contouring , and vaginal treatments in the israeli market only . in 2018 , we acquired neograft® and in november 2019 , we completed our business combination with restoration robotics , which significantly expanded our hair restoration product offerings and capabilities to include the artas® ix system , a robotic device that assists physicians in a fue hair restoration procedure . we believe these two systems are complementary and give us a hair restoration product offering that can serve a broad segment of the market . in the united states , we have obtained 510 ( k ) clearance from fda for our venus freeze and freeze plus systems , venus viva , venus legacy , venus versa , venus velocity , venus heal , venus bliss and artas® systems . the venus glow and neograft® systems are listed as class i devices under fda classification system . outside the united states , we market our technologies in over 60 countries across europe , asia-pacific and latin america . because each country has its own regulatory scheme and clearance process , not every device is cleared or authorized for the same indications in each market in which a particular system is marketed . see “ venus concept business—venus concept 's products ” in this annual report on form 10-k for a summary of fda , eu and health canada cleared indications for our systems . as of december 31 , 2019 , we operated directly in 29 international markets through our 24 direct offices in the united states , canada , united kingdom , japan , south korea , mexico , argentina , colombia , spain , france , germany , australia , china , hong kong , singapore , indonesia , vietnam , india , israel , italy , bulgaria , russia , kazakhstan and south africa . our revenues increased from $ 102.6 million in 2018 to $ 110.4 million in 2019. our company had a net loss attributable to venus concept of $ 40.6 million and $ 15.0 million in the years ended december 31 , 2019 and 2018 , respectively . we had adjusted ebitda loss of $ 12.5 million and $ 9.8 million in 2019 and 2018 , respectively . use of non-gaap financial measures adjusted ebitda is a non-gaap measure defined as net loss income before foreign exchange loss , financial expenses , income tax expense , depreciation and amortization , stock-based compensation and non-recurring items for a given period . adjusted ebitda is not a measure of our financial performance under u.s. gaap and should not be considered an alternative to net income or any other performance measures derived in accordance with u.s. gaap . accordingly , you should consider adjusted ebitda along with other financial performance measures , including net income , and our financial results presented in accordance with u.s. gaap . other companies , including companies in our industry , may calculate adjusted ebitda differently or not at all , which reduces its usefulness as a comparative measure . we understand that although adjusted ebitda is frequently used by securities analysts , lenders and others in their evaluation of companies , adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation , or as a substitute for analysis of our results as reported under u.s. gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; and although depreciation and amortization are a non-cash charges , the assets being depreciated will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements . we believe that adjusted ebitda is a useful measure for analyzing the performance of our core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the u.s. dollar , tax positions ( such as the impact on periods or companies of changes in effective tax rates ) , the age and book depreciation of fixed assets ( affecting relative depreciation expense ) , amortization of intangible assets , stock-based compensation expense ( because it is a non-cash expense ) and non-recurring items as explained below . the following reconciliation of net loss to adjusted ebitda for the years presented : 105 venus concept inc. reconciliation of net loss to non-gaap adjusted ebitda replace_table_token_1_th ( 1 ) for the year ended december 31 , 2019 , the other adjustments are mainly represented by professional fees related to the merger and a patent infringement case . for the year ended december 31 , 2018 , the other adjustments are mainly represented by professional fees incurred in 2018 related to a transaction that was not completed . key factors impacting our results of operations our results of operations are impacted by several factors , but we consider the following to be particularly significant to our business : number of systems delivered . the majority of our revenue is generated from the delivery of systems , both under traditional sale contract and under subscription agreements .
| results of operations the following tables set forth our consolidated results of operations in u.s. dollars and as a percentage of revenues for the years indicated : replace_table_token_3_th the following tables set forth our revenue by region and by product type for the years indicated : replace_table_token_4_th 111 replace_table_token_5_th ( 1 ) products other include artas procedure kits , venus concept 's venus skin and hair products , and other consumables . ( 2 ) services include verografters technician services , 2two5 ad agency services and extended warranty sales . comparison of the years ended december 31 , 2019 and 2018 revenues replace_table_token_6_th total revenue increased by $ 7.8 million , or 7.6 % , to $ 110.4 million for the year ended december 31 , 2019 from $ 102.6 million for the year ended december 31 , 2018. the increase in revenue was a result of increased revenue in the united states of $ 1.4 million and increased revenue in international markets of $ 6.4 million . the increase in revenue in the united states was driven by artas® ix revenue post-merger . the increase in revenue in international markets is largely due to our expanded direct sales presence in latin america and asia . we sold an aggregate of 2,464 systems in the year ended december 31 , 2019 compared to 2,080 in the year ended december 31 , 2018. the percentage of systems revenue derived from our subscription model was approximately 67 % in the year ended december 31 , 2019 compared to 75 % in the year ended december 31 , 2018. other product revenue increased by $ 1.6 million , or 36.7 % , to $ 6.0 million in the year ended december 31 , 2019 from $ 4.4 million in the year ended december 31 , 2018.the increase was driven by sales of artas procedure kits , our expanded direct sales presence in latin america and asia and additional consumables sales related to increased systems sales .
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this section of this annual report generally discusses key operating and financial data as of and for the years ended 2019 and 2018 and provides year-over-year comparisons for such periods . for a similar discussion and year-over-year comparisons to our 2017 results , please refer to `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 27 , 2019. description of the business we are a hospitality company servicing the natural resources industry in canada , australia and the u.s. we provide a full suite of hospitality services for our guests , including lodging , food service , housekeeping and maintenance at accommodation facilities that we or our customers own . in many cases , we provide services that support the day-to-day operations of accommodation facilities , such as laundry , facility management and maintenance , water and wastewater treatment , power generation , communication systems , security and logistics . we also offer development activities for workforce accommodation facilities , including site selection , permitting , engineering and design , manufacturing management and site construction , along with providing hospitality services once the facility is constructed . we primarily operate in some of the world 's most active oil , metallurgical ( met ) coal and iron ore producing regions , and our customers include major and independent oil companies , mining companies , engineering companies and oilfield and mining service companies . we operate in three principal reporting business segments – canada , australia and u.s. action acquisition on july 1 , 2019 , we acquired action industrial catering ( action ) , a provider of catering and managed services to the mining industry in western australia . we funded the purchase price of $ 16.9 million in cash through a combination of cash on hand and borrowings under our revolving credit facility . the acquisition expands our business by providing an entry point into the growing integrated services opportunities in the western australian mining market . action 's operations are reported as part of our australia reporting business segment beginning on july 1 , 2019 , the date of acquisition . action revenue and cost of sales and services are included in food service and other services revenues and food service and other services cost , respectively , in the segment results of operations - australia segment table in results of operations . please see note 7 – acquisitions to the notes to the consolidated financial statements included in item 8 of this annual report for further information . basis of presentation unless otherwise stated or the context otherwise indicates : ( i ) all references in these consolidated financial statements to “ civeo , ” “ us , ” “ our ” or “ we ” refer to civeo corporation and its consolidated subsidiaries ; and ( ii ) all references in this annual report to “ dollars ” or “ $ ” are to u.s. dollars . macroeconomic environment we provide hospitality services to the natural resources industry in canada , australia and the u.s. demand for our services can be attributed to two phases of our customers ' projects : ( 1 ) the development or construction phase ; and ( 2 ) the operations or production phase . historically , initial demand for our hospitality services has been driven by our customers ' capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure , as well as the exploration for oil and natural gas . long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities . in general , industry capital spending programs are based on the outlook for commodity prices , economic growth , global commodity supply/demand dynamics and estimates of resource production . as a result , demand for our hospitality services is largely sensitive to expected commodity prices , principally related to oil , met coal and iron ore. 47 in canada , wcs crude is the benchmark price for our oil sands customers . pricing for wcs is driven by several factors , including the underlying price for wti crude , the availability of transportation infrastructure ( consisting of pipelines and crude by railcar ) and recent actions by the alberta provincial government to limit oil production from the province . historically , wcs has traded at a discount to wti , creating a “ wcs differential , ” due to transportation costs and limited capacity to move canadian heavy oil production to refineries , primarily along the u.s. gulf coast . the wcs differential has varied depending on the extent of transportation capacity availability . during the first quarter of 2016 , global oil prices dropped to their lowest levels in over ten years due to concerns over global oil demand , global crude inventory levels , worldwide economic growth and price cutting by major oil producing countries , such as saudi arabia . increasing global supply , including increased u.s. shale oil production , also negatively impacted pricing . although prices began to increase in 2016 and continued to increase through the third quarter of 2018 due to global oil production cuts rebalancing supply/demand dynamics , oil prices decreased again during the fourth quarter of 2018 as opec oil production ramped up once again despite more concerns of decreasing global oil demand . in the first half of 2019 , positive oil price trends are primarily related to opec oil production falling faster than the markets expected , leading to a more positive oil environment throughout the first half of the year . oil prices have fallen since early summer due to continued demand growth volatility and fear of a global economic slowdown . story_separator_special_tag the permian basin remains the most active u.s. unconventional play , representing 60 % of the rigs in the u.s. market at the end of 2019. despite the lower rig count and decline in oil prices , improvements in rig efficiency coupled with production lagging oil price movement resulted in increased u.s. oil production from an average of 11.0 million barrels per day in 2018 to an average of 12.2 million barrels per day in 2019. as of february 21 , 2020 , there were 679 active oil rigs in the u.s. ( as measured by bakerhughes.com ) . u.s. oil shale drilling and completion activity will continue to be dependent on sustained higher wti oil prices , pipeline capacity and sufficient capital to support e & p drilling and completion plans . recent wti crude , wcs crude and met coal pricing trends are as follows : replace_table_token_8_th _ ( 1 ) source : wti crude prices are from u.s. energy information administration ( eia ) , and wcs crude prices and seaborne hard coking coal contract prices are from bloomberg . overview as noted above , demand for our hospitality services is primarily tied to the outlook for crude oil and met coal prices . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in canada , australia , the u.s. and other markets . our business is predominantly located in northern alberta , canada and queensland , australia , and we derive most of our business from natural resource companies who are developing and producing oil sands and met coal resources and , to a lesser extent , other hydrocarbon and mineral resources . approximately 80 % of our revenue is generated by our lodges and villages . where traditional accommodations and infrastructure are insufficient , inaccessible or cost ineffective , our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel . we typically contract our facilities to our customers on a fee-per-day basis that covers lodging and meals and is based on the duration of customer needs , which can range from several weeks to several years . 49 generally , our customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives ranging from ten years to in excess of 30 years . consequently , these investments are dependent on those customers ' long-term views of commodity demand and prices . during the period of low crude oil prices that extended through the first quarter of 2016 , many of our customers in canada curtailed their operations and spending , and most major oil sands mining operators began reducing their costs and limiting capital spending , thereby limiting the demand for hospitality services of the kind we provide . in the last several years , however , several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets . since the announcement by opec in late november 2016 to cut production quotas and the subsequent rise in spot oil prices and future oil price expectations , certain operators with steam-assisted gravity drainage operations in the canadian oil sands increased capital spending in 2017. despite construction at the fort hill energy lp project ending in early 2018 , canadian oil sands capital spending in 2018 has been relatively flat , in the aggregate . opec announced additional production cuts in late 2018 in an effort to further support global oil prices . also , on december 2 , 2018 , the government of alberta announced it would mandate temporary curtailments of the province 's oil production , which has helped increase wcs prices . recent regulatory approvals of several major pipeline projects have the potential to both drive incremental demand for mobile accommodations assets and to improve take-away capacity for canadian oil sands producers over the longer term . however , these projects have been delayed due to the lack of agreement between the canadian federal government , which supports the pipeline projects , and the british columbia provincial government . the canadian federal government acquired kinder morgan 's trans mountain pipeline , emphasizing their support for this particular project . despite some resistance , the federal government approved the expansion of the trans mountain pipeline project on june 18 , 2019 and is currently working through the construction timeline . additionally , we believe that the keystone xl pipeline in the u.s. , if constructed , would be a positive catalyst for canadian oil sands producers , as it would bolster confidence in future take-away capacity from the region to u.s. gulf coast refineries . in australia , approximately 80 % of our owned rooms are located in the bowen basin and primarily serve met coal mines in that region , where our customers continue to implement operational efficiency measures , in order to drive down their cost base . on july 1 , 2019 , we acquired action , a provider of catering and managed services to the mining industry in western australia . accordingly , we also have contracts in place for customer-owned villages in western australia which service iron ore , gold , lithium and nickel mines . we believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable . while we believe that these macroeconomic developments are positive for our customers and for the underlying demand for our hospitality services , we do not expect an immediate improvement in our business . accordingly , we plan to continue focusing on enhancing the quality of our operations , maintaining financial discipline , proactively managing our business as market conditions continue to evolve and integrating noralta and action into our business . we began the expansion of our room count in kitimat , british columbia during the second half of 2015 to support lng projects on the west coast of british columbia .
| results of operations unless otherwise indicated , discussion of results for the year ended december 31 , 2019 is based on a comparison with the corresponding period of 2018 . results of operations – year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_11_th we reported net loss attributable to civeo for 2019 of $ 60.3 million , or $ 0.36 per diluted share . as further discussed below , net loss included ( i ) a $ 19.9 million pre-tax loss ( $ 19.9 million after-tax , or $ 0.12 per diluted share ) resulting from the impairment of goodwill in our canadian reporting unit included in impairment expense , ( ii ) a $ 6.2 million pre-tax loss ( $ 6.1 million after-tax , or $ 0.04 per diluted share ) resulting from the impairment of fixed assets included in impairment expense , and ( iii ) a $ 0.2 million ( after tax , or $ 0.0 per diluted share ) gain on sale of assets related to the sale of a village in australia and related $ 2.2 million release of an asset retirement obligation ( aro ) liability assumed by the buyer . we reported net loss attributable to civeo for 2018 of $ 131.8 million , or $ 0.84 per diluted share .
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business overview newell brands is a leading global consumer goods company with a strong portfolio of well-known brands , including paper mate ® , sharpie ® , dymo ® , expo ® , parker ® , elmer 's ® , coleman ® , jostens ® , marmot ® , rawlings ® , oster ® , sunbeam ® , foodsaver ® , mr. coffee ® , rubbermaid commercial products ® , graco ® , baby jogger ® , nuk ® , calphalon ® , rubbermaid ® , contigo ® , first alert ® , waddington and yankee candle ® . for hundreds of millions of consumers , newell brands makes life better every day , where they live , learn , work and play business strategy during 2017 , the company continued to execute the growth game plan , the multi-year strategy that was updated in late 2016 for the new broader portfolio . the growth game plan enables the simplification of the organization and frees up resources to invest in growth initiatives and strengthened capabilities in support of the company 's brands . the changes being implemented in the execution of the growth game plan are considered key enablers to building a more profitable and cash flow generative company , with global reach . as part of the growth game plan , the company has transformed from a holding company to an operating company , consolidating its 32 business units into 16 global divisions while investing to extend its design , innovation , brand development and e-commerce capabilities across a broader set of categories . the new global divisions are the key commercial nodes in the company , including a global e-commerce division with responsibility for all e-commerce activity across the enterprise . the divisions generally align to the four areas of strategic focus for the company of live , learn , work , and play . the new structure became effective january 1 , 2017. in 2017 , the company focused and strengthened its portfolio by completing seven divestitures and three bolt-on acquisitions in the food storage and home fragrance categories . in the second half of 2017 and throughout 2018 , the company has focused and will focus on strengthening the organization , cash generation and delivering on the cost saving agenda . in january 2018 , newell brands announced that it will explore a series of strategic initiatives to accelerate its transformation plan , improve operational performance and enhance shareholder value . the company is exploring strategic options for industrial and commercial product assets , including waddington , process solutions , rubbermaid commercial products and mapa , as well as the smaller consumer businesses , including rawlings , goody , rubbermaid outdoor , closet , refuse and garage , and u.s. playing cards . execution of these strategic options would significantly reduce operational complexity and focus the company 's remaining portfolio on leading brands in global consumer-facing categories that can leverage newell brands ' advantaged capabilities in brands , innovation , design and e-commerce . organizational structure newell brands makes life better for hundreds of millions of consumers every day , where they live , learn , work , and play . the company achieves this impact through its leading portfolio of brands , its commitment to further strengthen those brands , and by deploying these to new markets around the world . in order to align reporting with the company 's growth game plan strategy and organization structure , effective january 1 , 2017 , newell brands is reporting its financial results in five segments as live , learn , work , play and other . all prior periods have been reclassified to conform to the current reporting structure . 25 the company 's reportable segments are as follows : segment key brands description of primary products live aprica ® , baby jogger ® , ball ® , calphalon ® , chesapeake bay candle ® , crock-pot ® , foodsaver ® , graco ® , mr. coffee ® , nuk ® , oster ® , rubbermaid ® , sunbeam ® , sistema ® , tigex ® , woodwick ® , yankee candle ® household products , including kitchen appliances , gourmet cookware , bakeware and cutlery , food storage and home storage products , fresh preserving products , home fragrance products ; baby gear , infant care and health products learn dymo ® , elmer 's ® , expo ® , jostens ® , mr. sketch ® , paper mate ® , parker ® , prismacolor ® , sharpie ® , waterman ® , x-acto ® writing instruments , including markers and highlighters , pens and pencils ; art products ; activity-based adhesive and cutting products ; fine writing instruments , labeling solutions and custom commemorative jewelry and academic regalia work mapa ® , quickie ® , rubbermaid ® , rubbermaid commercial products ® , spontex ® , waddington cleaning and refuse products ; hygiene systems ; material handling solutions , consumer and commercial totes and commercial food service and premium tableware products play berkley ® , coleman ® , contigo ® , ex officio ® , marmot ® , rawlings ® , shakespeare ® products for outdoor and outdoor-related activities other jarden plastic solutions , jarden applied materials , jarden zinc products , goody ® , bicycle ® , rainbow ® plastic products including closures , contact lens packaging , medical disposables , plastic cutlery and rigid packaging , beauty products , vacuum cleaning systems and gaming products summary of significant 2017 activities in january 2017 , the company acquired smith mountain , a leading provider of premium home fragrance products , sold primarily under the woodwick ® candle brand . during 2017 , the company completed the sale of its tools business , including the irwin ® , lenox ® and hilmor ® brands , its rubbermaid ® consumer storage totes business , its stroller business under the teutonia ® brand , its lehigh business , its firebuilding business , its triathlon apparel business under the zoot ® and squadra ® brands and its winter sports business . story_separator_special_tag during the nine months ended september 30 , 2017 , the company recorded an impairment charge of $ 59.1 million related to the writedown of the carrying value of the net assets of the winter sports business based on the expected proceeds to be received . the impairment charge is comprised of a $ 12.6 million charge related to the impairment of goodwill and a $ 46.5 million charge related to the impairment of other intangible assets . the company recorded a pre-tax loss on sale of $ 47.6 million driven by funding the business ' working capital needs and withholding taxes between june 30 , 2017 and july 14 , 2017 , which is included in other expense ( income ) , net in consolidated statement of operations for 2017. during 2017 , the company sold its rubbermaid ® consumer storage totes business , its stroller business under the teutonia ® brand , its lehigh business , its firebuilding business and its triathlon apparel business under the zoot ® and squadra ® brands . the selling prices for these businesses were not material . based on the consideration received , the company recorded impairment charges of $ 15.3 million related to the write down of the carrying value of the net assets of the firebuilding and teutonia ® stroller businesses to their estimated fair market value . the company sold the firebuilding business to royal oak enterprises , llc ( royal oak ) . martin e. franklin and ian g.h . ashken are affiliates of royal oak and were company directors during 2017. in march 2017 , the company completed the sale of its tools business , including the irwin ® , lenox ® and hilmor ® brands . the selling price was $ 1.95 billion , subject to customary working capital adjustments . the net assets of the tools business were approximately $ 1.1 billion , including approximately $ 711 million of goodwill , resulting in a pretax gain of $ 768 million , which is included in other ( income ) expense , net for 2017 . 27 in june 2016 , the company sold its décor business , including levolor ® and kirsch ® window coverings and drapery hardware , for consideration , net of fees , of approximately $ 224 million , resulting in a pretax gain of $ 160 million , which is included in other ( income ) expense , net for 2016. during 2015 , the company sold endicia for net proceeds of $ 209 million resulting in a pretax gain of $ 154 million which is included in income from discontinued operations , net of tax for 2015. during 2015 , the company ceased operations in its culinary electrics and retail businesses . ongoing restructuring initiatives after the completion of the jarden acquisition , the company initiated a comprehensive strategic assessment of the business and launched a new corporate strategy that focuses the portfolio , prioritizes investment in the categories with the greatest potential for growth , and extends the company 's advantaged capabilities in insights , product design , innovation , and e-commerce to the broadened portfolio . the investments in new capabilities are designed to unlock the growth potential of the portfolio and will be funded by a commitment to release cost savings from 2016 to 2021 of approximately $ 1.3 billion through the combination of the completion of project renewal ( approximately $ 300 million ) and delivery of cost synergies associated with the jarden integration ( approximately $ 1 billion ) . this new corporate strategy is called the growth game plan and builds on the successful track record of growth acceleration , margin development , and value creation associated with the transformation of newell rubbermaid inc. from 2011 through 2016. project renewal in april 2015 , the company committed to a further expansion of project renewal ( the april 2015 expansion ) . project renewal was initially launched in october 2011 to reduce the complexity of the organization and increase investment in growth platforms within the business . under project renewal , the company has simplified and aligned its businesses around two key activities brand & category development and market execution & delivery . pursuant to an expansion of project renewal in october 2014 , the company has : ( i ) further streamlined its supply chain function , including reducing overhead and realigning the supply chain management structure ; ( ii ) invested in value analysis and value engineering efforts to reduce product and packaging costs ; ( iii ) reduced operational and manufacturing complexity in its learn segment ; and ( iv ) further streamlined its distribution and transportation functions . under the april 2015 expansion , the company has further implemented additional activities designed to further streamline business partnering functions ( e.g. , finance/it , legal and human resources ) , optimize global selling and trade marketing functions and rationalize the company 's real estate portfolio . project renewal was completed by the end of 2017 , and as a result , additional cash payments and savings will be realized thereafter . see footnote 5 of the notes to consolidated financial statements for further information . jarden integration the company currently expects to incur up to $ 1.0 billion of restructuring and other costs through 2021 to integrate the legacy newell rubbermaid and jarden businesses ( the jarden integration ) . initially , integration projects will primarily be focused on driving cost synergies in procurement , overhead functions and organizational changes designed to redefine the operating model of the company from a holding company to an operating company . restructuring costs associated with integration projects are expected to include employee-related cash costs , including severance , retirement and other termination benefits , and contract termination and other costs . in addition , other costs associated with the jarden integration include advisory and personnel costs for managing and implementing integration projects .
| results of operations consolidated operating results 2017 vs. 2016 replace_table_token_5_th nmf not meaningful the increase in net sales for 2017 was primarily due to the jarden acquisition , as well as other acquisitions ( approximately 20 % ) , partially offset by divestitures ( approximately 8 % ) . foreign currency impacts on a period-over-period basis were not material . the change in cost of products sold for 2017 was primarily due to the jarden acquisition , as well as other acquisitions ( approximately $ 1.8 billion ) , partially offset by inventory step-up charges primarily related to the jarden acquisition recorded in 2016 ( approximately $ 480 million ) and the impact of divestitures ( approximately $ 650 million ) . gross margin was 34.5 % versus 33.2 % percent in 2016. the change was primarily due to the impact of the inventory step-up charge recorded in 2016 and the benefits of synergies and productivity , partially offset by the negative mix effects partially related to the jarden acquisition . the change in sg & a for 2017 was primarily due to the jarden acquisition , as well as other acquisitions ( approximately $ 720 million ) and increased investment related to brand development , e-commerce and insights , partially offset by the impact of divestitures ( approximately $ 200 million ) and benefits of synergies and productivity . additionally , the decrease in certain labor-related costs was mostly offset by an increase in integration costs . the restructuring costs for 2017 were mostly comprised of costs related to the jarden integration and other restructuring activities , which primarily relate to the jarden acquisition . the restructuring costs for 2016 related to the jarden integration and project renewal . see footnote 5 of the notes to the consolidated financial statements for further information .
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we serve a broad range of end consumers , including outdoor enthusiasts , hunters and recreational shooters , athletes , as well as law enforcement and military professionals . our products are sold through a wide variety of mass , specialty and independent retailers and distributors , such as academy , amazon , bass pro shops/cabela 's , big rock sports , dick 's sporting goods , sports south , sportsman 's warehouse , target , united sporting companies , and walmart . we also sell certain of our products directly to consumers through the relevant brand 's website . we have a scalable , integrated portfolio of brands that allows us to leverage our deep customer knowledge , product development and innovation , supply chain and distribution , and sales and marketing functions across product categories to better serve our retail partners and end users . as of march 31 , 2018 , we operated in two business segments . these operating segments are defined based on the reporting and review process used by the chief operating decision maker , our chief executive officer . as of march 31 , 2018 , vista outdoor 's two operating segments were : outdoor products , which generated approximately 50 % of our sales in fiscal 2018 . the outdoor products product lines are action sports , archery/hunting accessories , camping , eyewear and sport protection products , golf , hydration products , optics , shooting accessories , tactical products and water sports . action sports includes helmets , goggles , and accessories for cycling , snow sports , action sports and powersports . archery/hunting accessories include high-performance hunting arrows , game calls , hunting blinds , game cameras and waterfowl decoys . camping products include our outdoor cooking solutions . eyewear and sport protection products include safety and protective eyewear , as well as fashion and sports eyewear . golf products include laser rangefinders . hydration products include hydration packs and water bottles . optics products include binoculars , riflescopes and telescopes . shooting accessories products include reloading equipment , clay targets , and premium gun care products . tactical products include holsters , duty gear , bags and packs . water sports products include stand up paddle boards . shooting sports , which generated approximately 50 % of our sales in fiscal 2018 . shooting sports product lines include centerfire ammunition , rimfire ammunition , shotshell ammunition , reloading components , and firearms . on may 1 , 2018 , vista outdoor announced its strategic business transformation plan , designed to allow the company to focus resources on pursuing growth in its core product categories . the plan is a result of a comprehensive evaluation of the brands within our current portfolio based on their ability to serve the company 's target consumer ; create cross-selling and other similar synergy opportunities ; achieve market leading positions and leadership economics ; and demonstrate omni-channel distribution capabilities . as a result of this evaluation , vista outdoor will focus on achieving growth through its market-leading brands in ammunition , hunting and shooting accessories , hydration bottles and packs , and outdoor cooking products . the company plans to explore strategic options for assets that fall outside of these core product categories , including its remaining sports protection brands ( e.g . bell , giro , and blackburn ) , jimmy styks paddle boards , and savage and stevens firearms . vista outdoor expects that the execution of this process will significantly reduce the company 's leverage , improve financial flexibility and the efficiency of its capital structure , and provide additional resources to reinvest in core product categories , both organically and through acquisition . we intend to begin the portfolio reshaping immediately , and anticipate executing any strategic alternatives by the end of fiscal year 2020. financial highlights and notable events certain notable events or activities affecting our fiscal 2018 financial results and subsequent results include the following : 31 financial highlights for fiscal 2018 annual sales of $ 2,308,463 and $ 2,546,892 for the fiscal years ended march 31 , 2018 and 2017 , respectively . the decrease was caused primarily by market conditions and decreased customer demand in the shooting sports segment , partially offset by additional sales of $ 32,752 from the camp chef acquisition for the period in which they were not a part of vista outdoor in the prior year . gross profit was $ 520,962 and $ 669,186 for the fiscal years ended march 31 , 2018 and 2017 , respectively . the decrease in gross profit was caused by unfavorable pricing , lower sales volume , and unfavorable product mix in the shooting sports segment and lower sales volumes in the outdoor products segment , partially offset by additional sales from the camp chef acquisition for the period in which they were not a part of vista outdoor in the prior year period . the increase in the current year tax rate to 55.0 % from ( 9.5 ) % in the prior year ended march 31 , 2017 is primarily caused by the income tax effects of the tax legislation that was enacted in the united states on december 22 , 2017 ( tax legislation ) and the lower nondeductible goodwill impairment in the current year . the tax legislation significantly revises the corporate income tax by , among other things , lowering corporate income tax rates , limiting various deductions , repealing the domestic manufacturing deduction , implementing a territorial tax system , and imposing a repatriation tax on earnings of foreign subsidiaries . during the fiscal year ended march 31 , 2018 , our cash provided by operating activities was $ 252,355 driven primarily by improved working capital management and a reduction in net inventories . in june 2017 , we announced changes to our qualified and non-qualified defined benefit pension plans . story_separator_special_tag this methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold . the projected market value can decrease due to consumer preferences , legislation , or loss of key contracts among other events . income taxes provisions for federal , state and foreign income taxes are calculated based on reported pre-tax earnings and current tax law . such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes . significant judgment is required in determining income tax provisions and evaluating tax positions . we periodically assess our liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information . where it is not more likely than not that our tax position will be sustained , we record the entire resulting tax liability and when it is more likely than not of being sustained , we record our best estimate of the resulting tax liability . as per our policy , any applicable interest and penalties related to these positions are also recorded in the consolidated financial statements . to the extent our assessment of the tax outcome of these matters changes , such change in estimate will impact the income tax provision in the period of the change . deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period . as part of this analysis , we take into account the amount and character to determine if the carryforwards will be realized . significant estimates are required for this analysis . changes in the amounts of valuation allowance are recorded in the tax provision in the period when the change occurs . acquisitions the results of acquired businesses are included in our consolidated financial statements from the date of acquisition . we allocate the purchase price of an acquired business to the underlying tangible and intangible acquired assets and liabilities assumed based on their fair value . estimates are used in determining the fair value and estimated remaining lives of intangible assets until the final purchase price allocation is completed . actual fair values and remaining lives of intangible assets may vary from those estimates . the excess purchase price over the estimated fair value of the net assets acquired is recorded as goodwill . 34 acquisition of jimmy styks —on july 20 , 2015 , we completed the acquisition of jimmy styks , llc ( `` jimmy styks '' ) , using $ 40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the three years from acquisition . we determined a value of the future contingent consideration as of the acquisition date of $ 4,471 utilizing a risk-neutral monte carlo simulation in an option pricing framework ; the total amount paid may differ from this value . the option pricing model requires us to make assumptions including the risk-free rate , expected volatility , profitability growth , and expected life . the risk-free rate is based on u.s. treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant . the expected option life is based on the contractual term of the agreement . expected volatility is based on the average volatility of similar public companies ' stock over the past two years . the profitability growth is based on simulated estimates of future performance of the business using a geometric brownian risk-neutral framework . as of march 31 , 2018 , there was no value for the future contingent consideration . the reduction from the original estimate was primarily a result of not achieving the first growth milestone and the likelihood of not meeting any future growth milestones , which were predicated on meeting the first growth milestone . the purchase price allocation was completed during the quarter ended october 2 , 2016. the majority of the goodwill generated in this acquisition is deductible for tax purposes . jimmy styks is an immaterial acquisition to our company . acquisition of camelbak —on august 3 , 2015 , we completed the acquisition of camelbak products , llc ( `` camelbak '' ) for total consideration of $ 412,500 , subject to a customary working capital adjustment , utilizing cash on hand and borrowings under our existing credit facilities . camelbak is the leading provider of personal hydration solutions for outdoor , recreation and military use . camelbak 's products include hydration packs , reusable bottles and individual purification and filtration systems . the purchase price allocation was completed during the quarter ended october 2 , 2016. a portion of the goodwill generated in this acquisition is deductible for tax purposes . acquisition of action sports —on april 1 , 2016 , we completed the acquisition of brg sports inc. 's action sports division , operated by bell sports corp. ( `` action sports '' ) . the acquisition includes brands bell , giro , blackburn , copilot , krash , and raskullz . under the terms of the transaction , we paid $ 400,000 , subject to customary working capital adjustments , utilizing cash on hand and borrowings under our existing credit facilities , and additional contingent consideration is payable if certain incremental profitability growth milestones within the bell powersports product line are achieved . we determined a value of the future contingent consideration as of the acquisition date of $ 4,272 using a risk-neutral monte carlo simulation in an option pricing framework ; the total amount actually paid may differ from this value . the option pricing model requires us to make assumptions including the risk-free rate , expected volatility , profitability growth , and expected life .
| cash flow summary our cash flows from operating , investing and financing activities , as reflected in the consolidated statement of cash flows for the years ended march 31 , 2018 , 2017 , and 2016 are summarized as follows : replace_table_token_13_th operating activities net cash provided by operating activities was $ 252,355 in fiscal 2018 compared to $ 158,401 in fiscal 2017 . this increase of $ 93,954 was driven by favorable changes in working capital balances primarily as a result of reductions in inventories and the timing of supplier payments . net cash provided by operating activities was $ 158,401 in fiscal 2017 compared to $ 199,031 in fiscal 2016 . this decrease of $ 40,630 was caused by a decrease in net income and increased inventory levels as a result of the change in market conditions . investing activities net cash used for investing activities was $ 66,499 in fiscal 2018 compared to $ 548,679 in fiscal 2017 . this decrease of $ 482,180 was primarily due to the purchase price of acquisitions in the prior year . net cash used for investing activities was $ 548,679 in fiscal 2017 compared to $ 503,204 in fiscal 2016 . the primary driver of the activity in both fiscal years is the purchase price of acquisitions . the increase of $ 45,475 was primarily caused by increased capital expenditures in fiscal 2016 due to our ammunition capacity expansion project . financing activities net cash used for financing activities was $ 208,550 in the current year , compared to cash provided by financing activities of $ 284,216 in the prior year , a change of $ 492,766 .
| 3,795 |
future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character ( for example , ordinary income or capital gain ) within the carryback or carryforward periods available under the tax law . based on historical and future expected taxable earnings and available strategies , the company considers the future realization of these deferred tax assets more likely than not . the tax effects from an uncertain tax position are recognized in the financial statements only if , based on its merits , the position is more likely than not to be sustained on audit by the taxing authorities . interest and penalties related to uncertain tax positions are recorded as part of other operating expense . earnings per common share — the company calculates earnings per common share ( “ eps ” ) using the story_separator_special_tag contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology . no assurance can be given that economic conditions which adversely affect the company 's service areas or other circumstances will not be reflected in increased provisions for loan losses in the future , as the nature of this process requires considerable judgment . see “ allowance for loan losses ” under analysis of financial condition herein . 51 noninterest income noninterest income includes income derived from financial services offered , such as citizenstrust , bankcard services , international banking , and other business services . also included in noninterest income are service charges and fees , primarily from deposit accounts , gains ( net of losses ) from the disposition of investment securities , loans , other real estate owned , and fixed assets , and other revenues not included as interest on earning assets . the following table sets forth the various components of noninterest income for the periods presented . replace_table_token_12_th 2019 compared to 2018 the $ 15.6 million growth in noninterest income was primarily due to a $ 5.7 million net gain from the legal settlement of an eminent domain condemnation of one of our business financial center buildings in bakersfield and a $ 4.8 million net gain on the sale of our bank owned buildings , compared with a $ 3.5 million net gain on the sale of one oreo in 2018. service charges on deposit accounts increased by $ 2.9 million from 2018 , primarily due to growth in service charges on deposits assumed in the acquisition of cb . the $ 3.4 million increase in other income included increases of $ 1.5 million in swap fee income , $ 1.0 million increase in international banking fee income , and $ 1.1 million in sba servicing income and dividend income from various equity investments . for 2019 , the durbin amendment 's cap on interchange fees became effective for the company , which reduced our debit card interchange fee income for bankcard services by approximately $ 600,000 when compared to 2018. citizenstrust consists of wealth management and investment services income . the wealth management group provides a variety of services , which include asset management , financial planning , estate planning , retirement planning , private , and corporate trustee services , and probate services . investment services provides self-directed brokerage , 401 ( k ) plans , mutual funds , insurance and other non-insured investment products . at december 31 , 2019 , citizenstrust had approximately $ 2.86 billion in assets under management and administration , including $ 2.01 billion in assets under management . citizenstrust generated fees of $ 9.5 million for 2019 , an increase of $ 751,000 compared to $ 8.8 million for 2018 , due to the growth in assets under management . the bank 's investment in boli includes life insurance policies acquired through acquisitions and the purchase of life insurance by the bank on a selected group of employees . the bank is the owner and beneficiary of these policies . boli is recorded as an asset at its cash surrender value . increases in the cash value of these policies , as well as insurance proceeds received , are recorded in noninterest income and are not subject to income tax , as long as they are held for the life of the covered parties . death benefits of $ 502,000 were included in our boli policies for 2019 . 52 2018 compared to 2017 the $ 43.5 million in noninterest income included $ 3.5 million of net gain on the sale of one oreo . 2017 included $ 2.9 million in one-time gains related to an eminent domain condemnation of one of our banking center buildings , a $ 906,000 net gain on the sale of a branch acquired from vbb , a $ 542,000 net gain on the sale of our former operations and technology center , and a $ 402,000 gain on sale of an investment security . excluding the net gains realized in 2018 and 2017 , noninterest income increased by $ 2.5 million over 2017. service charges on deposit accounts increased by $ 1.3 million over 2017 , primarily due to the acquisition of cb . at december 31 , 2018 , citizenstrust had approximately $ 2.54 billion in assets under management and administration , including $ 1.80 billion in assets under management . citizenstrust generated fees of $ 8.8 million for 2018 , a decrease of $ 1.1 million compared to $ 9.8 million for 2017. the $ 598,000 increase in boli income included $ 706,000 in boli income from $ 70.9 million of boli policies acquired from cb in the third quarter of 2018 , which partially offset the $ 775,000 in income recorded in 2017 on the death benefit of a former director . noninterest expense the following table summarizes the various components of noninterest expense for the periods presented . replace_table_token_13_th ( 1 ) noninterest expense divided by net interest income before provision for loan losses plus noninterest income . story_separator_special_tag this represented a decrease of $ 63.8 million , or 2.57 % , from total investment securities of $ 2.48 billion at december 31 , 2018. at december 31 , 2019 , investment securities htm totaled $ 674.5 million . at december 31 , 2019 , our investment securities afs totaled $ 1.74 billion , inclusive of a pre-tax unrealized gain of $ 21.9 million . the after-tax unrealized gain reported in aoci on investment securities afs was $ 15.4 million . as of december 31 , 2019 , the company had a pre-tax net unrealized holding gain on afs investment securities of $ 21.9 million , compared to a pre-tax net unrealized holding loss of $ 23.6 million at december 31 , 2018. the changes in the net unrealized holding gain resulted primarily from fluctuations in market interest rates . for 2019 , total repayments/maturities of investment securities totaled $ 485.8 million , compared to $ 489.6 million for 2018. the company purchased additional investment securities totaling $ 540.6 million and $ 98.7 million for 2019 and 2018 , respectively . during 2019 , we sold 14 investment securities at book value of approximately $ 152.6 million . at the close of the merger in the third quarter of 2018 , we liquidated the entire investment security portfolio of $ 717.0 million acquired from cb . no other investment securities were sold in 2018. the tables below summarize the fair value of afs and htm investment securities as of the dates presented . replace_table_token_14_th 55 replace_table_token_15_th the maturity distribution of the afs and htm portfolios consist of the following as of the date presented . replace_table_token_16_th ( 1 ) the weighted average yield for the portfolio is based on projected duration and is not tax-equivalent . the tax-equivalent yield at december 31 , 2019 was 3.05 % . 56 replace_table_token_17_th ( 1 ) the weighted average yield for the portfolio is based on projected duration and is not tax-equivalent . the tax equivalent yield at december 31 , 2019 was 3.49 % . the maturity of each security category is defined as the contractual maturity except for the categories of mortgage-backed securities and cmo/remic whose maturities are defined as the estimated average life . the final maturity of mortgage-backed securities and cmo/remic will differ from their contractual maturities because the underlying mortgages have the right to repay such obligations without penalty . the speed at which the underlying mortgages repay is influenced by many factors , one of which is interest rates . mortgages tend to repay faster as interest rates fall and slower as interest rate rise . this will either shorten or extend the estimated average life . also , the yield on mortgage-backed securities and cmo/remic are affected by the speed at which the underlying mortgages repay . this is caused by the change in the amount of amortization of premiums or accretion of discounts of each security as repayments increase or decrease . the company obtains the estimated average life of each security from independent third parties . the weighted-average yield on the total investment portfolio at december 31 , 2019 was 2.54 % with a weighted-average life of 3.6 years . this compares to a weighted-average yield of 2.55 % at december 31 , 2018 with a weighted-average life of 4.3 years . the weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding . average life is computed as the weighted-average time to the receipt of all future cash flows , using as the weights the dollar amounts of the principal pay-downs . approximately 90 % of the securities in the total investment portfolio , at december 31 , 2019 , are issued by the u.s. government or u.s. government-sponsored agencies and enterprises , which have the implied guarantee of payment of principal and interest . as of december 31 , 2019 , approximately $ 76.0 million in u.s. government agency bonds are callable . the agency cmo/remic are backed by agency-pooled collateral . municipal bonds , which represented approximately 10 % of the total investment portfolio , are predominately aa or higher rated securities . 57 the company held investment securities in excess of 10 % of shareholders ' equity from the following issuers as of the dates presented . replace_table_token_18_th municipal securities held by the company are issued by various states and their various local municipalities . the following tables present municipal securities by the top holdings by state as of the dates presented . replace_table_token_19_th 58 replace_table_token_20_th the tables below show the company 's investment securities ' gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position , at december 31 , 2019 and 2018. the unrealized losses on these securities were primarily attributed to changes in interest rates . the issuers of these securities have not , to our knowledge , evidenced any cause for default on these securities . these securities have fluctuated in value since their purchase dates as market rates have fluctuated . however , we have the ability to hold and do not have the intent to sell these securities until their fair values recover to cost or maturity . as such , management does not deem these securities to be other-than-temporarily- impaired ( “ otti ” ) . a summary of our analysis of these securities and the unrealized losses is described more fully in note 5 — investment securities of the notes to the consolidated financial statements . economic trends may adversely affect the value of the portfolio of investment securities that we hold .
| summary of significant accounting policies of the notes to the consolidated financial statements . at december 31 , 2019 and december 31 , 2018 , the remaining discount associated with pci loans was zero and our total gross pci loan portfolio represented less than 0.2 % of total gross loans and leases at december 31 , 2019 and december 31 , 2018. beginning with june 30 , 2019 , pci loans were accounted for and combined with non-pci loans and were reflected in total loans and lease finance receivables . total loans and leases , net of deferred fees and discounts , of $ 7.56 billion at december 31 , 2019 , decreased by $ 200.0 million , or 2.58 % , from $ 7.76 billion at december 31 , 2018. the decrease in total loans included declines of $ 67.6 million in commercial and industrial loans , $ 46.3 million in sba loans , $ 34.0 million in commercial real estate loans , $ 13.2 million in sfr loans , $ 10.8 million in dairy & livestock and agribusiness loans , $ 11.0 million in municipal lease finance receivables , and $ 12.3 million in consumer and other loans . the decline in these loan categories was generally the result of increased competition for new loan originations and higher levels of loan prepayments , including higher levels of prepayment on loans acquired from cb . total loans , net of deferred loan fees , comprise 75.44 % of our total earning assets as of december 31 , 2019. the following table presents our loan portfolio by type for the periods presented . 60 distribution of loan portfolio by type replace_table_token_23_th ( 1 ) beginning with june 30 , 2019 , pci loans were accounted for and combined with non-pci loans and were reflected in total loans and lease finance receivables .
| 3,796 |
the independent pricing service utilizes market prices of same or similar securities whenever such prices are available . prices involving distressed sellers are not utilized in determining fair value , if identifiable . where necessary , the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses . the assumptions used in these models typically include assumptions for interest rates , credit losses , and prepayments , utilizing observable market data , where available . where the market price of the same or similar securities is not available , the valuation becomes more subjective and involves a high degree of judgment . in addition , we compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management process and analyze significant anomalies in pricing including significant fluctuations , or lack thereof , in relation to other securities . at december 31 , 2015 , and for each quarter end in 2015 , all securities were priced by an independent third-party pricing service , and management made no adjustment to the prices received . determining that a decline in a security 's estimated fair value is other-than-temporary is inherently subjective , and becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the u.s. government , or a u.s. government sponsored enterprise ( e.g. , fannie mae and freddie mac ) . in performing our evaluation of securities in an unrealized loss position , we consider , among other things , the severity and duration of time that the security has been in an unrealized loss position and the credit quality of the issuer . as it relates to private label mortgage-backed securities not guaranteed by the u.s. government , fannie mae , or freddie mac , we perform a review of the key underlying loan collateral risk characteristics including , among other things , origination dates , interest rate levels , composition of variable and fixed rates , reset dates ( including related pricing indices ) , current loan to original collateral values , locations of collateral , delinquency status of loans , and current credit support . in addition , for securities experiencing declines in estimated fair values of over 10 % , as compared to its amortized cost , management also reviews published historical and expected prepayment speeds , underlying loan collateral default rates , and related historical and expected losses on the disposal of the underlying collateral on defaulted loans . this evaluation is subjective as it requires estimates of future events , many of which are difficult to predict . actual results could be significantly different than our estimates and could have a material effect on our financial results . deferred income taxes . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if it is determined that it is more likely than not that the deferred tax assets will not be realized , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates 51 are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . stock based compensation . we recognize the cost of director and employee services received in exchange for awards of equity instruments based on the grant-date fair value . we estimate the per share fair value of options on the date of grant using the black-scholes option pricing model using assumptions for the expected dividend yield , expected stock price volatility , risk-free interest rate and expected option term . these assumptions are based on our judgments regarding future option exercise experience and market conditions . these assumptions are subjective in nature , involve uncertainties , and , therefore , can not be determined with precision . the black-scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets . the per share fair value of options is highly sensitive to changes in assumptions . in general , the per share fair value of options will move in the same direction as changes in the expected stock price volatility , risk-free interest rate and expected option term , and in the opposite direction of changes in the expected dividend yield . the use of different assumptions or different option pricing models could result in materially different per share fair values of options . comparison of financial condition at december 31 , 2015 and 2014 total assets increase d $ 181.7 million , or 6.0 % , to $ 3.20 billion at december 31 , 2015 , from $ 3.02 billion at december 31 , 2014 . the increase was primarily attributable to an increase in loans held-for-investment , net , of $ 430.7 million , partially offset by a decrease in securities available-for-sale of $ 229.6 million and a decrease in cash and cash equivalents of $ 24.9 million . total loans held-for-investment story_separator_special_tag the independent pricing service utilizes market prices of same or similar securities whenever such prices are available . prices involving distressed sellers are not utilized in determining fair value , if identifiable . where necessary , the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses . the assumptions used in these models typically include assumptions for interest rates , credit losses , and prepayments , utilizing observable market data , where available . where the market price of the same or similar securities is not available , the valuation becomes more subjective and involves a high degree of judgment . in addition , we compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management process and analyze significant anomalies in pricing including significant fluctuations , or lack thereof , in relation to other securities . at december 31 , 2015 , and for each quarter end in 2015 , all securities were priced by an independent third-party pricing service , and management made no adjustment to the prices received . determining that a decline in a security 's estimated fair value is other-than-temporary is inherently subjective , and becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the u.s. government , or a u.s. government sponsored enterprise ( e.g. , fannie mae and freddie mac ) . in performing our evaluation of securities in an unrealized loss position , we consider , among other things , the severity and duration of time that the security has been in an unrealized loss position and the credit quality of the issuer . as it relates to private label mortgage-backed securities not guaranteed by the u.s. government , fannie mae , or freddie mac , we perform a review of the key underlying loan collateral risk characteristics including , among other things , origination dates , interest rate levels , composition of variable and fixed rates , reset dates ( including related pricing indices ) , current loan to original collateral values , locations of collateral , delinquency status of loans , and current credit support . in addition , for securities experiencing declines in estimated fair values of over 10 % , as compared to its amortized cost , management also reviews published historical and expected prepayment speeds , underlying loan collateral default rates , and related historical and expected losses on the disposal of the underlying collateral on defaulted loans . this evaluation is subjective as it requires estimates of future events , many of which are difficult to predict . actual results could be significantly different than our estimates and could have a material effect on our financial results . deferred income taxes . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if it is determined that it is more likely than not that the deferred tax assets will not be realized , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates 51 are reviewed quarterly as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline , or if we project lower levels of future taxable income . such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results . stock based compensation . we recognize the cost of director and employee services received in exchange for awards of equity instruments based on the grant-date fair value . we estimate the per share fair value of options on the date of grant using the black-scholes option pricing model using assumptions for the expected dividend yield , expected stock price volatility , risk-free interest rate and expected option term . these assumptions are based on our judgments regarding future option exercise experience and market conditions . these assumptions are subjective in nature , involve uncertainties , and , therefore , can not be determined with precision . the black-scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets . the per share fair value of options is highly sensitive to changes in assumptions . in general , the per share fair value of options will move in the same direction as changes in the expected stock price volatility , risk-free interest rate and expected option term , and in the opposite direction of changes in the expected dividend yield . the use of different assumptions or different option pricing models could result in materially different per share fair values of options . comparison of financial condition at december 31 , 2015 and 2014 total assets increase d $ 181.7 million , or 6.0 % , to $ 3.20 billion at december 31 , 2015 , from $ 3.02 billion at december 31 , 2014 . the increase was primarily attributable to an increase in loans held-for-investment , net , of $ 430.7 million , partially offset by a decrease in securities available-for-sale of $ 229.6 million and a decrease in cash and cash equivalents of $ 24.9 million . total loans held-for-investment
| general . maintaining loan quality historically has been , and will continue to be , a key element of our business strategy . we employ conservative underwriting standards for new loan originations and maintain sound credit administration practices while the loans are outstanding . in addition , substantially all of our loans are secured , predominantly by real estate . at december 31 , 2015 , our non-performing loans totaled $ 8.8 million , or 0.37 % , of total loans held-for-investment . at the same time , net charge-offs have remained low at 0.09 % of average loans outstanding for the year ended december 31 , 2015 , as compared to 0.02 % for the year ended december 31 , 2014 , and 0.17 % for the year ended december 31 , 2013 . net charge-offs in 2013 included $ 856,000 related to the transfer of $ 2.4 million of loans from held-for-investment to held-for-sale and $ 1.3 million related to the transfer of $ 1.6 million of loans held-for-investment to held-for-sale in 2012 . 58 non-performing assets and delinquent loans . the following table details non-performing assets at december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_29_th the following table details non-performing loans by loan type at december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_30_th generally , loans , excluding pci loans , are placed on non-accruing status when they become 90 days or more delinquent , and remain on non-accrual status until they are brought current , have six consecutive months of performance under the loan terms , and factors indicating reasonable doubt about the timely collection of payments no longer exist . therefore , loans may be current in accordance with their loan terms , or may be less than 90 days delinquent and still be on a non-accruing status .
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upon adoption of the lease standard , we expect to adopt the practical expedient , specifically related to payments for expense reimbursements story_separator_special_tag of operations the following discussion and analysis of the results of operations and financial condition should be read in conjunction with the selected financial data and the company 's consolidated financial statements and notes thereto included in this form 10-k. critical accounting policies and estimates : our accounting policies are described in note 2 to the consolidated financial statements included in this form 10-k. we believe our critical accounting policies relate to income tax expense , accounting for acquired real estate facilities , allowance for doubtful accounts , impairment of long-lived assets , and accrual for uncertain and contingent liabilities , each of which are more fully discussed below . income tax expense : we have elected to be treated as a reit , as defined in the code . as a reit , we do not incur federal income tax on our “ reit taxable income ” that is fully distributed each year ( for this purpose , certain distributions paid in a subsequent year may be considered ) , and if we meet certain organizational and operational rules . we believe we have met these reit requirements for all periods presented herein . accordingly , we have recorded no federal income tax expense related to our “ reit taxable income. ” our evaluation that we have met the reit requirements could be incorrect , because compliance with the tax rules requires factual determinations , and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years . for any taxable year that we fail to qualify as a reit and for which applicable statutory relief provisions did not apply , we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years , we could be subject to penalties and interest , and our net income would be materially different from the amounts shown in our consolidated financial statements . accounting for acquired real estate facilities : we estimate the fair values of the land , buildings , intangible assets and intangible liabilities for purposes of allocating purchase price . such estimates are based upon many assumptions and judgments , including ( i ) market rates of return and capitalization rates on real estate and intangible assets , ( ii ) building and material cost levels , ( iii ) comparisons of the acquired underlying land parcels to recent land transactions , ( iv ) estimated market rent levels and ( v ) future cash flows from the real estate and the existing customer base . others could come to materially different conclusions as to the estimated fair values , which would result in different depreciation and amortization expense , rental income , gains and losses on sale of real estate assets , and real estate and intangible assets . allowance for doubtful accounts : customer receivables consist primarily of amounts due for contractual lease payments , reimbursements of common area maintenance expenses , property taxes and other expenses recoverable from customers . deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement . determination of the adequacy of allowances for doubtful accounts requires significant judgments and estimates . others could come to materially different conclusions regarding the adequacy of our allowance for doubtful accounts . significant unreserved bad debt losses could materially impact our net income . impairment of long-lived assets : the analysis of impairment of our long-lived assets involves identification of indicators of impairment , projections of future operating cash flows and estimates of fair values or selling prices , all of which require significant judgment and subjectivity . others could come to materially different conclusions . in addition , we may not have identified all current facts and circumstances that may affect impairment . any unidentified impairment loss , or change in conclusions , could have a material adverse impact on our net income . accrual for uncertain and contingent liabilities : we accrue for certain contingent and other liabilities that have significant uncertain elements , such as property taxes , performance bonuses and other operating expenses , as well as other legal claims and disputes involving customers , employees , governmental agencies and other third parties . we estimate such liabilities based upon many factors such as past trends and our evaluation of likely outcomes . however , the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities , in which case our accrued liabilities and net income could be materially different . 20 business overview our overall operating results are impacted primarily by the performance of our existing real estate facilities , which at december 31 , 2018 are comprised of 28.2 million rentable square feet of primarily multi-tenant industrial , flex and office properties concentrated in six states and a 95.0 % interest in a 395-unit multifamily apartment complex . our multi-tenant commercial properties are located in markets that have experienced long-term economic growth with a particular concentration on small- and medium-size customers . accordingly , a significant degree of management attention is paid to maximizing the cash flow from our existing real estate portfolio . also , our strong and conservative capital structure allows us the flexibility to use debt and equity capital prudently to fund our growth , which allows us to acquire properties we believe will create long-term value . f rom time to time we sell properties which no longer fit the company 's strategic objectives . story_separator_special_tag ” certain factors that may impact future results impact of inflation : although inflation has not been significant in recent years , an increase in inflation could impact our future results , and the company continues to seek ways to mitigate its potential impact . a substantial portion of the company 's leases require customers to pay operating expenses , including real estate taxes , utilities and insurance , as well as increases in common area expenses , partially reducing the company 's exposure to inflation during each lease 's respective lease period . regional concentration : our portfolio is concentrated in eight regions , in six states . we have chosen to concentrate in these regions because we believe they have characteristics which enable them to be competitive economically , such as above average population growth , job growth , higher education levels and personal income , which we believe will produce better overall economic returns . changes in economic conditions in these regions in the future could impact our future results . industry and c ustomer concentrations : we seek to minimize the risk of industry or customer concentrations . a s of december 31 , 2018 , industry groups that represented more than 10 % of our annual rental income were business services , warehouse , distribution , transportation and logistics , computer hardware , software and related services and health services . no other industry group represents more than 10 % of our annualized rental income as depicted in the following table . replace_table_token_3_th 22 as of december 31 , 2018 , leases from our top 10 customers comprised 9.4 % of our annualized rental income , with only one customer , the u.s. government ( 4 . 0 % ) , representing more than 1 % as depicted in the following table ( in thousands ) . replace_table_token_4_th ( 1 ) for leases exp iring prior to december 31 , 2019 , annualized rental income represents income to be received under exis ting leases from january 1 , 2019 through the date of expiration . customer credit risk : we have historically experienced a low level of write-offs of uncollectible rents , with less than 0.5 % of rental income written off in any year over the last seven years . however , there can be no assurance that write offs may not increase , because there is inherent uncertainty in a customer 's ability to continue paying rent and meet its full lease obl igation . as of february 18 , 2019 , we had 158 ,000 square feet of leased space occupied by five customers that are protected by chapter 11 of the u.s. bankruptcy code . from time to time , customers contact us , requesting early termination of their lease , reductions in space leased , or rent deferment or abatement , which we are not obligated to grant but will consider under certain circumstances . net operating income we evaluate the performance of our business parks primarily based on net operating income ( “ noi ” ) , a measure that is not defined in accordance with u.s. generally accepted accounting princip les ( “ gaap ” ) . we define noi as adjusted r ental income less adjusted cost of o perations . adjusted rental i ncome represents rental income , excluding material lease buyout payments , which we believe are not reflective of o ngoing rental income . adjusted cost of o perations represents cost of operations , excluding senior management long-term equity incentive plan ( “ lteip ” ) amortization , which can vary significantly period to period based upon-the performance of the whole company , rather than just property operations . we believe noi assists investors in analyzing the performance and value of our business parks by excluding ( i ) corporate items not related to the results of our business parks , ( ii ) depreciation and amortization expense because it does not accurately reflect changes in the value of our business parks and ( iii ) material lease buyout payments and lteip amortization as these items significantly vary from period to period and thus impact comparability across periods . the company 's calculation of noi may not be comparable to those of other companies and should not be used as an alternative to performance measures calculated in accordance with gaap . see “ analysis of net income ” below for reconciliations of each of these measures to their c losest analogous gaap measure from our consolidated statements of income . story_separator_special_tag style= '' margin:0pt ; text-indent:14.4pt ; text-align : justify ; text-justify : inter-ideograph ; font-family : times new roman ; font-size : 10pt '' > rental income increased $ 11 . 3 million in 2018 compared to 2017 and by $ 1 5 . 3 million in 2017 as compared to 2016 due primarily to increases in adjusted rental income at the same park and non-same park facilities , offset partially by adjusted rental income from assets sold or held for development . the 2 018 increase was also attributable to rental income from our multifamily asset . the increases in adjusted rental income at the same park facilities in 2018 and 2017 were due primarily to higher revenue per occupied square foot and increased occupancy . cost of operations increased $ 1 .2 million in 2018 compared to 2017 and by $ 2 . 2 million in 2017 as compared to 2016 due primarily to increases in adjusted cost of operations for the same park and non-same park facilities , offset partially by adjusted costs of operations from assets sold or held for development . the 2018 increase was also attributed to cost of operations from our multifamily asset . the 2018 and 2017 increase s in cost of operations was partially offset by lower lteip amortization .
| results of operations operating results for 2018 and 201 7 for the year ended december 31 , 2018 , net income allocable to common shareholders was $ 172 . 9 million or $ 6 .3 1 pe r diluted share , compared to $ 90.4 million or $ 3.30 per diluted share for the year ended december 31 , 2017 . the increase was mainly due to the gain on the sale of three office parks in orange county , california , and an industrial park in dallas , texas , during 2018 , charges related to the redemption of preferred stock incurred in 2017 that did not recur in 2018 and an increase in noi of $ 9.1 million with respect to our real estate facilities . th e increase in noi includes a $ 7 . 1 million increase from our same-park facilities ( defined below ) due primarily to increased occupancy 23 and higher revenue per occupied square foot combined with increased noi from our non-same park and multifamily assets , partially offset by reduced noi generated from facilities we sold in 2018 . operating results for 2017 and 201 6 for the year ended december 31 , 2017 , net income allocable to common shareholders was $ 90.4 million or $ 3.30 per diluted share , compared to $ 62.9 million or $ 2.31 per diluted share for the year ended december 31 , 2016 . the increase was due to a $ 12.9 million i ncrease in noi with respect to our real estate facilities , the gain on the sale of the real estate facilities and development rights , a reduction in preferred distributions and a reduction in interest expense due to the repayment of debt , partially offset by an increase in charges related to the redemption of preferred securities . the increase in noi includes a $ 14 .
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similarly , statements that describe our objectives , plans or goals as well as the expected benefits of the acquisition of miller heiman group , achieveforum and strategy execution ( collectively , the “ acquired companies ” ) , the timing and expected benefits of our recently adopted restructuring plans and the magnitude and duration of the impact of the global ( “ covid-19 ” ) pandemic on our business , employees , customers and our ability to provide services in affected regions . these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , those relating to the magnitude and duration of the negative impact of the covid -19 outbreak on our business , employees , customers and our ability to provide services in affected regions , global and local political and or economic developments in or affecting countries where we have operations , competition , changes in demand for our services as a result of automation , dependence on and costs of attracting and retaining qualified and experienced consultants , maintaining our relationships with customers and suppliers and retaining key employees , maintaining our brand name and professional reputation , potential legal liability and regulatory developments , portability of client relationships , consolidation of or within the industries we serve , currency fluctuations in our international operations , risks related to growth , alignment of our cost structure , restrictions imposed by off-limits agreements , reliance on information processing systems , cyber security vulnerabilities , changes to data security , data privacy , and data protection laws , dependence on third parties for the execution of critical functions , limited protection of our intellectual property ( “ ip ” ) , our ability to enhance and develop new technology , our ability to successfully recover from a disaster or other business continuity problems , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , treaties , or regulations on our business and our company , deferred tax assets that we may not be able to use , our ability to develop new products and services , the impact of the withdrawal of the united kingdom from the european union , changes in our accounting estimates and assumptions , the utilization and billing rates of our consultants , seasonality , the expansion of social media platforms , the ability to effect acquisitions and integrate the acquired companies , the ability to recognize the anticipated benefits of the acquisition of the acquired companies , the costs related to the acquisition of the acquired companies , our indebtedness , the phase-out of libor , and the matters disclosed under the heading “ risk factors ” in the company 's exchange act reports , including item 1a included in this annual report on form 10-k. readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. executive summary korn ferry ( referred to herein as the “ company ” or in the first person notations “ we , ” “ our , ” and “ us ” ) is a global organizational consulting firm . we help clients synchronize strategy and talent to drive superior performance . we work with organizations to design their structures , roles , and responsibilities . we help them hire the right people to bring their strategy to life . and we advise them on how to reward , develop , and motivate their people . we operate through four global segments : 1. consulting helps clients synchronize their strategy and their talent by addressing four fundamental needs : organizational strategy , assessment and succession , leadership and professional development , and rewards and benefits . this work is supported and underpinned by a comprehensive range of some of the world 's leading ip and data . 2. digital leverages an artificial intelligence ( “ ai ” ) powered platform to identify structure , roles , capabilities and behaviors needed to drive business forward . the end to end system gives clients one enterprise-wide talent framework and delivers an achievable blueprint for success along with the guidance and tools to deliver it . 3. executive search helps organizations recruit board level , chief executive and other senior executive and general management talent . behavioral interviewing and proprietary assessments are used to determine ideal 34 organizational fit , and salary benchmarking builds appropriate frameworks for compensation and retention . 4. rpo and professional search combines people , process expertise and ip-enabled technology to deliver enterprise talent acquisition solutions to clients . transaction sizes range from single professional searches to team , department and line of business projects , and global outsource recruiting solutions . consulting and digital are new reporting segments . previously , these were tracked and reported together as korn ferry advisory ( “ advisory ” ) . over the past years we have invested in the digital business and harmonized the structure of our content and data , building a technology platform for the efficient delivery of these assets directly to an end consumer or indirectly through a consulting engagement . these investments , combined with the acquisitions of miller heiman group , achieveforum and strategy execution ( “ the “ acquired companies ” ) in november 2019 from twentyeighty , inc. for $ 108.6 million , resulted in reassessing how we managed our advisory business . story_separator_special_tag th is plan includes ( i ) a reduction in workforce , which was substantially completed by the end of fiscal 2020 and resulted in restructuring charges of $ 40.5 million associated with severance , ( ii ) the temporary furlough of certain employees , ( iii ) subject to certain exceptions and legal requirements , salary reductions across the organization , and ( iv ) other cost saving measures relating to general and administrative expenses . the company evaluates performance and allocates resources based on the chief operating decision maker 's review of ( 1 ) fee revenue and ( 2 ) adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) . to the extent that such charges occur , adjusted ebitda excludes restructuring charges , integration/acquisition costs , certain separation costs and certain non-cash charges ( goodwill , intangible asset and other than temporary impairments of investments ) . for fiscal 2020 , adjusted ebitda excluded $ 58.6 million of restructuring charges , $ 12.2 million of integration/acquisition costs and $ 1.8 million of separation costs . for fiscal 2019 , adjusted ebitda excluded $ 106.6 million of tradename write-offs and $ 6.7 million of integration/acquisition costs . for fiscal 2018 , adjusted ebitda excluded $ 9.4 million of integration/acquisition costs and $ 0.1 million of restructuring charges , net . ebitda , adjusted ebitda , and adjusted ebitda margin are non-gaap financial measures . they have limitations as analytical tools , should not be viewed as a substitute for financial information determined in accordance with united states ( “ u.s. ” ) generally accepted accounting principles ( “ gaap ” ) , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . in addition , they may not necessarily be comparable to non-gaap performance measures that may be presented by other companies . management believes the presentation of these non-gaap financial measures provides meaningful supplemental information regarding korn ferry 's performance by excluding certain charges , items of income and other items that may not be indicative of korn ferry 's ongoing operating results . the use of these non-gaap financial measures facilitates comparisons to korn ferry 's historical performance and the identification of operating trends that may otherwise be distorted by the factors discussed above . korn ferry includes these non-gaap financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of korn ferry 's ongoing operations and financial and operational decision-making . the accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements , except that the above noted items are excluded from ebitda to arrive at adjusted ebitda . management further believes that ebitda is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures , effective tax rates and tax attributes and capitalized asset values , all of which can vary substantially from company to company . fee revenue was $ 1,932.7 million during fiscal 2020 , an increase of $ 6.7 million , compared to $ 1,926.0 million in fiscal 2019 , with increases in fee revenue in digital and rpo & professional search . during fiscal 2020 , we recorded operating income of $ 176.0 million with the executive search , digital , consulting and rpo & professional search segments contributing $ 156.9 million , $ 46.9 million , $ 17.7 million and $ 50.4 million , respectively , offset by corporate expenses of $ 96.0 million . net income attributable to korn ferry increased by $ 2.2 million during fiscal 2020 to $ 104.9 million from $ 102.7 million in fiscal 2019. adjusted ebitda was $ 301.0 million , a decrease of $ 10.0 million during fiscal 2020 , from adjusted ebitda of $ 311.0 million in the year-ago period . during fiscal 2020 , the executive search , digital , consulting and rpo & professional search segments contributed $ 181.1 million , $ 83.1 million , $ 61.1 million and $ 60.2 million , respectively , offset by corporate expenses net of other income of $ 84.5 million . our cash , cash equivalents and marketable securities increased by $ 96.2 million to $ 863.3 million at april 30 , 2020 , compared to $ 767.1 million at april 30 , 2019. this increase was mainly due to cash flows from operations and net borrowings of $ 168.6 million as a result of our december 2019 notes offering offset by the repayment of the amount outstanding under our prior revolving credit facility ( discussed further below ) . the increase was partially offset by annual bonuses earned in fiscal 2019 and paid during fiscal 2020 , sign-on and retention payments , $ 108.6 million paid for the acquisition of the acquired companies , $ 92.4 million in stock repurchases in the open market , $ 41.5 million in payments for the purchase of property and equipment , $ 9.0 million paid in tax withholding on restricted stock vestings and $ 22.8 million in dividends paid during fiscal 2020. as of april 30 , 2020 , we held marketable securities to settle obligations under our executive capital accumulation plan ( “ ecap ” ) with a cost value of $ 144.3 36 million and a fair value of $ 141.4 million . our vested oblig ations for which these assets were held in trust totaled $ 124.6 million as of april 30 , 2020 and our unvest ed obligations totaled $ 21.7 million .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_3_th ( 1 ) general and administrative expenses for fiscal 2019 includes write-off of tradenames of $ 106.6 million . 39 the following tables summarize the results of our operations by segment : ( numbers may not total exactly due to rounding ) replace_table_token_4_th ( 1 ) the consulting and digital segment data for fiscal 2019 and 2018 has been recast to reflect the division of the advisory segment into the consulting and digital segments . replace_table_token_5_th ( 1 ) margin calculated as a percentage of fee revenue by segment . ( 2 ) the consulting and digital segment data for fiscal 2019 and 2018 has been recast to reflect the division of the advisory segment into the consulting and digital segments . 40 replace_table_token_6_th replace_table_token_7_th ( 1 ) the consulting and digital segment data for fiscal 2019 has been recast to reflect the division of the advisory segment into the consulting and digital segments . 41 replace_table_token_8_th ( 1 ) the consulting and digital segment data for fiscal 2018 has been recast to reflect the division of the advisory segment into the consulting and digital segments . fiscal 2020 compared to fiscal 2019 during fiscal 2020 , the company changed the composition of its global segments . the consulting and digital segment were previously included in the advisory segment . segment data for fiscal 2019 has been recast to reflect the division of the advisory segment into the consulting and digital segments . fee revenue fee revenue . fee revenue increased by $ 6.7 million , or 0.3 % , to $ 1,932.7 million in fiscal 2020 compared to $ 1,926.0 million in fiscal 2019. exchange rates unfavorably impacted fee revenue by $ 36.2 million , or 2 % , in fiscal 2020 compared to the year-ago period .
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