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these qualitative factors include , but are not limited to : · levels and trends in delinquencies and nonaccruals ; · inherent risk in the loan portfolio ; · trends in volume and terms of the loan ; · effects of any change in lending policies and procedures ; · experience , ability , and story_separator_special_tag the company the company is a savings and loan holding company chartered as a corporation in the state of maryland in 1990. it conducts business primarily through four subsidiaries , the bank , sbi , the title company , and hyatt commercial . hyatt commercial conducts business as a commercial real estate brokerage and property management company . sbi holds mortgages that do not meet the underwriting criteria of the bank and is the parent company of crownsville , which does business as annapolis equity group and acquires real estate for syndication and investment purposes . the title company engages in title work related to real estate transactions . the bank has six branches in anne arundel county , maryland , which offer a full range of deposit products and originate mortgages in its primary market of anne arundel county , maryland and , to a lesser extent , in other parts of maryland , delaware , and virginia . overview the company provides a wide range of personal and commercial banking services . personal services include mortgage and consumer lending as well as deposit products such as personal internet banking and online bill pay , checking accounts , individual retirement accounts , money market accounts , and savings and time deposit accounts . commercial services include commercial secured and unsecured lending services as well as business internet banking , corporate cash management services , and deposit services . the company also provides atms , credit cards , debit cards , safe deposit boxes , and telephone banking , among other products and services . in 2018 , the mid-atlantic region in which we operate continued to experience continued improved regional economic performance . the national economy improved as well throughout the year . consumer confidence has been bolstered by certain positive economic trends such as lower unemployment and increased housing metrics . these positive trends have been tempered by international economic concerns together with concerns over a lack of wage growth and the rise in interest rates . these factors can act to constrain economic activity on the part of both large and small businesses . despite this challenging business environment , we have experienced healthy loan growth while maintaining strong levels of liquidity , capital , and credit quality . we have experienced an improved level of profitability in our operations in 2018 , primarily due to a higher interest rate environment , increased loan production , the payoff of high-costing fhlb advances , a reversal of the provision for loan losses , and increased noninterest income . our net income before income taxes amounted to $ 11.5 million in 2018 , compared to $ 7.8 million in 2017. the interest rate spread between our cost of funds and what we earn on loans has increased from 2017 levels due primarily to the higher interest rate environment , higher earning asset balances , and the payoff of the higher-costing fhlb advances . during 2017 , we recorded higher income tax provision due to the enactment of the tax act in december 2017 , which significantly reduced corporate tax rates for 2018. the effect of the revised corporate tax rates was a reduction of $ 1.9 million in our net deferred tax asset ( which had to be valued at the new corporate tax rate ) at december 31 , 2017 , which was recorded through the income tax provision . our effective tax rate decreased from 64.1 % in 2017 to 25.8 % in 2018 due to the lower tax rates in 2018. the company expects to experience similar stable market conditions during 2019. if interest rates increase , demand for borrowing may decrease and our interest rate spread could decrease . we will continue to manage loan and deposit pricing against the risks of rising costs of our deposits and borrowings . interest rates are outside of our control , so we must attempt to balance the pricing and duration of the loan portfolio against the risks of rising costs of our deposits and borrowings . the continued success and attraction of anne arundel county , maryland and vicinity , will also be important to our ability to originate and grow mortgage loans and deposits , as will our continued focus on maintaining low overhead . if the market and or economy worsens , our business , financial condition , results of operations , access to funds , and the price of our stock could be materially and adversely impacted . 29 critical accounting policies our accounting and financial reporting policies conform to accounting principles generally accepted in the u.s. ( “ gaap ” ) and general practice within the banking industry . accordingly , preparation of the financial statements requires management to exercise significant judgment or discretion or make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . the accounting policies we view as critical are those relating to the allowance , the valuation of securities , the valuation of real estate acquired through foreclosure , and the valuation of deferred tax assets and liabilities . significant accounting policies are discussed in detail in “ notes to consolidated financial statements - note 1 - summary of significant account policies ” in this annual report on form 10-k. story_separator_special_tag optimize interest margins while providing adequate liquidity for our 31 anticipated needs . story_separator_special_tag million at december 31 , 2018 compared to $ 403,000 at december 31 , 2017. this increase was due to the addition of two properties . total deposits increased $ 177.3 million , or 29.4 % , to $ 779.5 million at december 31 , 2018 compared to $ 602.2 million at december 31 , 2017 due to successful marketing campaigns to bring in deposits . we utilized some of the liquidity that came from increased deposits to pay off some of our higher-costing long-term fhlb advances . long-term borrowings decreased by $ 15.0 million , or 16.9 % , to $ 73.5 million at december 31 , 2018 compared to $ 88.5 million at december 31 , 2017. securities we utilize the securities portfolio as part of our overall asset/liability management practices to enhance interest revenue while providing necessary liquidity for the funding of loan growth or deposit withdrawals . we continually monitor the credit risk associated with investments and diversify the risk in the securities portfolios . we held $ 12.0 million and $ 10.1 million in securities classified as afs as of december 31 , 2018 and 2017 , respectively . we held $ 38.9 million and $ 54.3 million in securities classified as htm as of december 31 , 2018 and december 31 , 2017 , respectively . 33 changes in current market conditions , such as interest rates and the economic uncertainties in the mortgage , housing , and banking industries impact the securities market . quarterly , we review each security in our afs portfolio to determine the nature of any decline in value and evaluate if any impairment should be classified as other-than-temporary impairment ( “ otti ” ) . such evaluations resulted in the determination that no otti charges were required during 2018. all of the afs and htm securities that were impaired as of december 31 , 2018 were so due to declines in fair values resulting from changes in interest rates or increased credit/liquidity spreads compared to the time they were purchased . we have the intent to hold these securities to maturity and it is more likely than not that we will not be required to sell the securities before recovery of value . as such , management considers the impairments to be temporary . our securities portfolio composition is as follows at december 31 : replace_table_token_4_th the amortized cost , estimated fair values , and weighted average yields of debt securities at december 31 , 2018 , by contractual maturity , are shown below . actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations . replace_table_token_5_th weighted yields are based on amortized cost . mortgage-backed securities are assigned to maturity categories based on their final maturity . we did not hold any securities with an aggregate book value and market value in excess of 10 % of stockholders ' equity . 34 lhfs we originate residential mortgage loans for sale on the secondary market . at december 31 , 2018 and 2017 , such lhfs , which are carried at fair value , amounted to $ 9.7 million and $ 4.5 million , respectively , the majority of which are subject to purchase commitments from investors . when we sell mortgage loans we make certain representations to the purchaser related to loan ownership , loan compliance and legality , and accurate documentation , among other things . if a loan is found to be out of compliance with any of the representations subsequent to the date of purchase , we may be required to repurchase the loan or indemnify the purchaser for losses related to the loan , depending on the agreement with the purchaser . in addition other factors may cause us to be required to repurchase or `` make-whole '' a loan previously sold . the most common reason for a loan repurchase is due to a documentation error or disagreement with an investor , or on rare occasions for fraud . repurchase requests are negotiated with each investor at the time we are notified of the demand and an appropriate reserve is taken at that time . we did not repurchase any loans during 2018. repurchases amounted to $ 469,000 during 2017. our reserve for potential repurchase losses was $ 91,000 and $ 63,000 as of december 31 , 2018 and 2017 , respectively . we do not expect increases in repurchases or related losses to be a growing trend nor do we see it having a significant impact on our financial results . loans our loan portfolio is expected to produce higher yields than investment securities and other interest-earning assets ; the absolute volume and mix of loans and the volume and mix of loans as a percentage of total earning assets is an important determinant of our net interest margin . the following table sets forth the composition of our loan portfolio net of unearned loan fees as of december 31 : replace_table_token_6_th loans increased by $ 14.2 million , or 2.1 % , to $ 682.3 million at december 31 , 2018 compared to $ 668.2 million at december 31 , 2017. this increase was primarily due to increased commercial real estate and construction loan demand . approximately 56.0 % of our loans had adjustable rates as of december 31 , 2018. our variable-rate loans adjust to the current interest rate environment , whereas fixed rates do not allow this flexibility . if interest rates were to increase in the future , our interest earned on the variable-rate loans would improve , and if rates were to fall , the interest we earn on such loans would decline , thus impacting our interest income . some variable-rate loans have rate floors and or ceilings which may delay and or limit changes in interest income in a period of changing rates . see our discussion in “ interest rate sensitivity ” later in this item for more information on interest rate fluctuations .
| results of operations net income net income increased by $ 5.8 million , or 204.1 % , to $ 8.6 million for 2018 , compared to $ 2.8 million for 2017. basic and diluted income per share increased to $ 0.68 and $ 0.67 , respectively , for 2018 , compared to $ 0.21 and $ 0.21 , respectively , for 2017. we recognized an increase in net interest income and noninterest income compared to 2017. noninterest expenses increased in 2018 compared to 2017 and we recorded less of a reversal of the provision for loan losses in 2018 compared to 2017. additionally , in 2017 we recognized $ 1.9 million in tax expense associated with the revaluation of our net deferred tax asset brought about by the reduced corporate tax rates in the tax act . net interest income net interest income , which is interest earned net of interest expense , increased by $ 4.5 million , or 18.1 % , to $ 29.1 million for 2018 , compared to $ 24.6 million for 2017. the increase in net interest income was primarily due to increases in both the average yield on and average balance of interest-earning assets , as well as the decrease in the average balance of our interest-bearing liabilities . our net interest margin increased from 3.32 % in 2017 to 3.66 % in 2018 and our net interest spread increased from 3.12 % in 2017 to 3.29 % in 2018. interest income interest income increased by $ 5.4 million , or 16.9 % , to $ 37.7 million for 2018 , compared to $ 32.2 million for 2017. average interest-earning assets increased from $ 741.1 million in 2017 to $ 793.8 million in 2018. average loans outstanding increased by $ 57.6 million in 2018 compared to 2017 due to increased originations , primarily in the commercial real estate and construction segments .
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analysis of the results presented should be made in the context of our relatively short history . this discussion should be read in conjunction with the financial statements and selected financial data included elsewhere in this document . overview we are a bank holding company within the meaning of the bank holding company act of 1956 headquartered in birmingham , alabama . through our wholly-owned subsidiary bank , we operate 13 full service banking offices located in jefferson , shelby , madison , montgomery , mobile and houston counties in alabama , and in escambia county in florida . these offices operate in the birmingham-hoover , huntsville , montgomery , mobile and dothan , alabama msas , and in the pensacola-ferry pass-brent , florida msa . additionally , we opened a loan production office in nashville , tennessee in june 2013. our principal business is to accept deposits from the public and to make loans and other investments . our principal source of funds for loans and investments are demand , time , savings , and other deposits and the amortization and prepayment of loans and borrowings . our principal sources of income are interest and fees collected on loans , interest and dividends collected on other investments and service charges . our principal expenses are interest paid on savings and other deposits , interest paid on our other borrowings , employee compensation , office expenses and other overhead expenses . recent developments – metro bank acquisition on january 31 , 2015 , we completed the merger with metro bancshares , inc. ( “ metro ” ) , which resulted in the acquisition of 100 % of all the outstanding shares of metro , including all outstanding options and warrants , for an aggregate of 636,720 shares of servisfirst common stock and approximately $ 20.9 million in cash , representing aggregate consideration value of approximately $ 40.3 million ( based on the closing price of servisfirst bancshares , inc. on january 30 , 2015 ) . the acquisition of metro represents our first strategic acquisition and our further entry into the atlanta metropolitan market . at december 31 , 2014 , metro had total assets of approximately $ 211 million , total loans of approximately $ 154 million , total deposits of approximately $ 182 million and total stockholders ' equity of approximately $ 28 million . the cash portion of the merger consideration was paid from the company 's cash on hand . because the acquisition closed on january 31 , 2015 , after the end of the fiscal period covered by this annual report on form 10-k , the company 's financial information does not include any of the results of operations from metro or its subsidiary , metro bank . critical accounting policies our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in the notes to the consolidated financial statements . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or in future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations . allowance for loan losses the allowance for loan losses , sometimes referred to as the “ alll ” , is established through periodic charges to income . loan losses are charged against the alll when management believes that the future collection of principal is unlikely . subsequent recoveries , if any , are credited to the alll . if the alll is considered inadequate to absorb future loan losses on existing loans for any reason , including but not limited to , increases in the size of the loan portfolio , increases in charge-offs or changes in the risk characteristics of the loan portfolio , then the provision for loan losses is increased . loans are considered impaired when , based on current information and events , it is probable that the bank will be unable to collect all amounts due according to the original terms of the loan agreement . the collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement . impaired loans are measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate , or , as a practical expedient , at the loan 's observable market price , or the fair value of the underlying collateral . the fair value of collateral , reduced by costs to sell on a discounted basis , is used if a loan is collateral-dependent . 45 investment securities impairment periodically , we may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis . in any such instance , we would consider many factors , including the severity and duration of the impairment , our intent and ability to hold the security for a period of time sufficient for a recovery in value , recent events specific to the issuer or industry , and for debt securities , external credit ratings and recent downgrades . story_separator_special_tag million , or 19.9 % , to $ 3.6 billion from $ 3.0 billion for the year ended december 31 , 2013. this increase in our average interest-earning assets was due to continued core growth in all of our markets and increased loan production . our average interest-bearing liabilities increased $ 368.2 million , or 16.0 % , to $ 2.7 billion for the year ended december 31 , 2014 from $ 2.3 billion for the year ended december 31 , 2013. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets . the ratio of our average interest-earning assets to average interest-bearing liabilities was 135.2 % and 130.9 % for the years ended december 31 , 2014 and 2013 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.07 % for the year ended december 31 , 2014 , compared to 4.25 % for the year ended december 31 , 2013. the average rate paid on interest-bearing liabilities was 0.53 % for the year ended december 31 , 2014 , compared to 0.59 % for the year ended december 31 , 2013 . 50 our net interest spread and net interest margin were 3.66 % and 3.80 % , respectively , for the year ended december 31 , 2013 , compared to 3.62 % and 3.80 % , respectively , for the year ended december 31 , 2012. our average interest-earning assets for the year ended december 31 , 2013 increased $ 486.4 million , or 19.3 % , to $ 3.0 billion from $ 2.5 billion for the year ended december 31 , 2012. this increase in our average interest-earning assets was due to continued core growth in all of our markets and increased loan production . our average interest-bearing liabilities increased $ 362.1 million , or 18.7 % , to $ 2.3 billion for the year ended december 31 , 2013 from $ 1.9 billion for the year ended december 31 , 2012. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets . the ratio of our average interest-earning assets to average interest-bearing liabilities was 130.9 % and 130.3 % for the years ended december 31 , 2013 and 2012 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.25 % for the year ended december 31 , 2013 , compared to 4.39 % for the year ended december 31 , 2012. the average rate paid on interest-bearing liabilities was 0.59 % for the year ended december 31 , 2013 , compared to 0.77 % for the year ended december 31 , 2012. provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio . our management reviews the adequacy of the allowance for loan losses on a quarterly basis . the allowance for loan losses calculation is segregated into various segments that include classified loans , loans with specific allocations and pass rated loans . a pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss . loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades . based on these processes , and the assigned risk grades , the criticized and classified loans in the portfolio are segregated into the following regulatory classifications : special mention , substandard , doubtful or loss , with some general allocation of reserve based on these grades . at december 31 , 2014 , total loans rated special mention , substandard , and doubtful were $ 77.6 million , or 2.3 % of total loans , compared to $ 93.2 million , or 3.3 % of total loans , at december 31 , 2013. impaired loans are reviewed specifically and separately under fasb asc 310-30-35 , subsequent measurement of impaired loans , to determine the appropriate reserve allocation . our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral-dependent , to determine the specific reserve allowance . reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors . to evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio , our management considers historical loss experience based on volume and types of loans , trends in classifications , volume and trends in delinquencies and nonaccruals , economic conditions and other pertinent information . based on future evaluations , additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level . the provision expense for loan losses was $ 10.3 million for the year ended december 31 , 2014 , a decrease of $ 2.7 million from $ 13.0 million in 2013. this decrease in provision expense for loan losses for 2014 is primarily attributable to improving credit quality resulting from fewer loan charge-offs .
| results of operations net income net income available to common stockholders was $ 51.9 million for the year ended december 31 , 2014 , compared to $ 41.2 million for the year ended december 31 , 2013. this increase in net income is primarily attributable to an increase in net interest income , which increased $ 18.1 million , or 16.1 % , to $ 130.6 million in 2014 from $ 112.5 million in 2013. noninterest income increased $ 1.2 million , or 12.0 % , to $ 11.2 million in 2014 from $ 10.0 million in 2013. noninterest expense increased by $ 10.1 million , or 21.3 % , to $ 57.6 million in 2014 from $ 47.5 million in 2013. basic and diluted net income per common share were $ 2.18 and $ 2.09 , respectively , for the year ended december 31 , 2014 , compared to $ 2.00 and $ 1.90 , respectively , for the year ended december 31 , 2013. return on average assets was 1.39 % in 2014 , compared to 1.32 % in 2013 , and return on average stockholders ' equity was 14.43 % in 2014 , compared to 15.70 % in 2013. this decrease in return on average stockholders ' equity was the result of our initial public offering in may 2014 , which increased equity by approximately $ 52.1 million .
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as of december 31 , 2016 , the company had federal and california tax net operating loss ( nol ) carryforwards available to reduce its future taxable income of approximately $ 119,242,000 and $ 63,992,000 , respectively . the federal nol begins to expire in 2027 and the state nol begins to expire in 2017 unless previously utilized . at december 31 , 2016 , the company has federal and state research tax credits of $ 3,803,000 and $ 2,623,000 , respectively . the federal research credit expires in 2027 unless previously utilized . the california research credit will carry forward indefinitely until utilized . utilization of the nol and r & d credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future , as required by section 382 of the internal revenue code of 1986 , as amended ( the `` code `` ) , as well as similar state and foreign provisions . these ownership changes may limit the amount of nol and r & d credit carryforwards that can be utilized annually to offset future taxable income and tax , respectively . in general , an `` ownership change `` as defined by section 382 of the code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders . since the company 's formation , the company has raised capital through the issuance of capital stock on several occasions , including the ipo in 2014 , which on their own or combined with the purchasing stockholders ' subsequent disposition of those shares , may have resulted in such an ownership change , or could result in an ownership change in the future . the company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the company 's formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future . if the company has experienced an ownership change at any time since its formation , utilization of the nol or r & d credit carryforwards would be subject to an annual limitation under section 382 of the code , which is determined by first multiplying the value of story_separator_special_tag condition and r esults of operations . you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this report . some of the information contained in this discussion and analysis or set forth elsewhere in this reports , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this document , our actual results could differ materially from the results described in , or implied by , the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market . our initial focus is on localized fat reduction and body contouring . our lead product candidate , lipo-202 , is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist , salmeterol xinafoate , which is an active ingredient in the u.s. food and drug administration , or fda , approved inhaled products serevent diskus® , advair hfa® and advair diskus® . we previously completed development of lipo-202 in our phase 2 reset trial in 2013 , showing a statistically significant reduction in central abdominal bulging due to subcutaneous fat in non-obese patients . in 2015 , we conducted two pivotal u.s. phase 3 trials of lipo-202 , which failed to meet their co-primary composite or secondary endpoints as well as showing near identical results with no bias in sites or subgroups . in these trials , abcontour1 and abcontour2 , lipo-202 continued to show a safety profile similar to placebo . we , and expert consultants that we engaged , conducted a detailed review of these unexpected trial results . based on the results of the review by us and our expert consultants , we concluded that modifications intended to make lipo-202 commercially ready may have affected the drug product . we have completed manufacturing of a modified formulation of lipo-202 , which is primarily based on the drug product formulation used in the phase 2 reset trial . we are continuing our lipo-202 development program focused on localized fat reduction and body contouring using this modified formulation of lipo-202 . in november 2016 we announced plans to prioritize our efforts and resources on the phase 2 proof of concept trial for the reduction of localized fat deposits under the chin , or submental fat . we initiated this trial with the modified formulation of lipo-202 in december 2016 and expect top-line results in june of 2017. we also plan to continue development of lipo-202 for the reduction of central abdominal bulging , pending results from the submental phase 2 proof of concept trial and capital resources . since commencing operations in february 2007 , we have invested substantially all of our efforts and financial resources in the research and development and commercial planning for lipo-202 , which is currently our lead product candidate . through december 31 , 2016 , we have funded substantially all of our operations through the sale and issuance of our preferred stock , venture debt , convertible debt and the sale of shares in our initial public offering . story_separator_special_tag the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and share-based compensation . 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 apparent from other sources . actual results may differ materially from these estimates . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . while our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this document we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . 59 accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our vendor agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . 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 . examples of estimated accrued research and development expenses include : fees paid to cros in connection with clinical trials ; fees paid to investigative sites in connection with clinical trials ; fees paid to vendors in connection with preclinical development activities ; and fees paid to vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . through december 31 , 2016 , there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials . nonrefundable advance payments for goods and services , including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities , are deferred and recognized as expense in the period that the related goods are consumed or services are performed . share-based compensation we account for all share-based compensation payments using an option pricing model for estimating fair value . accordingly , share-based compensation expense for employees and directors is measured based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method . in accordance with authoritative guidance , the fair value of non-employee share-based awards is remeasured as the awards vest , and the resulting change in value , if any , is recognized as expense during the period the related services are rendered . we estimate the fair value of our share-based awards using the black-scholes option pricing model . the black-scholes model requires the use of subjective and complex assumptions , including ( a ) the expected stock price volatility , ( b ) the calculation of the expected term of the award , ( c ) the risk free interest rate and ( d ) the expected dividend yield , which determine the fair value of share-based awards . we will continue to use judgment in evaluating the fair value of the underlying common stock and expected term and expected volatility , related to our share-based compensation on a prospective basis . as we continue to accumulate additional data related to our common stock , we may make refinements to the estimates of our expected term and expected volatility , which could materially impact our future share-based compensation expense . 60 story_separator_special_tag materially . prior to our ipo in november 2014 , we funded our operations primarily through private placements of our convertible preferred stock , warrants , venture debt and convertible debt . in november 2014 , we completed our ipo of 4,650,000 shares of common stock at an offering price of $ 14.00 per share .
| results of operations comparison of the years ended december 31 , 2016 and 2015 replace_table_token_7_th research and development expenses . research and development expenses decreased by $ 27.8 million to $ 6.6 million for the year ended december 31 , 2016 from $ 34.4 million for the year ended december 31 , 2015. approximately $ 19.1 million of the decrease was due to the completion of our abcontour1 and abcontour2 u.s. phase 3 clinical trials and $ 4.7 million of the decrease was due to the termination of the supplemental clinical trials . approximately $ 1.1 million of the decrease was due to the reduction of consulting and other outside services , the elimination of the corporate advisory board , as well as a decrease of $ 1.4 million due to a reduction in headcount in research and development . the remaining decrease of approximately $ 1.5 million was due to a reduction of regulatory , preclinical and cmc activities . general and administrative expenses . general and administrative expenses decreased by $ 2.1 million to $ 5.5 million for the year ended december 31 , 2016 , from $ 7.6 million for the year ended december 31 , 2015. the decrease of approximately $ 2.0 million was due to reduction in general legal fees , public and investor relation expenses , accounting fees and outside services expenses . the remaining decrease of $ 0.1 million was related to a reduction of headcount for the year ended december 31 , 2016. interest income . interest income increased by $ 33,000 to $ 59,000 for the year ended december 31 , 2016 from $ 26,000 for the year ended december 31 , 2015. the increase resulted from higher rates of return during the year ended december 31 , 2016. interest expense .
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these adjustments resulted in an increase to sales of $ 0.5 million for the year ended december 31 , 2015 , a decrease to sales of $ 1.1 million for the year ended december 31 , 2014 and a decrease to sales of $ 0.6 million for the year ended december 31 , 2013. sales of metal concentrates are recorded net of smelter refining fees , treatment charges and penalties . total charges for these items totaled $ 12.4 million , $ 13.5 million and $ 14.8 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . 15. employee benefits 401 ( k ) plan effective october 2012 , the company adopted a profit sharing plan which covers all u.s. employees . the plan meets the requirements of a qualified retirement plan pursuant to the provisions of section 401 ( k ) of the internal revenue code . the plan provides eligible employees the opportunity to make tax deferred contributions to a retirement trust account up to 45 % of their qualified story_separator_special_tag and the financial statements and the notes thereto included elsewhere in this report . for additional information relating to our operations , please see item 1. business and item 2. properties . replace_table_token_8_th ( 1 ) certain changes between the years 2014 and prior may be related to the transition from an exploration stage enterprise to a production stage enterprise in accordance with guide 7. prior to january 1 , 2014 , we were considered an exploration stage enterprise under sec criteria since we had not demonstrated proven and probable reserves at our properties . accordingly , as required under sec guidelines , substantially all of our investment in mining properties up to that date , including construction of the mill , mine facilities and mine construction expenditures , were expensed as incurred and therefore do not appear as assets on our balance sheet . the change in our accounting presentation as a result of our transition to a production stage e nterprise may make certain period-over-period comparisons less meaningful . please see the consolidated financial statements included in this form 10-k under item 8 for additional information . item 7. management 's discussion and analysi s of financial condition and results of operations except for the historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . we caution you not to put undue reliance on any forward-looking statements , which speak only as of the date of this report . our actual future results or actions may differ materially from these forward-looking statements for many reasons , including the risks described in “ risk factors ” and elsewhere in this annual report and other reports filed by us with the sec . our discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included in this report and with the understanding that our actual future results may be materially different from what we currently expect . 32 introduction the following discussion summarizes our results of operations for three fiscal years ended december 31 , 2015 , 2014 and 2013 and our financial condition at december 31 , 2015 and 2014 , with a particular emphasis on the year ended december 31 , 2015. the discussion also presents certain non-gaap financial measures that are important to management in its evaluation of our operating results and which are used by management to compare our performance with what we perceive to be peer group mining companies , and are relied on as part of management 's decision-making process . management believes these measures may also be important to investors in evaluating our performance . for a detailed description of each of the non-gaap financial measures , please see the discussion under non-gaap measures . please see item 1. business for a discussion of our business and the use of certain mining terms . in april 2014 , we announced the completion of our initial reserve study and issued a report dated december 31 , 2013 , confirming the existence of proven and probable reserves as defined in guide 7 promulgated by the sec . as a result of the completion of the reserve study , beginning january 1 , 2014 , we transitioned from an exploration stage enterprise to a production stage enterprise in accordance with guide 7 and are no longer a development stage entity as defined in accounting standards codification 915 – development stage entities ( “ asc 915 ” ) and accordingly cumulative and other disclosures required by asc 915 are no longer included in our financial statements . prior to january 1 , 2014 , we were considered an exploration stage enterprise under sec criteria since we had not demonstrated proven and probable reserves at our aguila project in oaxaca or any of our other properties . accordingly , as required under sec guidelines , substantially all of our investment in mining properties up to that date , including construction of the mill , mine facilities and mine construction expenditures , were expensed as incurred and therefore do not appear as assets on our balance sheet . our characterization as an exploration stage enterprise resulted in the classification of our facilities and mine construction expenditures as operating expenses rather than capital expenditures , and may have caused us to report lower net income than if we had capitalized the expenditures . in addition , prior to january 1 , 2014 , our financial statements did not reflect a corresponding depreciation or amortization expense for our facilities and mine construction costs since they were expensed as incurred rather than capitalized . the change in our accounting presentation as a result of our transition to a production stage enterprise may make certain period-over-period comparisons less meaningful than otherwise since we capitalize mine development related expenditures that would have been expensed under our prior accounting presentation . story_separator_special_tag base metal production was not significantly different than the previous 34 year , as lower base metal head grades were offset by a 10 % increase in tonnes milled . on a precious metal gold equivalent basis , production totaled 63,963 ounces for the year ended december 31 , 2015. for the three months ended december 30 , 2015 , mill production totaled 7,684 ounces of gold , a decrease of 13 % over the same period in 2014 , while silver production totaled 573,726 ounces , a decrease of 27 % over the same period in 2014. lower base metal head grades were offset by a 24 % increase in tonnes milled compa red to the same period in 2014. on a precious metal gold equivalent basis ( at an actual silver -to- gold ratio of 73:1 ) our mill production totaled 15,548 ounces for the three months ended december 31 , 2015. during the current year , we sold 29,424 gold ounces and 2,312,985 silver ounces at a total cash cost per ounce of $ 517. the increase in cash cost per ounce of $ 68 is primarily attributable to mining lower grade material in 2015 , consistent with our mine plan . during the three months ended december 31 , 2015 , we sold 7,430 gold ounces and 542,892 silver ounces a total cash cost per ounce of $ 551 . during the three and twelve months ended december 31 , 2015 , we processed 1,350 and 1,220 ore tonnes per day , respectively , compared to 1,068 and 1,111 ore tonnes per day for the same periods in 2014 , representing an increase of 26 % and 10 % , respectively . the aguila mill 's flotation circuit processing capacity is a nominal 1,500 tonnes per day . achieving this processing rate in the future is dependent upon our ability to develop the arista underground mine to a point where ore extraction can consistently achieve an average rate of 1,500 tonnes per day assuming grade and dilution parameters are met . our full year production of 29,644 gold ounces and 2,506,337 silver ounces met our revised 2015 production outlook of 29,600 gold ounces and 2,500,000 silver ounces . precious metal gold equivalent is determined by taking gold ounces produced or sold , plus silver ounces produced or sold converted to precious metal gold equivalent ounces using the gold to silver average price ratio for the period . the gold and silver average prices used to determine the gold to silver average price ratio are the actual metal prices realized from sales of our gold and silver . please see non-gaap measures below for additional information concerning the cash cost per ounce measures . in 2015 , we focused on mining and development activities at the arista underground mine located on our aguila project . our production rate and estimated average grades at arista are a direct result of our mine development and the establishment of sufficient stopes and working faces while maintaining development consistent with the mine plan and limiting mine dilution . during the year , we completed 10,977 linear meters of tunnel construction in the mine . this included 5,941 linear meters of capital mine infrastructure construction and a further 1,367 meters of vertical rise development . as of december 31 , 2015 , the construction of our primary decline ramp had reached level 20 , which is approximately 370 vertical meters below the mine portal . mine infrastructure improvements completed during 2015 included increased water inflow management by doubling the pumping capacity of our mine pumping system from a nominal 1,200 to 2,500 gallons per minute and the upgrades of surface exhaust fans . we also constructed a drift from the arista vein system to within approximately 50 meters of the switchback vein system 's fault located within the arista mine . please see item 2. properties for additional information related to the switchback deposit . we encountered operational challenges in 2015 which included managing increased thermal water inflows and accompanying heat and carbon dioxide gas , both of which created stress on existing water pumping and mine ventilation systems and impeded the advancement of the mine 's two main development ramps . in response to these challenges , and as noted above , we increased mine ventilation and pumping infrastructure . we expect going forward that these upgrades will be sufficient to facilitate meeting our production targets in 2016. our mining team takes a proactive approach to mitigating these and other challenges as we attempt to improve and optimize our mining techniques to achieve tonnage targets and limit mining dilution . in addition to operational challenges , we experienced significant market volatility and continued declining metals prices during 2015. the year-over-year fall in gold , silver , copper lead and zinc prices unfavorably impacted our revenue , requiring the company to undergo additional cost cutting measures and operate within increasingly tighter budget parameters . mine development during 2016 , in light of the depressed metals market and expected tight operating budgets , is focused on production and economizes capital costs . we plan to construct a second drift , similar to the drift we completed during 2015 , that reaches the switchback vein system but from a deeper level to prepare for switchback mine 35 development and future switchback mineral extraction . due to the year over year decline in metal prices the last four years and continued cost cutting measures over the same time in response to the market , a conservative mine plan is being considered whereby lower priority capital projects are being deferred to later years . one such project is the phase four tailings expansion which can be deferred to 2017 to conserve capital during 2016. our 2016 mine plan anticipates that we will be mining areas of the arista deposit that contain precious metals along with higher amounts of base metals .
| general and administrative expenses . for the year ended december 31 , 2015 , g eneral and administrative expenses totaled $ 10.3 million , compared to $ 12.3 million for the same period of 2014. the $ 2.1 million decrease in 2015 , compared to 2014 is primarily due to decreased cash compensation , stock based compensation and it support costs , partially offset by increased audit fee s . in 2016 , we expect further decreases due to lower consulting costs and reductions in the company 's employee benefit plans . exploration expenses . for the year ended december 31 , 2015 , property exploration expenses totaled $ 7.2 million , compared to $ 6.9 million for the same period of 2014. the $ 0.3 million increase in the property exploration expenses in 2015 compared to the same period in 2014 is a result of increased exploration spending mainly for surface drilling at radar . in 2016 , we will continue exploration activities at both our oaxaca and nevada mining units , although at a reduced rate from 2015 , as we continue efforts to control costs in response to the existing commodity price , ‘ bear market ' environment . other ( expense ) income , net . for the year ended december 31 , 2015 , we recorded other expense of $ 2.5 million compared to $ 0.3 million during the same period of 2014. the $ 2.2 million increase in the expense in 2015 compared to the same period in 2014 was primarily due to foreign currency losses related to peso-denominated assets and liabilities , a decrease in the value of equity investments and write-downs on our gold and si lver bullion in the 2015 period . provision for income taxes .
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in addition , we are entitled to receive royalties based on a percentage of net sales of any products from the mir-21 and mir-221/222 programs which , in the case of sales in the united states , will be in the middle of the 10 to 20 % range , and , in the case of sales outside of the united states , will range from the low end to the middle of the 10 to 20 % range , depending upon the volume of sales . if we exercise our option to co-promote a product , we will continue to be eligible to receive royalties on net sales of each product in the united states at the same rate , unless we elect to share a portion of sanofi 's profits from sales of such product in the united states in lieu of royalties . we have evaluated the contingent event-based payments under the 2014 sanofi amendment and determined that the milestone payments meet the definition of substantive milestones . accordingly , revenue for these achievements will be recognized in their entirety in the period when the milestone is achieved and collectability is reasonably assured . other contingent event-based payments under the 2014 sanofi amendment for which payment is contingent upon the results of sanofi 's performance will not be accounted for using the milestone method . such payments will be recognized as revenue over the remaining estimated period of performance , if any , and when collectability is reasonably assured . astrazeneca in august 2012 , we entered into a collaboration and license agreement with astrazeneca . under the terms of the agreement , we agreed to collaborate with astrazeneca to identify , research and develop compounds targeting three micro rna alliance targets primarily in the fields of cardiovascular diseases , metabolic diseases and oncology . pursuant to the agreement , we granted astrazeneca an exclusive , worldwide license to develop , manufacture and commercialize lead compounds designated by astrazeneca in the course of the collaboration activities against the alliance targets for all human therapeutic uses . under the terms of the agreement we were required to use commercially reasonable efforts to perform all research , development and manufacturing activities described in the research plan , at our cost , until the acceptance of an investigational new drug application ( `` ind `` ) or the end of the research term , which expired in august 2016. under the terms of the agreement , we received an upfront payment of $ 3.0 million in october 2012 , which was recognized as revenue over the period of performance of four years , which expired in august 2016 . 71 in connection with the collaboration and license agreement and concurrently with our initial public offering , we sold astrazeneca 6,250,000 shares of our common stock in a private placement at a price per share of $ 4.00 . under the terms of the common stock purchase agreement ( `` cspa `` ) , astrazeneca could not sell , transfer , make any short sale of , or grant any option for the sale of any common stock for a 365 -day period following the effective date of our initial public offering . the cspa and collaboration and license agreement were negotiated concurrently and were therefore evaluated as a single agreement . based upon restricted stock studies of similar duration and a black-scholes valuation to measure a discount for lack of marketability , $ 4.3 million was attributed to the collaboration and license agreement . we recognized the $ 4.3 million into revenue ratably over the period of performance of the research and development plan under the collaboration , which expired in august 2016. in march 2015 , we earned a $ 2.5 million preclinical milestone and in december 2015 , we earned a $ 10.0 million clinical milestone . we determined the milestones to be substantive and recognized revenue upon achievement of each milestone . in june 2017 , astrazeneca delivered written notice of their election to terminate the collaboration and license agreement . effective upon the termination of the agreement , astrazeneca 's rights with respect to rg-125 ( azd4076 ) will revert back to us . in accordance with the agreement , the termination will become effective in june 2018 , 12 months following the date of delivery of the notice by astrazeneca . biogen in august 2014 , we entered into a collaboration and license agreement with biogen to collaborate on micro rna biomarkers for multiple sclerosis . pursuant to the terms of the collaboration and license agreement , we received an upfront payment of $ 2.0 million , which was recognized on a straight-line basis over the estimated period of performance story_separator_special_tag you should read the following discussion and analysis together with “ item 6. selected financial data ” and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we are a clinical-stage biopharmaceutical company focused on discovering and developing first-in-class drugs targeting micro rnas to treat diseases with significant unmet medical need . we were formed in 2007 when alnylam and ionis contributed significant intellectual property , know-how and financial and human capital to pursue the development of drugs targeting micro rnas pursuant to a license and collaboration agreement . our two lead product candidates , rg-012 and rgls4326 , are currently in clinical development . story_separator_special_tag general and administrative expenses 50 general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses and professional fees for auditing , tax and legal services , some of which are incurred as a result of being a publicly-traded company . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company . these costs will likely include legal fees , sarbanes-oxley act compliance and other accounting fees and directors ' and officers ' liability insurance premiums . other income ( expense ) , net other income ( expense ) consists primarily of interest income and expense , and various income or expense items of a non-recurring nature . we earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents and marketable securities , such as interest-bearing bonds , for our short-term investments . interest expense is primarily attributable to interest charges associated with borrowings under our secured term loan from oxford . we recorded periodic gains and losses from changes in value of a convertible note payable until its conversion into common stock in january 2015. critical accounting policies and estimates the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the revenues and expenses incurred during the reported periods . 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 apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this annual report , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . revenue recognition our revenues generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services under strategic alliance and collaboration agreements . we recognize revenues when all four of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery of the products and or services has occurred ; ( 3 ) the selling price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . multiple element arrangements , such as our strategic alliance agreement with sanofi , are analyzed to determine whether the deliverables within the agreement can be separated or whether they must be accounted for as a single unit of accounting . deliverables under the agreement will be accounted for as separate units of accounting provided that ( i ) a delivered item has value to the customer on a stand-alone basis ; and ( ii ) if the agreement includes a general right of return relative to the delivered item , delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor . the allocation of consideration amongst the deliverables under the agreement is derived using a “ best estimate of selling price ” if vendor specific objective evidence and third-party evidence of fair value is not available . if the delivered element does not have stand-alone value , the arrangement is then accounted for as a single unit of accounting , and we recognize the consideration received under the arrangement as revenue on a straight-line basis , which approximates effort over our estimated period of performance , which for us is typically the expected term of the research and development plan . milestones we apply the milestone method of accounting to recognize revenue from milestone payments when earned , as evidenced by written acknowledgment from the collaborator or other persuasive evidence that the milestone has been achieved and the payment is non-refundable , provided that the milestone event is substantive . a milestone event is defined as an event ( i ) that can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance ; ( ii ) for which there is substantive uncertainty at the inception of the arrangement that the event will be achieved ; and ( iii ) that would result in additional payments being due to us . events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty 's performance are not considered to be milestone events . a milestone event is substantive if all of the following conditions are met : ( i ) the consideration is commensurate with either our performance to achieve the milestone , or the enhancement of the value to the delivered item ( s ) as a result of a specific outcome resulting from our performance to achieve the milestone ; ( ii ) the consideration relates solely to past performance ; and ( iii ) the consideration is reasonable relative to all the deliverables and payment terms ( including other potential milestone consideration ) within the arrangement . 51 we assess whether a milestone is substantive at the inception of each arrangement .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_3_th revenue under strategic alliances and collaborations our revenues are generated from ongoing strategic alliance and collaborations , and generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services . the following table summarizes our total revenues for the periods indicated ( in thousands ) : replace_table_token_4_th 52 revenue under strategic alliances and collaborations was $ 0.1 million for the year ended december 31 , 2017 compared to $ 1.2 million for the year ended december 31 , 2016 . revenue under the astrazeneca collaboration and license agreement decreased to zero for the year ended december 31 , 2017 compared to $ 1.1 million for the year ended december 31 , 2016 as a result of our research period ending in august 2016. as of december 31 , 2017 , we had approximately $ 2.0 million of deferred revenue , which consisted of payments received through our strategic alliances that have not yet been recognized in accordance with our revenue recognition policies . research and development expenses the following table summarizes the components of our research and development expenses for the periods indicated , together with year-over-year changes ( dollars in thousands ) : replace_table_token_5_th research and development expenses decreased by $ 11.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. this decrease was primarily the result of a reduction in costs subsequent to our may 2017 corporate restructuring .
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also , refer to note 3 for information regarding contractual obligations with dow pursuant to the business combination , and note 18 for story_separator_special_tag as used in this management 's discussion and analysis of financial condition and results of operations ( md & a ) , the terms predecessor and the agrofresh business refer to the business conducted by dow through a combination of wholly-owned subsidiaries and operations of dow , including through agrofresh inc. in the united states , prior to the closing of the business combination , the term successor refers to agrofresh solutions , inc. ( which was named boulevard acquisition corp. prior to the closing of the business combination ) , and the terms company , agrofresh , we , us and our refer to the combined predecessor and successor companies , unless the context otherwise requires or it is otherwise indicated . the application of acquisition accounting for the business combination significantly affected certain assets , liabilities , and expenses . as a result , financial information for the seven months ended july 31 , 2015 and the five months ended december 31 , 2015 may not be comparable to the predecessor financial information for the twelve months ended december 31 , 2014. refer to note 3 to the audited consolidated financial statements contained in this report for additional information on the acquisition accounting for the business combination . the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the notes thereto . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in item 1a of part i of this report , as well as those discussed in the cautionary note regarding forward-looking statements elsewhere in this report . this md & a contains certain financial measures , in particular adjusted ebitda and constant currency adjusted ebitda , which are not presented in accordance with gaap . these non-gaap financial measures are being presented because management believes that they provide readers with additional insight into the company 's operational performance relative to earlier periods and relative to its competitors . adjusted ebitda and constant currency adjusted ebitda are key measures used by the company to evaluate its performance . the company does not intend for these non-gaap financial measures to be a substitute for any gaap financial information . readers of this md & a should use these non-gaap financial measures only in conjunction with the comparable gaap financial measures . reconciliations of adjusted ebitda and constant currency adjusted ebitda to the most comparable gaap measures are provided in this md & a . business overview agrofresh is a global agricultural innovator in proprietary technologies that preserve the quality and value of fresh produce such as apples , pears , kiwifruit , avocados , and flowers from orchard and field to the produce section of the supermarkets and ultimately into the homes of consumers across the globe . the company currently offers smartfresh applications at customer sites through a direct service model utilizing third-party contractors . as part of the agrofresh whole product offering , the company also provides advisory services employing its extensive knowledge on the use of 1-mcp collected through thousands of monitored applications . the company operates in over 40 countries and derives over 90 % of its revenue working with customers to protect the value of apples , pears , and other produce during storage . freshness is the most important driver of consumer satisfaction when it comes to produce , and , at the same time , food waste is a major issue in the industry . about one third of the total food produced worldwide is lost or wasted each year . nearly 45 % of all fresh fruits and vegetables , including 40 % of apples and 20 % of bananas , are lost to spoilage . agrofresh plays a key role in the value chain by offering products and services that maintain produce freshness and , thus , reduce waste . agrofresh 's current principal product , smartfresh , regulates the post-harvest ripening effects of ethylene , the naturally occurring plant regulator that triggers ripening in certain fruits and vegetables . smartfresh is naturally biodegradable , leaves no detectable residue , and has been approved for use by many domestic and global regulatory organizations . harvista extends the company 's proprietary technology into pre-harvest management of pome fruit such as apples and pears . advanstore is an atmospheric monitoring system under development that leverages the company 's extensive understanding of fruit physiology , fruit respiration , current controlled atmosphere technology , and new proprietary diagnostic tools . ripelock combines the technology behind smartfresh with modified atmosphere packaging designed specifically to preserve quality during transportation and to extend the yellow shelf life of bananas . agrofresh 's business is highly seasonal , driven by the timing of harvests in the northern and southern hemispheres . the first half of the year encompasses the southern hemisphere harvest season and the second half of the year encompasses the northern hemisphere harvest season . since the northern hemisphere harvest is typically larger , a significant portion of our sales and profits are historically generated in the second half of the year . in addition to this seasonality , factors such as weather patterns may impact the timing of the harvest within the two halves of the year . story_separator_special_tag in certain instances , if sales in a given geography have been adversely impacted on a long-term basis due to foreign currency depreciation , the company has been able to adjust its pricing so as to mitigate the impact on profitability . domestic and foreign operations the company has both domestic and foreign operations . fluctuations in foreign exchange rates , regional growth-related spending in research and development ( r & d ) and marketing expenses , and changes in local selling prices , among other factors , may impact the profitability of foreign operations in the future . critical accounting policies and use of estimates our discussion and analysis of results of operations and financial condition are based upon our financial statements . these financial statements have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements . we base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis . actual results could differ from our estimates under different assumptions or conditions . our significant accounting policies , which may be affected by our estimates and assumptions , are more fully described in note 2 to the audited consolidated and combined financial statements . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements . asset impairments factors that could result in future impairment charges , among others , include changes in worldwide economic conditions , changes in technology , changes in competitive conditions and customer preferences , and fluctuations in foreign currency exchange rates . these risk factors are discussed in part i , item 1a , risk factors. goodwill as discussed in note 2 , summary of significant accounting policies , in the audited consolidated financial statements , the company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually . intangibles are tested for impairment using a quantitative impairment model . we test goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test . the qualitative evaluation is an assessment of factors , including reporting unit specific operating results and cost factors , as well as industry , market and general economic conditions , to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . we may elect to bypass this qualitative assessment and perform a two-step quantitative test . fair values under the quantitative test are estimated using a combination of discounted projected future earnings or cash flow methods and multiples of earnings in estimating fair value . we consider the company to be one reporting unit for purposes of testing goodwill for impairment . for the 2015 impairment tests , we utilized the quantitative methods to assess impairment and we concluded that goodwill was not impaired . the inputs utilized in the analyses are classified as level 3 inputs within the fair value hierarchy as defined in asc 820 , fair value . measurement . the process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions as to our future cash flows , discount rates commensurate with the risks involved in the assets , future economic and market conditions , as well as other key assumptions . we believe that the amounts recorded in the financial statements related to goodwill are based on the best estimates and judgments of the company 's management , although actual outcomes could differ from our estimates . our annual test of goodwill indicated that the fair value of the company exceeded the carrying value by more than 50 % as of december 31 , 2015. if our projected ebitda decreased by 10 % , the fair value would still exceed the carrying value by approximately 30 % . projected ebitda would have to fall by slightly more than 20 % for goodwill to be impaired . additionally , the company could increase the discount rates used in its calculation by one 35 percentage point and the fair value would still exceed the carrying value by approximately 27 % as of december 31 , 2015. other intangible assets we conducted our 2015 annual indefinite-lived intangible assets impairment assessment as of december 31 , 2015 and plan to update this assessment annually each december , unless conditions arise that would require a more frequent evaluation . in assessing the recoverability of indefinite-lived intangible assets , projections regarding estimated discounted future cash flows and other factors are made to determine if impairment has occurred . if we conclude that there has been impairment , we will write down the carrying value of the asset to its fair value . each year , we evaluate those intangible assets with indefinite lives to determine whether events and circumstances continue to support the indefinite useful lives . when testing indefinite-lived intangible assets for impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not ( more than 50 % ) that the fair value of an indefinite-lived intangible asset is less than its carrying amount .
| results of operations the following table summarizes the results of operations for both the successor and predecessor periods : replace_table_token_7_th 39 comparison of results of operations for january 1 , 2015 through july 31 , 2015 ( predecessor ) , august 1 , 2015 through december 31 , 2015 ( successor ) and the twelve months ended december 31 , 2014 ( predecessor ) : net sales net sales were $ 52.7 million for the seven months ended july 31 , 2015 and $ 111.1 million for the five months ended december 31 , 2015 , as compared to net sales of $ 180.5 for the twelve months ended december 31 , 2014. the overall decrease in net sales in fiscal year 2015 from fiscal year 2014 was primarily related to a smaller northern hemisphere apple crop , primarily in north america . the company estimates that the north american apple crop size was down roughly 20 % versus 2014. net sales in north america decreased to $ 58.8 million for 2015 , down 20 % from $ 73.5 million in 2014. the decrease in net sales is primarily due to a smaller apple crop in north america compared to 2014. other fruits increased by $ 0.2 million , or 6.5 % , as compared to 2014. net sales in emea decreased by 4.6 % to $ 64.9 million in 2015 , from $ 68.0 million in 2014. excluding currency impact of $ 9.8 million , emea net sales increased by $ 6.7 million , primarily due to increased penetration in apples and other fruits in south africa , italy and france , among others . net sales in latin america decreased $ 0.5 million , mainly due to a smaller apple crop in brazil and chile , offset by increased penetration in argentina and mexico .
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dividends paid on unvested restricted stock are reimbursed to the company if the recipient forfeits his or her shares as a result of termination of employment story_separator_special_tag you should read the following discussion in conjunction with “ selected financial data , ” our consolidated financial statements and the notes thereto , the “ cautionary notice regarding forward-looking statements , ” item 1a entitled “ risk factors ” and the other information appearing elsewhere , or incorporated by reference , in this annual report on form 10-k. background and overview we are an education services holding company that owns strayer university and , as of january 13 , 2016 , the new york code and design academy . strayer university is an institution of higher education which offers undergraduate and graduate degree programs at physical campuses , predominantly located in the eastern united states , and online . set forth below are average strayer university enrollment , full-time undergraduate tuition rates , revenues , income from operations , net income , and diluted net income per share for the last three years . replace_table_token_8_th strayer university derives approximately 96 % of its revenue from tuition for educational programs , whether delivered in person at a physical campus or delivered online . the academic year of the university is divided into four quarters , which approximately coincide with the four quarters of the calendar year . students make payment arrangements for the tuition for each course at the time of enrollment . tuition revenue is recognized in the quarter of instruction . if a student withdraws from a course prior to completion , the university refunds a portion of the tuition 44 depending on when the withdrawal occurs . tuition revenue is shown net of any refunds , withdrawals , corporate discounts , employee tuition discounts and scholarships . the university also derives revenue from other sources such as textbook-related income , certificate revenue , certain academic fees , licensing revenue , and other income , which are all recognized when earned . tuition receivable and deferred revenue for our students are recorded upon the start of the academic term . because the university 's academic quarters coincide with the calendar quarters , at the end of the fiscal quarter ( and academic term ) , tuition receivable represents amounts due from students for educational services already provided and deferred revenue represents advance payments for academic services to be provided in the future . based upon past experience and judgment , the university establishes an allowance for doubtful accounts with respect to accounts receivable . any uncollected account more than one year past due is charged against the allowance . accounts less than one year past due are reserved according to the length of time the balance has been outstanding . in establishing reserve amounts , we also consider the status of students as to whether or not they are currently enrolled for the next term , as well as the likelihood of recovering balances that have previously been written off , based on historical experience . bad debt expense as a percentage of revenues for the years ended december 31 , 2013 , 2014 , and 2015 , was 4.4 % , 3.8 % and 3.0 % , respectively . below is a description of the nature of the costs included in our operating expense categories : instruction and educational support expenses generally contain items of expense directly attributable to educational activities of the university . this expense category includes salaries and benefits of faculty and academic administrators , as well as administrative personnel who support and serve student interests . instruction and educational support expenses also include costs of educational supplies and facilities , including rent for campus facilities , certain costs of establishing and maintaining computer laboratories and all other physical plant and occupancy costs , with the exception of costs attributable to the corporate offices . bad debt expense incurred on delinquent student account balances is also included in instruction and educational support expenses . marketing expenses include the costs of advertising and production of marketing materials and related personnel costs . admissions advisory expenses include salaries , benefits and related costs of personnel engaged in admissions . general and administration expenses include salaries and benefits of management and employees engaged in accounting , human resources , legal , regulatory compliance , and other corporate functions , along with the occupancy and other related costs attributable to such functions . investment income consists primarily of earnings and realized gains or losses on investments , and interest expense consists of interest incurred on our outstanding borrowings , unused revolving credit facility fees , and amortization of deferred financing costs . we acquired the new york code and design academy ( “ nycda ” ) on january 13 , 2016. nycda provides non-degree courses in web and application software development , primarily at its campus in new york city . the acquisition did not impact our 2015 results and nycda 's results of operations will be included in our results from the acquisition date . critical accounting policies and estimates “ management 's discussion and analysis of financial condition and results of operations ” discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosures of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and judgments related to its allowance for doubtful accounts ; income tax provisions ; the useful lives of property and equipment ; redemption rates for scholarship programs ; fair value of future contractual operating lease obligations for facilities that have been closed ; valuation of deferred tax assets , goodwill , and intangible assets ; forfeiture rates and achievability of performance targets for stock-based compensation plans ; and accrued expenses . story_separator_special_tag the estimated value of awards under the graduation fund that will be recognized in the future is based on historical experience of students ' persistence in completing their course of study and earning a degree . estimated redemption rates of eligible students vary based on their term of enrollment . as of december 31 , 2015 , we had deferred $ 20.9 million for estimated redemptions earned under the graduation fund . each quarter we assess our methodologies and assumptions underlying our estimates for persistence and estimated redemptions based on actual experience . to date , any adjustments to our estimates have not been material . however , if actual persistence or redemption rates change , adjustments to the reserve may be necessary and could be material . tuition receivable — we record estimates for our allowance for doubtful accounts for tuition receivable from students primarily based on our historical collection rates by age of receivable , net of recoveries , and consideration of other relevant factors . our experience is that payment of outstanding balances is significantly influenced by whether the student returns to the institution as we require students to make payment arrangements for their outstanding balances prior to enrollment . therefore , we monitor outstanding tuition receivable balances through subsequent terms , increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely . we periodically assess our methodologies for estimating bad debts in consideration of actual experience . if the financial condition of our students were to deteriorate , resulting in evidence of impairment of their ability to make required payments for tuition payable to us , additional allowances or write-offs may be required . during 2014 and 2015 , our bad debt expense was 3.8 % and 3.0 % of revenue , respectively . a change in our allowance for doubtful accounts of 1 % of gross tuition receivable as of december 31 , 2015 would have changed our income from operations by approximately $ 0.3 million . accrued lease and related costs — we estimate potential sublease income and vacancy periods for space that is not in use , adjusting our estimates when circumstances change . if our estimates change or if we enter into subleases at rates that are substantially different than our current estimates , we will adjust our liability for lease and related costs . in 2014 and 2015 , we reduced our liability for leases by approximately $ 4.1 million and $ 0.4 million , respectively . other estimates — we record estimates for certain of our accrued expenses and income tax liabilities . we estimate the useful lives of our property and equipment . we periodically assess goodwill and intangible assets for impairment . we periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary . should actual results differ from our estimates , revisions to our accrued expenses , carrying amount of goodwill and intangible assets , stock-based compensation expense , and income tax liabilities may be required . story_separator_special_tag 2014. general and administration expenses as a percentage of revenues increased to 10.2 % for 2015 from 10.1 % in 2014. income from operations . income from operations decreased $ 12.0 million , or 15 % , to $ 69.7 million in 2015 from $ 81.7 million in 2014. interest expense . interest expense decreased to $ 3.9 million in 2015 from $ 5.2 million in 2014 following the repayment in july 2015 of all our outstanding debt in connection with our amended credit facility . we have $ 150.0 million available under our revolving credit facility and no balance outstanding as of december 31 , 2015. we expect interest expense to be in the range of $ 0.7-0.8 million in 2016 following the repayment of all our outstanding debt in 2015. provision for income taxes . income tax expense decreased $ 4.2 million , or 14 % , to $ 26.1 million in 2015 from $ 30.3 million in 2014 , primarily due to the decrease in income before income taxes attributable to the factors discussed above . our effective tax rate was 39.5 % for 2015 and 2014. we expect our tax rate for 2016 to be in the range of 39.0-39.5 % . net income . net income decreased $ 6.4 million to $ 40.0 million in 2015 from $ 46.4 million in 2014 due to the factors discussed above . year ended december 31 , 2014 compared to year ended december 31 , 2013 enrollment . average enrollment decreased 8 % to 40,254 students for the year ended december 31 , 2014 from 43,969 students for the same period in 2013. revenues . revenues decreased 11 % to $ 446.0 million in 2014 from $ 503.6 million in 2013 , principally due to an average enrollment decline of 8 % and a decline in revenue per student of 3 % . the decline in revenue per student is largely attributable to a new pricing structure which reduced tuition for new undergraduate students by approximately 20 % , and made them eligible for our graduation fund . revenues for undergraduate students declined 17 % in 2014 , driven by a decrease in enrollment of 10 % and a decline of 8 % in revenue per student , resulting mostly from the new pricing structure for new undergraduate students . for graduate students , revenues increased 1 % in 2014 , driven by an increase in revenue per student of 7 % , offset by a decline in enrollment of 6 % . the increase in graduate revenue per student was due primarily to lower scholarships compared to the same period in 2013. instruction and educational support expenses .
| results of operations in 2015 , we generated $ 434.4 million in revenue , a 3 % decrease compared to 2014 , principally due to a 3 % decline in revenue per student . income from operations was $ 69.7 million in 2015 , and includes approximately $ 0.4 million in adjustments to reduce our liability for losses on facilities no longer in use . income from operations in 2014 was $ 81.7 million , which includes $ 4.1 million in adjustments related to the company 's restructuring implemented in the fourth quarter of 2013. net income in 2015 was $ 40.0 million , including approximately $ 0.3 million in after-tax benefits from adjustments to the company 's liability for facilities no longer in use , compared to $ 46.4 million for the same period in 2014 , which reflected approximately $ 2.6 million in after-tax charges related to the restructuring . diluted earnings per share was $ 3.73 compared to $ 4.35 for the same period in 2014. diluted earnings per share for 2015 includes $ 0.03 per share in after-tax earnings related to the reduction of the company 's liability for losses on facilities no longer in use , and diluted earnings per share for 2014 reflects approximately $ 0.23 per share in after-tax charges related to the restructuring . key enrollment trends by quarter for our total population of students were as follows : replace_table_token_9_th 47 since 2013 we have introduced a number of initiatives in response to the variability in our enrollment . recognizing that affordability is an important factor in a prospective student 's decision to seek a college degree , we reduced strayer university undergraduate tuition for new students by 20 % beginning in our 2014 winter academic term . we also introduced the graduation fund in mid-2013 , whereby qualifying students can receive one free course for every three courses successfully completed .
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transaction costs in 2018 and 2017 relate to the acquisition of signode as described in note b . in 2017 , other costs included a charge of $ 19 due to the settlement of a litigation matter related to mivisa that arose prior to its acquisition by the company in 2014. in 2018 , the company recorded a benefit of $ 6 due to the favorable settlement of this matter . restructuring charges by segment were as follows : replace_table_token_34_th restructuring charges by type were as follows : replace_table_token_35_th at december 31 , 2019 , the story_separator_special_tag ( in millions , except per share , average settlement cost per asbestos claim , employee , shareholder and statistical data ) introduction the following discussion summarizes the significant factors affecting the results of operations and financial condition of crown holdings , inc. ( the `` company '' ) as of and during the three-year period ended december 31 , 2019. this discussion should be read in conjunction with the consolidated financial statements included in this annual report . business strategy and trends the company 's strategy is to grow its businesses in targeted growth markets , while improving operations and results in more mature markets through disciplined pricing , cost control and careful capital allocation . in april 2018 , the company completed its acquisition of signode industrial group , a leading global provider of transit packaging systems and solutions , for consideration of $ 3.9 billion . with the acquisition , the company added a portfolio of premier transit and protective packaging franchises to its existing metal packaging businesses , thereby broadening and diversifying its customer base and product offerings and significantly increasing cash flow . in november 2019 , the company announced a board-led review of the company 's portfolio and capital allocation , which is ongoing . the company 's global beverage can business continues to be a major strategic focus for organic growth . for several years , global industry demand for beverage cans has been growing and this is expected to continue in the coming years . after many years of relatively flat volumes , beverage can growth in north america has accelerated mainly due to the outsized portion of new beverage products being introduced in cans versus other packaging formats . in addition , markets such as brazil , europe and southeast asia have also experienced higher volumes and market expansion . beverage cans are the world 's most sustainable and recycled beverage packaging and continue to gain market share in new beverage product launches . the company continues to drive brand differentiation by increasing its ability to offer multiple product sizes . in addition , the company continues to generate strong returns on invested capital and significant cash flow from its non-beverage can operations including its global food can and transit packaging businesses . the company 's primary capital allocation focus will be to reduce leverage , as was successfully accomplished following previous acquisitions , and begin to return capital to its shareholders . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; padding-left:53px ; font-size:10pt ; '' > the company 's european beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout europe , the middle east and north africa . in recent years , the western european beverage can markets have been growing . in october 2018 , the first line of a new beverage can plant in valencia , spain began operations and a second line began operations in february 2019. the multi-year project to convert beverage can capacity in spain from steel to aluminum is nearing completion as both lines in the seville , spain plant , which have multi-size capability , will be in commercial production in the second quarter of 2020. additionally , in december 2018 , the company commenced operations at a new one-line plant in parma , italy . 28 crown holdings , inc. net sales and segment income in the european beverage segment were as follows : replace_table_token_5_th year ended december 31 , 2019 compared to 2018 net sales increased primarily due to 6 % higher sales unit volumes , partially offset by $ 56 related to the impact of foreign currency translation and the pass-through of lower aluminum costs . segment income decreased primarily due to higher depreciation related to recent capacity expansion and line conversions and $ 5 from the impact of foreign currency translation , partially offset by higher sales unit volumes . year ended december 31 , 2018 compared to 2017 net sales increased primarily due to $ 34 related to the impact of foreign currency translation and the pass-through of higher raw material costs , partially offset by 10 % lower sales unit volumes in the middle east . segment income decreased primarily due to lower sales in the middle east and higher startup costs at new operations . european food the european food segment manufactures steel and aluminum food cans and ends and metal vacuum closures , and supplies a variety of customers from its operations throughout europe and africa . the european food can market is a mature market where consumer preference continues to favor the can due to product protection and food preservation , however , challenging harvest yields have led to volume declines in recent years . net sales and segment income in the european food segment were as follows : replace_table_token_6_th year ended december 31 , 2019 compared to 2018 net sales decreased primarily due to $ 102 from the impact of foreign currency translation , partially offset by the pass-through of higher raw material costs . segment income decreased primarily due to unfavorable product mix , higher tinplate and other operating costs that were not fully passed through in selling price and $ 11 from the impact of foreign currency translation . story_separator_special_tag depreciation and amortization expense increased from $ 247 in 2017 to $ 425 in 2018 primarily due to the impact of the signode acquisition . selling and administrative expense selling and administrative expense increased from $ 367 in 2017 to $ 558 in 2018 and $ 631 in 2019 primarily due to the impact of the signode acquisition . interest expense interest expense decreased from $ 384 in 2018 to $ 378 in 2019 primarily due to lower interest rates offset by higher average outstanding debt incurred to finance the signode acquisition . interest expense increased from $ 252 in 2017 to $ 384 in 2018 primarily due to higher outstanding debt from borrowings incurred to finance the signode acquisition . 31 crown holdings , inc. taxes on income the company 's effective income tax rates were as follows : replace_table_token_11_th the lower effective tax rate in 2019 was primarily due to a tax benefit of $ 36 from the release of a valuation allowance against the company 's net deferred tax assets in luxembourg and a tax benefit of $ 9 arising from tax law changes in india , partially offset by a charge of $ 15 to settle a tax contingency arising from a transaction that occurred prior to the acquisition of signode . the effective rate in 2018 included $ 24 related to taxes on the distributions of foreign earnings , which were previously asserted to be indefinitely reinvested . the higher effective tax rate in 2017 was primarily due to a net charge of $ 177 to recognize the impact of u.s. federal tax reform which reduced the u.s. corporate tax rate from 35 % to 21 % , imposed a limitation on the tax deduction for interest expense , net of interest income , to 30 % of a u.s. corporation 's adjusted taxable income and also changed certain provisions related to the taxation of non-u.s. subsidiary earnings . for additional information regarding income taxes , see note s to the consolidated financial statements and the critical accounting policies section of this “ management 's discussion and analysis of financial condition and results of operations ” for a discussion of the company 's policies with respect to valuation allowances . net income attributable to noncontrolling interests net income attributable to noncontrolling interest increased from $ 89 in 2018 to $ 115 in 2019 primarily due to higher earnings in the company 's beverage can operations in brazil , including the impact of a favorable court ruling related to the recovery of indirect taxes paid in prior years . net income attributable to noncontrolling interest decreased from $ 105 in 2017 to $ 89 in 2018 primarily due to lower earnings in the company 's beverage can operations in brazil and the middle east . liquidity and capital resources operating activities cash provided by operating activities increased from $ 571 in 2018 to $ 1,163 in 2019 primarily due to higher income from operations and changes in working capital partially offset by cash used for interest payments in 2019 related to outstanding borrowings incurred to finance the signode acquisition . receivables decreased from $ 1,602 at december 31 , 2018 to $ 1,528 at december 31 , 2019 primarily due to increased securitization and factoring and lower aluminum costs , partially offset by higher sales unit volumes . days sales outstanding for trade receivables , excluding the impact of unbilled receivables , decreased from 41 at december 31 , 2018 to 36 at december 31 , 2019 , primarily related to increased securitization and factoring . inventories decreased from $ 1,690 at december 31 , 2018 to $ 1,626 at december 31 , 2019 primarily due to lower inventory levels in the transit packaging segment . inventory turnover was 64 days at december 31 , 2018 compared to 63 days at december 31 , 2019. the food can business is seasonal with the first quarter tending to be the slowest period as the autumn packaging period in the northern hemisphere has ended and new crops are not yet planted . the industry enters its busiest period in the third quarter when the majority of fruits and vegetables in the northern hemisphere are harvested . due to this seasonality , inventory levels increase in the first half of the year to meet peak demand in the second and third quarters . the beverage can business is also seasonal with inventory levels generally increasing in the first half of the year to meet peak demand in the summer months in the northern hemisphere . 32 crown holdings , inc. accounts payable decreased from $ 2,732 at december 31 , 2018 to $ 2,646 at december 31 , 2019 and days outstanding for trade payables decreased from 107 days at december 31 , 2018 to 99 days at december 31 , 2019 primarily due to lower aluminum costs and lower inventory levels in the transit packaging segment . investing activities cash used for investing activities decreased from $ 3,843 in 2018 to $ 374 in 2019. in 2018 , investing activities included $ 3,912 paid to acquire signode . additionally , in 2018 , the company had cash collections of $ 490 on beneficial interest in transferred receivables . the company terminated its north american securitization facility in july 2018 and entered into a new facility which removed the deferred purchase price component but requires the company to maintain a deposit in a restricted cash account . see note e to the consolidated financial statements for a discussion of the company 's securitization programs . the company currently expects capital expenditures in 2020 to be approximately $ 600. at december 31 , 2019 , the company had approximately $ 86 of capital commitments . the company expects to fund these commitments primarily through cash generated from operations . financing activities financing activities provided cash of $ 3,533 in 2018 primarily due to proceeds from borrowings to finance the signode acquisition and used cash of $ 785 in 2019 primarily to pay down debt .
| results of operations the key measure used by the company in assessing performance is segment income , a non-gaap measure generally defined by the company as income from operations adjusted to exclude intangibles amortization charges , provisions for asbestos and restructuring and other , and the impact of fair value adjustments to inventory acquired in an acquisition . the foreign currency translation impacts referred to in the discussion below were primarily due to changes in the euro and pound sterling in the company 's european segments , the canadian dollar and mexican peso in the company 's americas segments , the chinese renminbi , malaysian ringgit and thai baht in the company 's asia pacific segment and the euro in the company 's transit packaging segment . the company calculates the impact of foreign currency translation by multiplying or dividing , as appropriate , current year u.s. dollar results by the current year average foreign exchange rates and then multiplying or dividing , as appropriate , those amounts by the applicable prior year average exchange rates . net sales and segment income replace_table_token_3_th year ended december 31 , 2019 compared to 2018 net sales increased primarily due to $ 569 from an additional three months of signode 's operations and 3 % higher global beverage sales unit volumes , partially offset by the impact of foreign currency translation . 27 crown holdings , inc. year ended december 31 , 2018 compared to 2017 net sales increased primarily due to $ 1,800 from the acquisition of signode , pass-through of higher raw material costs , 4 % higher global beverage sales unit volumes , $ 134 from the impact of foreign currency translation and $ 27 from the impact of new accounting guidance adopted during the year which accelerated the timing of revenue recognition on certain products .
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a reporting system supplements the review process by providing management with frequent reports related to loan production , loan quality , concentrations of credit , loan delinquencies and nonperforming and potential problem loans . diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions . the majority of the loans the company originates are investment and business loans ( multi-family , nonresidential real estate , commercial , construction and land loans , and commercial leases ) . in addition , we originate one-to-four family story_separator_special_tag the discussion and analysis that follows focuses on the factors affecting our consolidated financial condition at december 31 , 2011 and 2010 , and our consolidated results of operations for the three years ended december 31 , 2011. the consolidated financial statements , the related notes and the discussion of our critical accounting policies appearing elsewhere in this annual report should be read in conjunction with this discussion and analysis . overview loans . our loan portfolio consists primarily of investment and business loans ( multi-family , nonresidential real estate , commercial , construction and land loans , and commercial leases ) , which together make up 78.2 % of gross loans at december 31 , 2011. net loans receivable increased $ 176.6 million , or 16.8 % , to $ 1.227 billion at december 31 , 2011 , from $ 1.051 billion at december 31 , 2010 , due in substantial part to an acquisition of a portfolio of $ 152.1 million of performing chicago area multi-family loans on march 11 , 2011 and the $ 118.1 million in loans that were acquired from downers grove national bank . at the closing of the acquisition in march of 2011 , downers grove national bank 's loans consisted of $ 49.4 million one-to-four family residential mortgage loans , $ 2.2 million of multi-family mortgage loans , $ 40.5 million nonresidential real estate loans , $ 14.9 million construction and land loans , $ 9.9 million commercial loans , and $ 1.1 million consumer loans . multi-family mortgage loans increased by $ 126.7 million , or 42.7 % . commercial loans increased by $ 29.3 million , or 45.2 % . nonresidential real estate loans increased $ 29.7 million , or 10.5 % . construction and land loans increased $ 1.5 million , or 7.9 % . one-to-four family residential mortgage loans increased $ 15.7 million , or 6.1 % . commercial leases decreased by $ 16.1 million , or 10.7 % , as scheduled lease payments outpaced originations . future loan growth could be adversely affected by our unwillingness to compete for loans by relaxing our historical underwriting standards . securities . securities decreased $ 27.9 million , or 23.1 % , to $ 92.8 million at december 31 , 2011 , from $ 120.7 million at december 31 , 2010 , due primarily to the receipt of principal repayments of $ 30.7 million in our residential mortgage-backed and collateralized mortgage obligation portfolio . during 2011 and 2010 , we also invested in fdic insured certificates of deposit issued by other insured depository institutions . stock in federal home loan bank of chicago . we owned $ 16.3 million of common stock of the fhlbc at december 31 , 2011 , compared to $ 15.6 million at december 31 , 2010. the increase was due to $ 748,000 in fhlbc stock that we acquired in our acquisition of downers grove national bank . deposits . deposits increased $ 97.2 million , or 7.9 % , to $ 1.333 billion at december 31 , 2011 , from $ 1.235 billion at december 31 , 2010. the increase in deposits was primarily due to the deposits acquired in our acquisition of downers grove national bank . at the closing of the acquisition in march of 2011 , downers grove national bank had $ 36.1 million in noninterestbearing demand deposit accounts , $ 39.3 million in savings accounts , $ 17.3 million in money market accounts , $ 31.7 million in interestbearing now accounts , and $ 86.6 million of certificates of deposits . we increased our core deposits ( savings , money market , noninterest-bearing demand and now accounts ) by $ 112.8 million and reduced our balances of wholesale deposits by $ 5.8 million during the year . core deposits increased as a percentage of total deposits , representing 72.7 % of total deposits at december 31 , 2011 , compared to 69.2 % of total deposits at december 31 , 2010. borrowings . borrowings decreased $ 14.4 million , or 60.7 % , to $ 9.3 million at december 31 , 2011 , from $ 23.7 million at december 31 , 2010 , due to our repayments of maturing fhlbc advances . stockholders ' equity . total stockholders ' equity was $ 199.9 million at december 31 , 2011 , compared to $ 253.3 million at december 31 , 2010. the decrease in total stockholders ' equity was primarily due to the combined impact of our $ 48.7 million net loss , our declaration and payment of cash dividends totaling $ 4.6 million , and a $ 689,000 decrease in accumulated other comprehensive income during the year ended december 31 , 2011. the unallocated shares of common stock that our esop owns were reflected as a $ 13.2 million reduction to stockholders ' equity at december 31 , 2011 , compared to a $ 14.2 million reduction to stockholders ' equity at december 31 , 2010 . 25 net loss . we recorded a net loss of $ 48.7 million for the year ended december 31 , 2011 , compared to net losses of $ 4.3 million and $ 738,000 for 2010 and 2009 , respectively . story_separator_special_tag our board of directors declared four quarterly cash dividends totaling of $ 0.22 per share during 2011. cash dividends totaling $ 4.6 million were paid in 2011. as a result of the regulatory restructuring occasioned by the dodd-frank act , the company became subject to federal reserve board supervisory letter sr 09-4 on july 21 , 2011 , which provides that a holding company should , among other things , inform the federal reserve bank prior to declaring a dividend if its net income for the current quarter is not sufficient to fully fund the dividend , and inform the federal reserve bank and consider eliminating , deferring or significantly reducing its dividends if its net income for the current quarter is not sufficient to fully fund the dividends , or if its net income for the past four quarters , net of dividends previously paid during that period , is not sufficient to fully fund the dividends . the company does not have sufficient net income for the fourth quarter of 2011 or sufficient net income for the past four quarters net of dividends previously paid to declare a dividend for the fourth quarter of 2011 without first consulting with the federal reserve bank of chicago . as a consequence , the company is currently in discussions with the federal reserve bank of chicago with respect to whether a dividend should be declared for the quarter ended december 31 , 2011 and , if declared , at what level . there can be no assurance that a dividend will be declared or , if it is declared , at what level . stock repurchase program . our board of directors has authorized the repurchase of up to 5,047,423 shares of our common stock . the authorization permits shares to be repurchased in open market or negotiated transactions , and pursuant to any trading plan that may be adopted in accordance with rule 10b5-1 of the securities and exchange commission . the authorization may be utilized at management 's discretion , subject to the limitations set forth in rule 10b-18 of the securities and exchange commission and other applicable legal requirements , and to price and other internal limitations established by the board of directors . the repurchase authorization will expire on may 15 , 2012 , unless extended by the board of directors . as of december 31 , 2011 , the company had repurchased 4,239,134 shares of its common stock pursuant to the repurchase authorization . federal reserve board supervisory letter sr 09-4 provides that holding companies experiencing financial weaknesses such as operating losses should consult with the appropriate federal reserve supervisory staff before redeeming or repurchasing common stock . the company has not initiated discussions with the federal reserve supervisory staff with respect to common stock repurchases , and has no plans to initiate such discussions in the immediate future . due to the company 's operating loss in 2011 , the company will not undertake any further share repurchases without engaging in discussions with the federal reserve supervisory staff . economic and competitive conditions during 2011 , the national and local economies showed limited signs of recovery . the principal challenges in the local economy , the chicago metropolitan area , continue to be persistent unemployment and declining real estate values , with certain geographic sub-markets considerably more adversely affected than others . pricing and underwriting for multi-family and commercial real estate loans came under increasing pressure towards the end of 2011. competition and pricing for commercial and industrial loans and commercial leases also increased steadily throughout the year . given recent federal reserve board projections of modest u.s. economic growth , weak employment growth and expected market interest rate levels for the next several years , we believe that pricing and underwriting competition on multifamily , commercial real estate and commercial loans and commercial leases will continue to intensify in 2012. we also expect that the combination of current market interest rate levels and government participation in residential lending markets will continue to result in higher prepayments on our adjustable-rate residential loan portfolio due to borrower refinance activity into 30-year fixed rate mortgage loans sold into the secondary market . although there are some signs of stabilization in market rents , occupancies and real estate valuations , local governmental and judicial policies concerning foreclosure processing currently prevent the normal type of market clearing transactions that reduce the supply of available inventory and , consequently , contribute towards a stabilization of valuations . to the extent that this shadow inventory clears more rapidly in 2012 than in 2011 , improved results in terms of borrower defaults and losses given defaults can be expected . 27 overview of 2011 core operating earnings and franchise growth for 2011 , a key priority was to deploy the company 's excess liquidity and continue its franchise growth in a meaningful manner to improve the company 's core operating earnings and long-term market position . we evaluated many different opportunities , including the conduct of due diligence on loan portfolios for sale and on several local depository institutions . we were able to successfully negotiate and close the acquisition of a $ 152 million performing multifamily loan portfolio and to close the downers grove national bank acquisition at the end of first quarter , 2011. the data conversions and customer retention / transition plans for these transactions were successfully concluded by the end of third quarter , 2011. in an overall environment of stagnant to negative loan growth and declining market yields , our net interest income ( before loan loss provision ) grew 21 % compared to 2010. in addition , the two downers grove national bank locations were an important enhancement to our geographic footprint due to their strong base of high value core deposit relationships . the downers grove national bank trust department also enhanced our existing wealth management operations and provided opportunities to enhance future non-interest income .
| nonperforming assets summary the following table below sets forth the amounts and categories of our nonperforming loans and nonperforming assets at the dates indicated . replace_table_token_7_th ( 1 ) these asset quality ratios exclude purchased impaired loans and purchased other real estate owned resulting from the downers grove national bank acquisition . 39 loans on nonaccrual status non-accrual loans increased by $ 16.6 million in 2011 , due in substantial part to issues arising with several exposures as set forth below : we completed the sale of our largest wholesale commercialmulti-family non-performing asset in fourth quarter , 2011 with a gross principal balance of $ 4.4 million as of the end of the previous quarter . the transaction did not require an increase to the specific valuation allowance for the fourth quarter , 2011 ; however , we recorded a charge-off of $ 1.5 million reflecting the final disposition of the asset as of december 31 , 2011. we have a $ 6.1 million total credit exposure secured by industrial/flex suburban chicago commercial real estate owned by a family . as disclosed in third quarter , 2011 , the owners are liquidating this portfolio in an orderly sales process . of the $ 6.1 million in total credit exposure , four properties with a total loan balance of $ 2.9 million have sufficient net operating income to make scheduled loan payments . three properties with a total loan balance of $ 3.2 million have insufficient net operating income to make scheduled loan payments ; however , the owners have historically established a supplemental cash reserve to fund the difference necessary to make all scheduled loan payments pending the liquidation of the properties .
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goodwill cadence conducts a goodwill impairment analysis annually and as necessary if changes in facts and circumstances indicate that the fair value of cadence 's single reporting unit may be less than its carrying amount . cadence 's story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k and with part i , item 1a , “ risk factors. ” please refer to the cautionary language at the beginning of part i of this annual report on form 10-k regarding forward-looking statements . business overview we continue to focus on executing our system design enablement , or sde , strategy to deliver the technologies necessary for integrated system and soc design with an end product in mind . our growing core eda business is at the heart of our sde strategy and is complemented by our business in ip , system interconnect and analysis , system level design and hardware-software development . our business serves customers that are driven by end-user demand for electronics systems , ics and devices that are smaller , use less power and provide more functionality . we offer innovative solutions to help our customers meet these demands . our future performance depends on our ability to innovate , commercialize newly developed solutions and enhance and maintain our current products . we must keep pace with our customers ' technical developments , satisfy industry standards and meet our customers ' increasingly demanding performance , productivity , quality and predictability requirements . we expect to continue to invest in research and development and customer and partner relationships . we have identified certain items that management uses as performance indicators to manage our business , including revenue , certain elements of operating expenses and cash flow from operations , and we describe these items further below under the headings “ results of operations ” and “ liquidity and capital resources. ” critical accounting estimates in preparing our consolidated financial statements , we make assumptions , judgments and estimates that can have a significant impact on our revenue , operating income and net income , as well as on the value of certain assets and liabilities on our consolidated balance sheets . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . at least quarterly , we evaluate our assumptions , judgments and estimates , and make changes as deemed necessary . we believe that the assumptions , judgments and estimates involved in the accounting for income taxes , revenue recognition , business combinations , intangible asset and goodwill impairments and fair value of financial instruments have the greatest potential impact on our consolidated financial statements ; therefore , we consider these to be our critical accounting estimates . for information on our significant accounting policies , see note 2 in the notes to consolidated financial statements . accounting for income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in evaluating and estimating our provision for these taxes . there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain . our provision for income taxes could be adversely affected by our earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize the related tax benefit , changes in foreign currency exchange rates , entry into new businesses and geographies and changes to our existing businesses , acquisitions ( including integrations ) and investments , changes in our deferred tax assets and liabilities including changes in our assessment of valuation allowances , changes in the relevant tax laws or interpretations of these tax laws , and developments in current and future tax examinations . we only recognize the tax benefit of an income tax position if we judge that it is more likely than not that the tax position will be sustained , solely on its technical merits , in a tax audit including resolution of any related appeals or litigation processes . to make this judgment , we must interpret complex and sometimes ambiguous tax laws , regulations and administrative practices . if we judge that an income tax position meets this recognition threshold , then we must measure the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50 % cumulative probability of being realized upon effective settlement with a taxing authority that has full knowledge of all of the relevant facts . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible settlement outcomes . we must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances , changes in tax law , effectively settled issues under audit , the lapse of applicable statute of limitations , and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . for a more detailed description of our unrecognized tax benefits , see note 6 in the notes to consolidated financial statements . 28 revenue recognition we begin to recognize revenue when all of the following criteria are met : we have persuasive evidence of an arrangement with a customer ; delivery has occurred ; the fee for the arrangement is considered to be fixed or determinable at the outset of the arrangement ; and collectibility of the fee is probable . story_separator_special_tag we calculate the besp of our hardware products based on our pricing practices , including the historical average prices charged for comparable hardware products , because vsoe or tpe can not be established . our process for determining besp for our software deliverables without vsoe or tpe takes into account multiple factors that vary depending upon the unique facts and circumstances related to each deliverable . key external and internal factors considered in developing the besps include prices charged by us for similar arrangements , historical pricing practices and the nature of the product . in addition , when developing besps , we may consider other factors as appropriate , including the pricing of competitive alternatives if they exist , and product-specific business objectives . we exercise significant judgment to evaluate the relevant facts and circumstances in calculating the besp of the deliverables in our arrangements . business combinations when we acquire businesses , we allocate the purchase price to the acquired tangible assets and assumed liabilities , including deferred revenue , liabilities associated with the fair value of contingent consideration and acquired identifiable intangible assets . any residual purchase price is recorded as goodwill . the allocation of the purchase price requires us to make significant estimates in determining the fair values of these acquired assets and assumed liabilities , especially with respect to intangible assets and goodwill . these estimates are based on information obtained from management of the acquired companies , our assessment of this information , and historical experience . these estimates can include , but are not limited to , the cash flows that an acquired business is expected to generate in the future , the cash flows that specific assets acquired with that business are expected to generate in the future , the appropriate weighted-average cost of capital , and the cost savings expected to be derived from acquiring an asset . these estimates are inherently uncertain and unpredictable , and if different estimates were used , the purchase price for the acquisition could be allocated to the acquired assets and assumed liabilities differently from the allocation that we have made to the acquired assets and assumed liabilities . in addition , unanticipated events and circumstances may occur that may affect the accuracy or validity of such estimates , and if such events occur , we may be required to adjust the value allocated to acquired assets or assumed liabilities . we also make significant judgments and estimates when we assign useful lives to the definite-lived intangible assets identified as part of our acquisitions . these estimates are inherently uncertain and if we used different estimates , the useful life over which we amortize intangible assets would be different . in addition , unanticipated events and circumstances may occur that may impact the useful life assigned to our intangible assets , which would impact our amortization of intangible assets expense and our results of operations . fair value of financial instruments on a quarterly basis , we measure at fair value certain financial assets and liabilities . inputs to valuation techniques are observable or unobservable . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . while we believe the observable and unobservable inputs we use to measure the fair value are reasonable , different inputs or estimates may materially impact the resulting fair value measurements of these instruments and may also impact our results of operations . for an additional description of our fair value measurements , see note 8 in the notes to consolidated financial statements . 30 story_separator_special_tag compared to fiscal 2013 , and during fiscal 2013 , as compared to fiscal 2012 , primarily due to the continued depreciation of the japanese yen as well as difficult business conditions facing our japanese customers . revenue by geography as a percent of total revenue replace_table_token_9_th cost of revenue replace_table_token_10_th the following table shows cost of revenue as a percentage of related revenue for fiscal 2014 , 2013 and 2012 : replace_table_token_11_th cost of product and maintenance cost of product and maintenance includes costs associated with the sale and lease of our emulation hardware and licensing of our software and ip products , certain employee salary , benefits and other employee-related costs , cost of our customer support services , amortization of technology-related and maintenance-related acquired intangibles , as well as the costs of technical documentation and royalties payable to third-party vendors . costs associated with our emulation hardware products include materials , assembly , applicable reserves and overhead . these additional hardware manufacturing costs make our cost of emulation hardware product higher , as a percentage of revenue , than our cost of software and ip products . 33 a summary of cost of product and maintenance for fiscal 2014 , 2013 and 2012 is as follows : replace_table_token_12_th cost of product and maintenance depends primarily upon our emulation hardware product sales and gross margins in any given period . employee salary , benefits and other employee-related costs , and the timing and extent to which we acquire intangible assets , acquire or license third-parties ' intellectual property or technology and sell our products that include such acquired or licensed intellectual property or technology also impact cost of product and maintenance . the changes in product and maintenance-related costs were due to the following : replace_table_token_13_th emulation hardware costs increased during fiscal 2014 , as compared to fiscal 2013 , primarily as a result of incremental reserves on inventory and increased overhead . emulation hardware costs increased during fiscal 2013 , as compared to fiscal 2012 , primarily due to a higher volume of emulation hardware products sold . gross margins on our emulation hardware products may fluctuate based on our pricing strategies , product competition and product life cycle .
| results of operations financial results for fiscal 2014 , as compared to fiscal 2013 and 2012 , reflect the following : increased product and maintenance revenue , primarily because of increased business levels , incremental revenue from our acquisitions and an additional week of operations in fiscal 2014 ; increased product and maintenance related costs consisting of costs associated with our emulation hardware , which experienced lower margins due to an increasingly competitive environment , and amortization of technology-related and maintenance-related acquired intangibles ; increased employee-related costs , primarily consisting of costs related to hiring additional employees , incremental costs related to employees added from our fiscal 2014 and 2013 acquisitions , and an additional week of operations in fiscal 2014 ; increased stock-based compensation ; increased amortization of acquired intangibles resulting from acquisitions ; restructuring charges due to restructuring activities during fiscal 2014 and 2013 ; and severance and other termination costs primarily associated with a voluntary early retirement program we offered to certain of our employees during fiscal 2014. our fiscal year ends on the saturday closest to december 31. fiscal 2014 was a 53-week year compared to fiscal 2013 and 2012 , which were 52-week years . as noted above , revenue and expenses included in the results of operations for fiscal 2014 were impacted by the additional week . revenue we primarily generate revenue from licensing our software and ip , selling or leasing our emulation hardware technology , providing maintenance for our software , emulation hardware and ip , providing engineering services and earning royalties generated from the use of our ip . the timing of our revenue is significantly affected by the mix of software , emulation hardware and ip products in the bookings executed in any given period and whether the revenue for such bookings is recognized in a recurring manner over multiple periods or up front , upon completion of delivery .
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“ risk factors ” and elsewhere in this form 10-k. overview business ryerson holding corporation ( “ ryerson holding ” ) , a delaware corporation , is the parent company of joseph t. ryerson & son , inc. ( “ jt ryerson ” ) , a delaware corporation . on december 17 , 2014 , ryerson inc. , formerly a direct , wholly-owned subsidiary of ryerson holding , merged with and into jt ryerson , which was previously an indirect , wholly-owned subsidiary of ryerson holding , with jt ryerson as the surviving corporation . as a result of such merger , from and after december 17 , 2014 , jt ryerson has been a direct , wholly-owned subsidiary of ryerson holding . affiliates of platinum equity , llc ( “ platinum ” ) own approximately 21,037,500 shares of our common stock , which is approximately 66 % of our issued and outstanding common stock . ryerson conducts materials distribution operations in the united states through jt ryerson , in canada through its indirect wholly-owned subsidiary ryerson canada , inc. , a canadian corporation ( “ ryerson canada ” ) , and in mexico through its indirect wholly-owned subsidiary ryerson metals de mexico , s. de r.l . de c.v. , a mexican corporation ( “ ryerson mexico ” ) . in addition to our north american operations , we conduct materials distribution operations in china through ryerson china limited ( “ ryerson china ” ) , a company in which we have a 100 % ownership percentage , and in brazil through açofran aços e metais ltda ( “ açofran ” ) , a company in which we have a 50 % direct ownership percentage . unless the context indicates otherwise , ryerson holding , jt ryerson , ryerson canada , ryerson china , ryerson mexico and açofran , together with their subsidiaries ( including ryerson inc. prior to its dissolution through merger ) , are collectively referred to herein as “ ryerson , ” “ we , ” “ us , ” “ our , ” or the “ company. ” on july 23 , 2014 , our board of directors approved a 4.25 for 1.00 stock split of the company 's common stock effective august 5 , 2014. per share and share amounts presented herein have been adjusted for all periods presented to give retroactive effect to 4.25 for 1.00 stock split . on august 13 , 2014 , ryerson holding completed an initial public offering of 11 million shares of common stock at a price to the public of $ 11.00 per share . net proceeds from the offering totaled $ 112.4 million , after deducting the underwriting discount and offering expenses , and were used to ( i ) redeem $ 99.5 million in aggregate principal amount of the 11 1 ⁄ 4 % senior notes due 2018 ( the “ 2018 notes ” ) , ( ii ) pay platinum equity advisors llc ( “ platinum advisors ” ) , and its affiliates $ 15.0 million of the $ 25.0 million owed as consideration for terminating the advisory services agreement between jt ryerson and platinum advisors , an affiliate of platinum ( the remaining $ 10.0 million was paid in august 2015 ) and ( iii ) pay related transaction fees , expenses and debt redemption premiums in connection with the offering , which were approximately $ 11.2 million . we borrowed an additional $ 23.3 million under our then existing $ 1.35 billion revolving credit facility ( the “ old credit facility ” ) as part of the funding of these transactions . industry and operating trends we purchase large quantities of metal products from primary producers and sell these materials in smaller quantities to a wide variety of metals-consuming industries . more than one-half of the metals products sold are processed by us by burning , sawing , slitting , blanking , cutting to length or other techniques . we sell our products and services to many industries , including commercial ground transportation manufacturing , metal fabrication and machine shops , industrial machinery and equipment manufacturing , consumer durable production , hvac manufacturing , construction equipment manufacturing , food processing and agricultural equipment manufacturing and oil and gas . revenue is recognized upon delivery of product to customers . the timing of shipment is substantially the same as the timing of delivery to customers given the proximity of our distribution sites to our customers . sales , cost of materials sold , gross profit and operating expense control are the principal factors that impact our profitability : net sales . our sales volume and pricing is driven by market demand , which is largely determined by overall industrial production and conditions in specific industries in which our customers operate . sales prices are also primarily driven by market factors such as overall demand and availability of product . our net sales include revenue from product sales , net of returns , allowances , customer discounts and incentives . 28 cost of materials sold . cost of materials sold includes metal purchase and in-bound freig ht costs , third-party processing costs and direct and indirect internal processing costs . the cost of materials sold fluctuates with our sales volume and our ability to purchase metals at competitive prices . increases in sales volume generally enable us bo th to improve purchasing leverage with suppliers , as we buy larger quantities of metals inventories , and to reduce operating expenses per ton sold . gross profit . gross profit is the difference between net sales and the cost of materials sold . our sales prices to our customers are subject to market competition . achieving acceptable levels of gross profit is dependent on our acquiring metals at competitive prices , our ability to manage the impact of changing prices and efficiently managing our internal and external processing costs . operating expenses . story_separator_special_tag its principal uses of cash are for payments associated with the procurement and processing of metals and other materials inventories , costs incurred for the warehousing and delivery of inventories and the selling and administrative costs of the business , capital expenditures , and for interest payments on debt . 32 the following table summarizes the company 's cash flows : replace_table_token_10_th the company had cash and cash equivalents at december 31 , 2015 of $ 63.2 million , compared to $ 60.0 million at december 31 , 2014 and $ 74.4 million at december 31 , 2013. the company had $ 1,035 million , $ 1,259 million and $ 1,295 million of total debt outstanding , a debt-to-capitalization ratio of 116 % , 111 % and 109 % and $ 185 million , $ 245 million and $ 234 million available under the revolving credit facility at december 31 , 2015 , 2014 and 2013 , respectively . the company had total liquidity ( defined as cash and cash equivalents , marketable securities and availability under the ryerson credit facility , the old credit facility , and foreign debt facilities ) of $ 273 million , $ 328 million and $ 351 million at december 31 , 2015 , 2014 and 2013 , respectively . total liquidity is not a u.s. generally accepted accounting principles ( “ gaap ” ) financial measure . we believe that total liquidity provides additional information for measuring our ability to fund our operations . total liquidity does not represent , and should not be used as a substitute for , net income or cash flows from operations as determined in accordance with gaap and total liquidity is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements . below is a reconciliation of cash and cash equivalents to total liquidity : replace_table_token_11_th of the total cash and cash equivalents as of december 31 , 2015 , $ 57 million was held in subsidiaries outside the united states which is deemed to be permanently reinvested . ryerson does not currently foresee a need to repatriate funds from its non-u.s. subsidiaries . although the company has historically satisfied needs for more capital in the u.s. through debt or equity issuances , it could elect to repatriate funds held in foreign jurisdictions which could result in higher effective tax rates . the company has not recorded a deferred tax liability for the effect of a possible repatriation of these assets as management intends to permanently reinvest these assets outside of the u.s. specific plans for reinvestment include funding for future international acquisitions and funding of existing international operations . during the year ended december 31 , 2015 , net cash provided by operating activities was $ 259.1 million . during the year ended december 31 , 2014 , net cash used in operating activities was $ 73.3 million . during the year ended december 31 , 2013 , net cash provided by operating activities was $ 48.1 million . net income ( loss ) was a loss of $ 1.8 million and $ 26.2 million in 2015 and 2014 , respectively , and income of $ 126.2 million in 2013. cash provided by operating activities of $ 259.1 million during the year ended december 31 , 2015 was primarily due to a decrease in inventory of $ 178.1 million as we reduced inventory as metal prices weakened during the year . in addition , accounts receivable declined $ 88.0 million reflecting lower average selling prices and tons sold in 2015 , non-cash depreciation and amortization expense was $ 43.7 million and we recorded a non-cash charge of $ 12.3 million due to an other-than-temporary impairment charge recognized on an available-for-sale investment . partially offsetting the cash inflows were pension contributions of $ 42.5 million and lower accrued liabilities of $ 20.0 million primarily due to a lower accrual for incentive compensation in 2015. cash used in operating activities of $ 73.3 million during the year ended december 31 , 2014 was primarily the result of pension contributions of $ 55.4 million , the net loss in 2014 of $ 26.2 million , a decrease in accounts payable of $ 22.4 million and an increase in accounts receivable of $ 19.5 million reflecting higher sales in 2014 , partially offset by non-cash depreciation and amortization expense of $ 45.6 million . cash provided by operating activities of $ 48.1 million during the year ended december 31 , 2013 was primarily the result of the $ 126.2 million of net income in 2013 , non-cash depreciation and amortization expense of $ 46.6 million , an increase in accounts payable of $ 15.7 million , non-cash impairment charges on assets of $ 10.0 million and a decrease in 33 accounts receivable of $ 9.9 million reflecting lower sales in 2013 , partially offset by the non-cash reduction in the valuation allowance recorded against deferred tax assets of $ 124.2 million and pension contributions of $ 48.0 million . net cash used in investing activities was $ 18.0 million , $ 34.0 million and $ 13.5 million in 2015 , 2014 and 2013 , respectively . capital expenditures for the years ended december 31 , 2015 , 2014 and 2013 , were $ 22.3 million , $ 21.6 million and $ 20.2 million , respectively .
| results of operations replace_table_token_9_th comparison of the year ended december 31 , 2015 with the year ended december 31 , 2014 net sales net sales decreased 12.6 % to $ 3.2 billion in 2015 as compared to $ 3.6 billion in 2014. average selling price decreased 6.7 % while tons sold decreased 6.3 % reflecting weaker economic conditions in the metals market in 2015 compared to 2014. the average selling price per ton decreased in 2015 to $ 1,670 from $ 1,790 in 2014. average selling prices per ton decreased for all of our product lines in 2015 with the largest decrease in our stainless steel plate , carbon steel flat and stainless steel flat product lines . tons sold in 2015 decreased for most of our product lines , with the largest decrease in our carbon steel long , stainless steel long and carbon plate product lines , partially offset by increased tons sold for our aluminum plate product line . tons sold per ship day were 7,528 in 2015 as compared to 8,032 in 2014 . 29 cost of materials sold cost of materials sold decreased 14.2 % to $ 2.6 billion in 2015 compared to $ 3.0 billion in 2014. the decrease in cost of materials sold in 2015 compared to 2014 was primarily due to a decrease in the average cost of materials sold per ton in addition to the decrease in tons sold . the average cost of materials sold per ton decreased to $ 1,371 in 2015 from $ 1,497 in 2014. the average cost of materials sold for our stainless steel plate , carbon steel flat and carbon steel plate product lines decreased more than our other products , in line with the change in average selling price per ton . during 2015 , lifo income was $ 97 million related to decreases in pricing for all product lines .
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in addition , we develop and provide advanced wireless communications systems , secure networking systems and cybersecurity and information assurance products and services . our product , system and service offerings are often linked through common underlying technologies , customer applications and market relationships . we believe that our portfolio of products and services , combined with our ability to effectively cross-deploy technologies between government and commercial segments and across different geographic markets , provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies . viasat operates in three segments : satellite services , commercial networks and government systems . 46 on november 23 , 2016 , we completed the sale of an aggregate of 7,475,000 shares of viasat common stock in an underwritten public offering . our net proceeds from the offering were approximately $ 503.1 million after deducting underwriting discounts and offering expenses . in november 2016 , we used $ 225.0 million of the net proceeds from the offering to repay outstanding borrowings under the revolving credit facility . we expect to use the remaining net proceeds for general corporate purposes , which may include financing costs related to the purchase , launch and operation of satellites , potential acquisitions , joint ventures and strategic alliances , working capital or capital expenditures . satellite services our satellite services segment provides satellite-based high-speed broadband services to consumers , enterprises , commercial airlines and mobile broadband customers . our exede broadband services offer high-speed , high-quality broadband internet access primarily in the united states . we also offer high-speed internet and other in-flight services for a growing number of commercial aircraft both in the united states and abroad . our satellite services business also provides a platform for the provision of network management services to domestic and international satellite service providers . our satellite services business uses our proprietary technology platform to provide broadband services with multiple applications . our proprietary ka-band satellites are at the core of our technology platform . the viasat-1 satellite ( our first-generation high-capacity ka-band spot-beam satellite ) was placed into service in january 2012. our second-generation viasat-2 satellite is currently located at the arianespace launch facility in french guiana and is undergoing preparations for launch into orbit . due to recent civil unrest in french guiana , the scheduled launch date of our viasat-2 satellite was further delayed and is currently expected to occur in june 2017 following completion of the launch preparation process . we currently have two third-generation viasat-3 class satellites under construction . we also own the wildblue-1 satellite , which was placed into service in march 2007. the primary services offered by our satellite services segment are comprised of : fixed broadband services under the exede and wildblue brands offered to consumers and businesses primarily in the united states , which provide users with high-speed broadband internet access and voip services . as of march 31 , 2017 , we provided broadband internet services to approximately 659,000 consumer and small business subscribers . in-flight services , including our flagship viasat in-flight internet services and aviation software services . as of march 31 , 2017 , 559 commercial aircraft were in service utilizing our viasat in-flight internet services . mobile broadband services , which provide global network management and high-speed internet connectivity services for customers using airborne , maritime and ground-mobile satellite systems . enterprise broadband services , which include business connectivity , live on-line event streaming , oil and natural gas data gathering services and high-definition satellite news gathering . on march 3 , 2017 , we consummated our strategic partnering arrangement with eutelsat for the ownership and operation of satellite broadband infrastructure , equipment , and provision of satellite-based broadband internet services in the european region . at the closing of the transaction , eutelsat contributed and transferred assets relating to its existing wholesale satellite broadband business ( including its ka-sat satellite ) to euro infrastructure co. in exchange for the issuance of new shares in such subsidiary , and immediately following such contribution and issuance , we purchased 49 % of the issued shares of euro infrastructure co. from eutelsat for cash consideration of $ 139.5 million . our total net cash outlay for this investment in euro infrastructure co. , including approximately $ 2.4 million of transaction costs , was approximately $ 141.9 million . also at the closing , eutelsat purchased 49 % of the issued shares of euro retail co. for an immaterial amount . under the strategic partnering arrangement , euro infrastructure co. owns and operates the ka-sat satellite and related assets and offers wholesale satellite capacity services in the european region , and euro retail co. purchases wholesale satellite capacity services and offers retail satellite-based broadband internet services in the european region . 47 in september 2014 , we entered into the settlement agreement with ss/l and loral , pursuant to which ss/l and loral were required to pay us a total of $ 108.7 million , inclusive of interest , over a two and a half year period from the date of settlement . in exchange , we dismissed both lawsuits against ss/l and loral . the parties further agreed not to sue each other with respect to the patents and intellectual property that were the subject of the lawsuits and , for a period of two years , not to sue each other or each other 's customers for any intellectual property claims . we record payments under the settlement agreement as product revenues and as a reduction of sg & a expenses in our satellite services segment , and as interest income . for further information , see note 13 to the consolidated financial statements . commercial networks our commercial networks segment develops and produces a variety of advanced satellite and wireless products , systems and solutions that enable the provision of high-speed fixed and mobile broadband services . story_separator_special_tag ir & d expenses consist primarily of salaries and other personnel-related expenses , supplies , prototype materials , testing and certification related to research and development projects . ir & d expenses were approximately 8 % , 5 % and 3 % of total revenues in fiscal years 2017 , 2016 and 2015 , respectively . as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . approximately 13 % , 15 % and 17 % of our total revenues in fiscal years 2017 , 2016 and 2015 , respectively , were derived from international sales . doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading risk factors in item 1a and elsewhere in this report . 49 critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses 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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( accounting standards codification ( asc ) 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract , or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . during fiscal years 2017 , 2016 and 2015 , we recorded losses of approximately $ 6.0 million , $ 5.1 million and $ 0.6 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future costs on our programs through regular evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of march 31 , 2017 would change our income before income taxes by approximately $ 0.4 million . 50 we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance for leases , which often involve complex provisions and significant judgments .
| results of operations the following table presents , as a percentage of total revenues , income statement data for the periods indicated . replace_table_token_3_th fiscal year 2017 compared to fiscal year 2016 revenues replace_table_token_4_th 54 our total revenues grew by $ 141.9 million as a result of a $ 92.8 million increase in service revenues and a $ 49.1 million increase in product revenues . the service revenue increase was comprised of an increase of $ 68.3 million in our satellite services segment , $ 13.4 million in our government systems segment and $ 11.1 million in our commercial networks segment . the product revenue increase was primarily driven by an increase of $ 64.2 million in our government systems segment , partially offset by a $ 17.2 million decrease in our commercial networks segment . cost of revenues replace_table_token_5_th cost of revenues increased by $ 64.6 million due to a $ 34.8 million increase in cost of product revenues and $ 29.9 million increase in cost of service revenues . the cost of product revenue increase was primarily due to increased revenues , causing a $ 36.1 million increase in cost of product revenues on a constant margin basis . this cost of product revenue increase mainly related to our cybersecurity and information assurance products and tactical data links products in our government systems segment . the cost of service revenue increase was primarily due to increased service revenues , which generated a $ 61.0 million increase in cost of service revenues on a constant margin basis .
| 3,911 |
our properties are located in 31 states and the district of columbia and contain approximately 11.4 million rentable square feet , of which 58.6 % was leased to the u.s. government , 21.9 % was leased to 13 state governments , 2.6 % was leased to three other government tenants , 3.5 % was leased to government contractor tenants , 8.5 % was leased to various other non-governmental organizations and 4.9 % was available for lease as of december 31 , 2016 . the u.s. government , 13 state governments and three other government tenants combined were responsible for 87.9 % and 92.8 % of our annualized rental income as of december 31 , 2016 and 2015 , respectively . the term annualized rental income as used in this section is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date , plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us , and excluding lease value amortization . as of december 31 , 2016 , we also owned 24,918,421 common shares , or approximately 27.9 % of the then outstanding common shares , of sir . sir is a reit which primarily owns single tenant , net leased properties . see notes 7 and 12 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k for more information regarding our investment in sir . we account for our investment in sir under the equity method . property operations as of december 31 , 2016 , excluding one property ( one building ) classified as discontinued operations , 95.1 % of our rentable square feet was leased , compared to 94.5 % of our rentable square feet as of december 31 , 2015 . occupancy data for our properties as of december 31 , 2016 and 2015 is as follows ( square feet in thousands ) : replace_table_token_5_th ( 1 ) based on properties we owned on december 31 , 2016 and 2015 , respectively , excluding one property ( one building ) classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 2016 and which we owned continuously since january 1 , 2015 , excluding one property ( one building ) classified as discontinued operations . our comparable properties increased from 67 properties ( 86 buildings ) at december 31 , 2015 as a result of our acquisition of four properties ( five buildings ) during the year ended december 31 , 2014 , offset by the sale of one property ( one building ) during the year ended december 31 , 2016 . ( 3 ) subject to changes when space is re-measured or re-configured for tenants . ( 4 ) percent leased includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any , as of the measurement date . the average annualized effective rental rate per square foot for our properties for the years ended december 31 , 2016 and 2015 are as follows : replace_table_token_6_th ( 1 ) average annualized effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified . excludes one property ( one building ) classified as discontinued operations . ( 2 ) based on properties we owned on december 31 , 2016 and 2015 , respectively , excluding one property ( one building ) classified as discontinued operations . ( 3 ) based on properties we owned on december 31 , 2016 and which we owned continuously since january 1 , 2015 excluding one property ( one building ) classified as discontinued operations . during the year ended december 31 , 2016 , changes in rentable square feet leased and available for lease at our properties , excluding one property ( one building ) classified as discontinued operations , were as follows : replace_table_token_7_th ( 1 ) based on leases entered into during the year ended december 31 , 2016 . ( 2 ) rentable square footage of new leases for the year ended december 31 , 2016 excludes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease . ( 3 ) rentable square footage is subject to changes when space is re-measured or re-configured for tenants . leases at our properties totaling 1,594,603 rentable square feet expired during the year ended december 31 , 2016 . during the year ended december 31 , 2016 , we entered into leases totaling 1,613,041 rentable square feet , including a 25,579 square foot expansion to be constructed at an existing property and lease renewals of 1,394,256 rentable square feet . the weighted ( by rentable square feet ) average rental rates for leases of 1,381,593 rentable square feet entered into with government tenants ( which includes the 25,579 square foot expansion referenced above ) during the year ended december 31 , 2016 increased by 8.0 % when compared to the weighted ( by rentable square feet ) average prior rents for the same space . the weighted ( by rentable square feet ) average rental rates for leases of 231,448 rentable square feet entered into with non-government tenants during the year ended december 31 , 2016 decreased by 5.3 % when compared to the weighted ( by rentable square feet ) average rental rates previously charged for the same space . story_separator_special_tag as of december 31 , 2016 , lease expirations at our properties , excluding one property ( one building ) classified as discontinued operations , by year are as follows ( dollars in thousands ) : replace_table_token_11_th ( 1 ) the year of lease expiration is pursuant to current contract terms . some government tenants have the right to vacate their space before the stated expirations of their leases . as of december 31 , 2016 , government tenants occupying approximately 11.7 % of our rentable square feet and responsible for approximately 9.3 % of our annualized rental income as of december 31 , 2016 have currently exercisable rights to terminate their leases before the stated terms of their leases expire . also , in 2017 , 2018 , 2019 , 2020 , 2021 , 2022 , 2023 , 2026 and 2027 , early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3 % , 2.2 % , 4.9 % , 7.0 % , 0.7 % , 2.9 % , 1.9 % , 0.9 % and 0.6 % of our rentable square feet , respectively , and contribute an additional approximately 1.8 % , 3.0 % , 5.1 % , 7.5 % , 0.6 % , 2.3 % , 1.7 % , 1.1 % and 0.6 % of our annualized rental income , respectively , as of december 31 , 2016 . in addition , as of december 31 , 2016 , 15 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets . these 15 tenants occupy approximately 17.4 % of our rentable square feet and contribute approximately 16.9 % of our annualized rental income as of december 31 , 2016 . ( 2 ) leased square feet is pursuant to leases existing as of december 31 , 2016 , and includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any . square feet measurements are subject to changes when space is re-measured or re-configured for new tenants . ( 3 ) leased square footage excludes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease . acquisition activities ( dollar amounts in thousands ) during the year ended december 31 , 2016 , we acquired three properties ( five buildings ) with a combined 830,185 rentable square feet and a land parcel adjacent to one of our existing properties for an aggregate purchase price of $ 199,031 , excluding acquisition related costs . we acquired these properties at a range of capitalization rates from 7.2 % . to 9.1 % with a weighted ( by purchase price ) average capitalization of 7.9 % . we calculate the capitalization rate for property acquisitions as the ratio of ( x ) annual straight line rental income , excluding the impact of above and below market lease amortization , based on leases in effect on the acquisition date , less our estimated annual property operating expenses as of the acquisition date , excluding depreciation and amortization expense , to ( y ) the acquisition purchase price , including the principal amount of assumed debt , if any , and excluding acquisition costs . in january 2016 , we acquired an office property ( one building ) located in sacramento , ca with 337,811 rentable square feet for a purchase price of $ 79,235 , excluding acquisition costs , using cash on hand and borrowings under our revolving credit facility . this property was 86 % leased to the state of california on the date of acquisition . in july 2016 , we acquired a land parcel in atlanta , ga adjacent to one of our existing properties for $ 1,670 using cash on hand . in august 2016 , we entered an agreement to acquire transferable development rights that would allow us to expand a property we own in washington , d.c. for a purchase price of $ 2,030 , excluding acquisition costs . this acquisition is currently expected to occur in the third quarter of 2017. in december 2016 , we acquired an office property ( one building ) located in rancho cordova , ca with 82,896 rentable square feet for a purchase price of $ 13,943 , excluding acquisition costs , using cash on hand and borrowings under our revolving credit facility . this property was 100 % leased , including 77 % leased to the state of california on the date of acquisition . also in december 2016 , we acquired an office property ( three buildings ) located in chantilly , va with 409,478 rentable square feet for a purchase price of $ 104,183 , excluding acquisition costs , using cash on hand and borrowings under our revolving credit facility . this property was 98 % leased to three government contractor tenants on the date of acquisition . in january 2017 , we acquired an office property ( one building ) located in manassas , va with 69,374 rentable square feet for a purchase price of $ 13,200 , excluding acquisition costs , using cash on hand and borrowings under our revolving credit facility . this property was 100 % leased to prince william county . disposition activities ( dollar amounts in thousands ) in march 2016 , we entered an agreement to sell an office property ( one building ) in falls church , va with 164,746 rentable square feet and a net book value of $ 12,282 at december 31 , 2016 . the contract sales price is $ 13,148 , excluding closing costs .
| results of operations ( amounts in thousands , except per share amounts ) year ended december 31 , 2016 , compared to year ended december 31 , 2015 replace_table_token_12_th ( 1 ) comparable properties consist of 70 properties ( 90 buildings ) we owned on december 31 , 2016 and which we owned continuously since january 1 , 2015 , and excludes one property ( one building ) classified as discontinued operations . ( 2 ) acquired properties consists of three properties ( five buildings ) we acquired during the year ended december 31 , 2016 . ( 3 ) disposed properties consists of one property ( one building ) we sold during the year ended december 31 , 2015 and one property ( one building ) we sold during the year ended december 31 , 2016 . ( 4 ) the calculation of net operating income , or noi , excludes certain components of net income ( loss ) in order to provide results that are more closely related to our property level results of operations . we define noi as income from our rental of real estate less our property operating expenses . noi excludes amortization of capitalized tenant improvement costs and leasing commissions because we record those amounts as depreciation and amortization . we consider noi to be an appropriate supplemental measure to net income ( loss ) because it may help both investors and management to understand the operations of our properties . we use noi to evaluate individual and company wide property level performance , and we believe that noi provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other reits .
| 3,912 |
10. shareholders ' equity equity compensation plans we have a stock plan ( the “ stock plan ” ) and an inducement stock plan for newly hired employees ( the “ inducement plan ” ) ( collectively the “ plans ” ) . under the plans , stock options may be granted with a fixed exercise price that is equivalent to the fair market value of our common stock on the date of grant . these options have a term of up to 10 years and vest over a predetermined period , generally four years . incentive stock options granted under the stock plan may only be granted to our employees . the plans also allow for awards of non-qualified stock options , stock appreciation rights , restricted and unrestricted stock awards , and rsus . stock-based compensation the estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award , net of estimated forfeitures . we estimate forfeitures based on historical experience and expected future activity . the fair value of rsus is determined based on the number of shares granted and the quoted price of our common stock on the date of grant . the fair value of stock options is estimated at the grant date based on the fair value of each vesting tranche as calculated by the black-scholes-merton ( “ bsm ” ) option-pricing model . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . the fair values of our stock option grants were estimated with the following weighted average assumptions : replace_table_token_26_th 47 the impact on our results of operations from stock-based compensation expense was as follows ( in thousands , except per share amounts ) : replace_table_token_27_th stock option activity the following table summarizes stock option activity : replace_table_token_28_th at december 31 , 2018 , total compensation cost related to stock options granted but not yet recognized was approximately $ 521,986 , net of estimated forfeitures . this cost will be amortized on the straight-line method over a weighted-average period of approximately 1.2 years . the following table summarizes certain additional information about stock options : replace_table_token_29_th the aggregate intrinsic value represents the difference between the exercise price of the underlying options and the quoted price of our common stock for the number of options that were exercised during the periods indicated . we issue new shares of common stock upon exercise of stock options . 48 restricted stock unit activity the following table summarizes rsu activity : replace_table_token_30_th at december 31 , 2018 , total compensation cost related to rsus granted but not recognized was approximately $ 236,000 , net of estimated forfeitures . this cost will be amortized on the straight-line method over a weighted-average period of approximately 0.5 years . common stock reserved for future issuance the following table summarizes our shares of common stock reserved for future issuance under the plans as of december 31 , 2018 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes . this management 's discussion and analysis of financial condition and results of operations may contain some statements and information that are not historical facts but are forward-looking statements . 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—cautionary note regarding forward-looking statements , ” and item 1a of part i , “ risk factors. ” overview since our inception , our business has largely been focused on providing software solutions ( including reselling software from microsoft corporation ( “ microsoft ” ) ) and related engineering services to businesses that develop , market and sell dedicated-purpose standalone intelligent systems . examples of dedicated-purpose standalone intelligent systems include smart , connected computing devices such as smart phones , set-top boxes , point-of-sale terminals , kiosks , tablets and handheld data collection devices , as well as smart vending machines , atm machines , digital signs and in-vehicle telematics and entertainment devices . we focus on systems that utilize various microsoft windows embedded operating systems as well as devices running other popular operating systems such as android , linux , and qnx , and that are usually connected to a network via a wired or wireless connection . our customers include world-class original equipment manufacturers ( “ oems ” ) , original design manufacturers ( “ odms ” ) , corporate enterprises ( “ enterprises ” ) , silicon vendors ( “ svs ” ) and peripheral vendors . a significant portion of our business historically has also been focused on reselling software from microsoft , from which a majority of our revenue currently continues to be derived . beginning in early 2014 , we initiated development efforts focused on new proprietary software products addressing the industrial internet of things ( “ iiot ” ) market , extracting data from uniquely identifiable devices and applying advanced analytics and machine learning to the data in order to derive meaningful and actionable insights . while iiot is a relatively new market , we believe the work we have engaged in since our inception—namely adding intelligence to discrete standalone devices and systems—embodies much of what is central to the core functionality of iiot . these software development efforts have driven a new business initiative for bsquare , which we refer to as datav . our datav solution includes software products , applications and services that are designed to turn raw iiot device data into meaningful and actionable data for our customers . story_separator_special_tag the determination of the total labor hours expected to complete the performance obligations on fixed fee contracts involves significant judgment . we incorporate revisions to hour and cost estimates when the causal facts become known . in certain situations , when it is impractical for us to reasonably measure the outcome of a performance obligation , and where we anticipate that we will not incur a loss , an adjusted cost-based input method is used for revenue recognition . equal amounts of revenue and cost are recognized during the contract period , and profit is recognized when the project is completed and accepted . we measure our estimate of completion on fixed-price contracts , which in turn determines the amount of revenue we recognize , based primarily on actual hours incurred to date and our estimate of remaining hours necessary to complete the contract . these estimates factor in such variables as the remaining tasks , the complexity of the tasks , the contracted quality of the software to be provided , the customer 's estimated delivery date , integration of third-party software and quality thereof and other factors . every fixed-price contract requires various approvals within our company , including by our chief executive officer if significant . this approval process takes into consideration several factors , including the complexity of engineering required . historically , our estimation processes related to fixed-price contracts have been accurate based on the information known at the time of the reporting of our results . however , percentage-of-completion estimates require significant judgment . during the year ended december 31 , 2018 , we delivered professional engineering services under four fixed-price service contracts . the estimated remaining labor hours and costs to complete these contracts represent management 's best estimates based on the facts and circumstances as of the filing of this report . if there are changes to the underlying facts and circumstances , we record the revisions to our calculations in the period the changes are noted . for illustrative purposes only , if we were 10 % under in our estimate of remaining labor hours and costs on the fixed-bid contracts active during the year ended december 31 , 2018 , our revenue could have been overstated by approximately $ 15,000 for 2018 . 23 intangible assets and goodwill we evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . our intangible assets consist of customer relationships arising from business acquisitions . we periodically assess the value of our intangible assets . factors that could trigger an impairment analysis include significant under-performance relative to 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 or significant negative industry or economic trends . if this evaluation indicates that the value of the intangible asset may be impaired , we assess the likelihood of recoverability of the net carrying value of the asset over its remaining useful life . if this assessment indicates that the intangible asset is not recoverable , based on the estimated undiscounted future cash flows of the technology over the remaining useful life , we reduce the net carrying value of the related intangible asset to fair value . we evaluate goodwill for impairment annually during the fourth quarter or more frequently when an event occurs , or circumstances change that indicate that the carrying value may not be recoverable . we have three reporting units for the purpose of evaluating goodwill for impairment—third-party software , proprietary software and professional engineering services . see note . 14 , information about operating segments and geographic areas in the notes to our consolidated financial statements in item 8. for reporting units that carry goodwill , we test for impairment by performing an optional qualitative assessment to determine whether the fair value of the reporting unit is more likely than not less than the carrying amount . alternatively , at our option , we can forego performing the qualitative assessment and proceed directly to perform the quantitative impairment test by comparing the fair value of the reporting unit with its carrying amount , including goodwill , and recording a goodwill impairment charge for the excess . any such impairment charges could be significant and have a material adverse effect on our reported financial results . taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets . we must then assess the likelihood that any deferred tax assets will be realized from future taxable income , and , to the extent we believe that recovery is not likely , we must establish a valuation allowance . we are required to use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances . as part of this analysis , we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances .
| results of operations the following table presents our summarized results of operations for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_3_th revenue we generate revenue from the sale of software , both our own proprietary software and third-party software that we resell , and the sale of professional engineering services . total revenue decreased in 2018 compared to 2017 , primarily due to lower sales of microsoft windows embedded and mobile operating systems and lower professional engineering service revenue , predominantly in north america . additionally , we recognized approximately $ 3.0 million in datav software revenue in 2017 that did not recur in 2018. one customer , honeywell international , inc. , accounted for 10 % and 15 % of total revenue in 2018 and 2017 , respectively . no other customers accounted for 10 % or more of total revenue in those periods . additional revenue details were as follows : replace_table_token_4_th total revenue consists of sales of third-party software and revenue realized from sales of our own proprietary software products , which include software license sales and support and maintenance revenue , and professional engineering services that support proprietary datav software customers and legacy service customers . third-party software revenue decreased in 2018 compared to 2017 , driven primarily by lower sales of microsoft windows embedded operating systems . sales of microsoft operating systems represented approximately 81 % and 80 % of our total revenue and 57 % and 54 % of our total gross profit for 2018 and 2017 , respectively .
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the company operates through two reporting segments , engine products and industrial products , and has a product mix including air and liquid filtration systems and exhaust and emission control products . as a worldwide business , the company 's results of operations are affected by conditions in the global economic environment . under most economic conditions , the company 's market diversification between its oem and replacement parts customers , its diesel engine and industrial end markets , and its north american and international end markets has helped to limit the impact of weakness in any one product line , market , or geography on the consolidated results of the company . the company reported sales in fiscal 2013 of $ 2,436.9 million , down 2.3 percent from $ 2,493.2 million in the prior year . the company 's results were negatively impacted by foreign currency translation , which decreased sales by $ 32.2 million . excluding the current year impact of foreign currency translation , worldwide sales decreased 1.0 percent . although net sales excluding foreign currency translation is not a measure of financial performance under generally accepted accounting principles in the united states of america ( u.s. ) ( u.s. gaap ) , the company believes it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the company between different fiscal periods excluding the impact of foreign currency translation . the following is a reconciliation to the most comparable u.s. gaap financial measure of this non-gaap financial measure ( in millions ) : replace_table_token_6_th the company also reported net earnings in fiscal 2013 of $ 247.4 million , a decrease of 6.4 percent from $ 264.3 million in the prior year . the company 's net earnings were negatively impacted by foreign currency translation , which decreased net earnings by $ 2.1 million . excluding the current year impact of foreign currency translation , net earnings decreased 5.6 percent . 11 although net earnings excluding foreign currency translation is not a measure of financial performance under u.s. gaap , the company believes it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the company between different fiscal periods excluding the impact of foreign currency translation . the following is a reconciliation to the most comparable u.s. gaap financial measure of this non-u.s. gaap financial measure ( in millions ) : replace_table_token_7_th the company reported diluted earnings per share of $ 1.64 , a 5.2 percent decrease from $ 1.73 in the prior year . following are net sales by product within the company 's engine and industrial products segments and a comparison of earnings before income taxes . corporate and unallocated includes corporate expenses determined to be non-allocable to the segments and interest income and expense . see further discussion of segment information in note l of the company 's notes to consolidated financial statements . replace_table_token_8_th _ * includes replacement part sales to the company 's oem customers replace_table_token_9_th 12 many factors contributed to the company 's results for each of the company 's reportable segments for fiscal 2013 , including a weakening in economic conditions in many of the company 's end markets , partially offset by the company 's program of continuous improvement initiatives and emerging market growth . in the engine products segment , the company experienced decreased sales in most end-markets . earnings before income taxes as a percentage of engine products segment sales of 14.7 percent increased slightly from 14.5 percent in the prior year . the percentage earnings increase for the twelve months ended july 31 , 2013 , was driven by benefits from the company 's ongoing continuous improvement initiatives and a higher percentage of sales coming from replacement filters , partially offset by increased incremental expenses related to the company 's strategic business systems project ( which is the company 's multi-year implementation of a global enterprise resource planning system ) , higher pension and insurance costs , and lower fixed cost absorption as a result of lower production volumes ( primarily in the first half of the year ) . in addition , the engine products segment incurred $ 1.7 million in restructuring expenses compared to none in the prior year . these expenses related to employee severance costs associated with a reduction in workforce . off-road product sales decreased by 4.8 percent driven by a decline in the mining equipment markets and weakness in the construction equipment markets , which were partially offset by strength in the agriculture equipment markets across the globe . on-road products sales decreased by 21.6 percent as a result of reduced truck builds by the company 's oem customers in the u.s. , europe , and japan . aftermarket products sales decreases were driven by lower equipment utilization rates in the mining , construction , and transportation industries . in the industrial products segment , where many product lines are later economic cycle businesses , sales increased primarily due to strong global demand for gas turbine systems products . earnings before income taxes as a percentage of industrial products segment sales of 14.9 percent decreased from 16.2 percent in the prior year . the decline in earnings as a percentage of sales over the prior year was driven by a shift in product mix to large first fit gas turbine projects which generally utilize outside subcontractors , less absorption of fixed manufacturing costs in businesses other than gas turbine systems , increased incremental expenses related to the company 's strategic business systems project , and higher pension and insurance costs , partially offset by benefits from the company 's ongoing continuous improvement initiatives . in addition , the industrial products segment incurred $ 2.3 million in restructuring expenses compared to none in the prior year . these expenses related to employee severance costs associated with a reduction in workforce . story_separator_special_tag fiscal 2013 industrial products sales increased by 2.9 percent in asia , 0.9 percent in the americas , and were flat in europe compared to fiscal 2012. the impact of foreign currency decreased sales by $ 8.4 million , or 0.9 percent . 14 worldwide sales of industrial filtration solutions products were $ 529.8 million , a 4.3 percent decrease from $ 553.5 million in the prior year . sales decreased 13.5 percent and 6.4 percent in asia and europe , respectively , partially offset by a sales increase in the americas of 3.4 percent , compared to the prior year . demand for new filtration equipment was weak due to lower capital investment by manufacturers in most of the company 's major regions . this was partially offset by increased sales of replacement filters for equipment installed previously . sales were also negatively impacted by foreign currency translation . the externally published durable goods index in the u.s. increased 2.7 percent during fiscal 2013 as compared to last year . worldwide sales of gas turbine products were $ 232.9 million , an increase of 28.9 percent from $ 180.7 million in the prior year . gas turbine products sales are typically large systems and , as a result , the company 's shipments and revenues fluctuate from period to period . sales of large gas turbine products were strong due to high demand for the large systems used in power generation primarily in the middle east and asia . the company also experienced moderate demand for its smaller systems used in oil and gas applications and increased sales of replacement filters for systems previously installed . the company anticipates its gas turbine products ' sales will decrease 18 to 24 percent from record sales of in fiscal 2013 due to the forecasted slowdown in large turbine power generation projects by its customers in fiscal 2014. worldwide sales of special applications products were $ 170.1 million , a 10.0 percent decrease from $ 189.0 million in the prior year . sales decreased 13.0 percent and 11.7 percent in europe and asia , respectively , from the prior year , partially offset by a sales increase in the americas of 1.0 percent . the sales decline was primarily due to a global decline in computer sales which resulted in lower demand for the company 's hard disk drive filters . this lower demand for hard disk drive filters is forecasted to continue in fiscal 2014. according to the international data corporation , the number of disk drives produced in fiscal 2013 declined 9.2 percent from the prior year period . in addition , weakness in industrial end markets resulted in lower sales of the company 's membrane products . capital spending trends have been weak due to the recession in europe , declines in asia , and a slowdown in the u.s. consolidated results the company reported net earnings for fiscal 2013 of $ 247.4 million compared to $ 264.3 million in fiscal 2012 , a decrease of 6.4 percent . diluted net earnings per share were $ 1.64 , down 5.2 percent from $ 1.73 in the prior year . the company 's operating income of $ 343.3 million decreased from prior year operating income of $ 363.0 million by 5.4 percent . the table below shows the percentage of total operating income contributed by each segment for each of the last three fiscal years . corporate and unallocated includes corporate expenses determined to be non-allocable to the segments , interest income , and interest expense : replace_table_token_10_th international operating income , prior to corporate expense allocations , totaled 74.0 percent of consolidated operating income in fiscal 2013 as compared to 69.7 percent in fiscal 2012. total international operating income increased 4.3 percent from the prior year . the table below shows the percentage of total operating income contributed by each major geographic region for each of the last three fiscal years : replace_table_token_11_th for more information regarding the company 's net sales by geographic region , see note l to the consolidated financial statements . 15 gross margin for fiscal 2013 was 34.8 percent , or a 0.2 percent decrease from 35.0 percent in the prior year . the decrease in gross margin is primarily attributable to the mix impact of large gas turbine project shipments and the impact of lower absorption of fixed costs due to the lower production volumes in the company 's plants . these decreases were partially offset by the benefits from the company 's ongoing continuous improvement initiatives , which include lean , kaizen , six sigma , and cost reduction efforts . within gross profit , the company incurred $ 1.6 million in restructuring charges compared to minimal restructuring charges during fiscal 2012. the fiscal 2013 expenses were employee severance costs related to a reduction in workforce . the principal raw materials that the company uses are steel , filter media , and petroleum-based products . purchased raw materials represents approximately 60 to 65 percent of the company 's cost of goods sold . of that amount , steel , including fabricated parts , represents approximately 25 percent . filter media represents approximately 15 to 20 percent and the remainder is primarily made up of petroleum-based products and other components . the cost the company paid for steel during fiscal 2013 , varied by grade , but in aggregate , it slightly decreased during the fiscal year . the company 's cost of filter media also varies by type and slightly increased at the end of the fiscal year . the cost of petroleum-based products ( plastics , rubber , and adhesives ) was generally flat . commodity prices in aggregate generally decreased throughout fiscal 2013 as compared to fiscal 2012. the company anticipates a moderately unfavorable impact from commodity prices in fiscal 2014 , as compared to fiscal 2013 , specifically for steel , petroleum-based products , and media based on recent market information for purchased commodities .
| consolidated results the company reported net earnings for fiscal 2012 of $ 264.3 million compared to $ 225.3 million in fiscal 2011 , an increase of 17.3 percent . diluted net earnings per share were $ 1.73 , up 21.0 percent from $ 1.43 in the prior year . the company 's operating income of $ 363.0 million increased from prior year operating income of $ 315.3 million by 15.1 percent . the table below shows the percentage of total operating income contributed by each segment for each of the last three fiscal years . corporate and unallocated includes corporate expenses determined to be non-allocable to the segments , interest income , and interest expense : replace_table_token_12_th international operating income , prior to corporate expense allocations , totaled 69.7 percent of consolidated operating income in fiscal 2012 as compared to 80.2 percent in fiscal 2011. total international operating income increased 0.1 percent from the prior year . the table below shows the percentage of total operating income contributed by each major geographic region for each of the last three fiscal years : replace_table_token_13_th gross margin for fiscal 2012 was 35.0 percent , a decrease from 35.5 percent in the prior year . the decrease in gross margin is attributable to the combination of the higher level of first fit and project sales which generally carry a lower margin , the company 's planned ramp-up for its newest plant in mexico , lower fixed cost absorption in asia , and increased purchased commodity costs from higher prices during the first half of the year and unfavorable foreign exchange rates in the second half of the year . these decreases were partially offset by the benefits from the company 's ongoing continuous improvement initiatives . within gross profit , the company incurred minimal restructuring and asset impairment charges during fiscal 2011 .
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brands , inc. ( “ yum ” or the “ company ” ) franchises or operates a worldwide system of over 48,000 restaurants in more than 140 countries and territories , primarily under the concepts of kfc , pizza hut and taco bell ( collectively , the `` concepts '' ) . these three concepts are global leaders of the chicken , pizza and mexican-style food categories , respectively . of the over 48,000 restaurants , 98 % are operated by franchisees . as of december 31 , 2018 , yum consists of three operating segments : the kfc division which includes our worldwide operations of the kfc concept the pizza hut division which includes our worldwide operations of the pizza hut concept the taco bell division which includes our worldwide operations of the taco bell concept on october 31 , 2016 , ( the “ distribution date ” ) , we completed the spin-off of our china business ( the `` separation '' ) into an independent , publicly-traded company under the name of yum china holdings , inc. ( “ yum china ” ) . on the distribution date , we distributed to each of our shareholders of record as of the close of business on october 19 , 2016 ( the “ record date ” ) one share of yum china common stock for each share of yum common stock ( “ common stock ” ) held as of the record date . the distribution was structured to be a tax free distribution to our u.s. shareholders for federal income tax purposes in the united states . concurrent with the separation , a subsidiary of the company entered into a master license agreement with a subsidiary of yum china for the exclusive right to use and sublicense the use of intellectual property owned by yum and its affiliates for the development and operation of kfc , pizza hut and taco bell restaurants in mainland china . prior to the separation , our operations in mainland china were reported in our former china division segment results . as a result of the separation , the results of operations and cash flows of the separated business are presented as discontinued operations in our consolidated statements of income and consolidated statements of cash flows for periods prior to the separation . see additional information related to the impact of the separation in note 4. on october 11 , 2016 , we announced our strategic transformation plans to drive global expansion of our kfc , pizza hut and taco bell brands ( “ yum 's strategic transformation initiatives ” ) following the separation . major features of the company 's transformation and growth strategy involve being more focused , franchised and efficient . yum 's strategic transformation initiatives below represent the continuation of yum 's transformation of its operating model and capital structure . more focused . four growth drivers form the basis of yum 's strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at kfc , pizza hut and taco bell around the world over the long term . the company is focused on becoming best-in-class in : building relevant , easy and distinctive brands developing unmatched franchise operating capability driving bold restaurant development growing unrivaled culture and talent more franchised . yum successfully increased franchise restaurant ownership to 98 % as of december 31 , 2018. more efficient . the company is revamping its financial profile , improving the efficiency of its organization and cost structure globally , by : reducing annual capital expenditures to approximately $ 100 million in 2019 ; lowering general and administrative expenses ( `` g & a '' ) to 1.7 % of system sales in 2019 ; and maintaining an optimized capital structure of ~5.0x earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) leverage . from 2017 through 2019 , we intend to return an additional $ 6.5 - $ 7.0 billion to shareholders through share repurchases and cash dividends . we intend to fund these shareholder returns through a combination of refranchising proceeds , free cash flow generation 24 and maintenance of our five times ebitda leverage . we generated pre-tax proceeds of $ 2.8 billion through our refranchising initiatives to achieve targeted franchise ownership of 98 % , which were completed in december 2018. refer to the liquidity and capital resources section of this md & a for additional details . beginning in 2017 , we changed our fiscal year from a year ending on the last saturday of december to a year beginning on january 1 and ending on december 31 of each year . concurrently , we removed the reporting lags from the fiscal calendars of our international subsidiaries . our md & a has been recast to reflect the change in our reporting calendar . see notes 2 and 5 for additional details related to our fiscal calendar . we intend for this md & a to provide the reader with information that will assist in understanding our results of operations , including performance metrics that management uses to assess the company 's performance . throughout this md & a , we commonly discuss the following performance metrics : same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the yum system for one year or more . net new units represents new unit openings , offset by store closures . company restaurant profit ( `` restaurant profit '' ) is defined as company sales less expenses incurred directly by our company-owned restaurants in generating company sales . company restaurant margin as a percentage of sales is defined as restaurant profit divided by company sales . within the company sales and restaurant profit sections of this md & a , store portfolio actions represent the net impact of new unit openings , acquisitions , refranchising and store closures , and other primarily represents the impact of same-store sales as well as the impact of changes in costs such as inflation/deflation . story_separator_special_tag as of december 31 , 2018. of these 2,300 units , we anticipate between 100 and 150 may close due to overlap in a particular trade area . based upon our ongoing and active maintenance of the pizza hut intellectual property as well as telepizza 's active involvement in supply chain management and their role as a master franchisee , both parties are exposed to significant risks and rewards depending on the commercial success of the alliance . as a result , the alliance has been identified as a collaborative arrangement and upon consummation of the alliance no amounts were recorded in our consolidated financial statements ( other than insignificant success fees that were paid to third-party advisors ) . subsequent to consummation of the deal , for all pizza hut restaurants that are part of the alliance , we will receive a continuing fee of 3.5 % of restaurant sales . likewise , for most telepizza restaurants that are part of the alliance we will receive an alliance fee of 3.5 % of restaurant sales . these fees will be recorded as franchise and property revenues within our consolidated statement of income when the related sales occur , consistent with our recognition of continuing fees for all other restaurants subject to our franchise agreements . these fees will be reduced by a sales-based credit that decreases over time and , potentially , certain incentive payments if development or conversion targets are met . previously , the existing pizza hut restaurants that are now subject to the master franchise agreement with telepizza generally paid a continuing fee of 6 % of restaurant sales consistent with our standard international franchise agreement terms . adoption of topic 606 , `` revenue from contracts with customers '' the financial accounting standards board ( `` fasb '' ) has issued standards to provide principles within a single framework for revenue recognition of transactions involving contracts with customers across all industries ( “ topic 606 ” ) . as a result , the company has changed its accounting policy for revenue recognition as detailed in note 2. we adopted topic 606 on january 1 , 2018 , using the modified retrospective method . therefore , the comparative information for fiscal 2017 and 2016 has not been adjusted and continues to be reported under our accounting polices related to revenue recognition prior to the adoption of topic 606 ( `` legacy gaap '' ) . gaap operating profit for the year ended december 31 , 2018 was $ 14 million lower and core operating profit was $ 41 million lower ( 2 percentage points ) than what would have been recognized under legacy gaap . 32 replace_table_token_15_th a ) reflects incentive payments made to or on behalf of franchisees during 2018 that under legacy gaap would have been recognized as expense in full in 2018. due to the size and nature of such payments , we historically would have included such amounts as special items and thus in the table above have not allocated their impact to our divisional results . such amounts are now being capitalized with related amortization recognized as a reduction of franchise and property revenues over the period of expected cash flows from the franchise agreements to which the payments relate . also reflects the recognition as refranchising gain of deferred franchise fees upon the modification of existing franchise agreements when entering into master franchise agreements . topic 606 also impacted transactions that were not historically included in our revenues and expenses such as franchisee contributions to , and subsequent expenditures from , advertising cooperatives that we are required to consolidate , as well as receipts and expenditures for other services we provide to our franchisees . based on legacy gaap , these transactions were reported on a net basis in our consolidated statements of income . this change did not have a significant impact on operating profit , as the contributions that are now recorded in franchise contributions for advertising and other services are largely offset by the expenditures recorded in franchise advertising and other services expense . refer to notes 2 and 5 for further details of the significant changes and quantitative impact of topic 606. income tax matters the tax cuts and jobs act of 2017 ( `` tax act '' ) was enacted on december 22 , 2017 ( see note 17 for discussion of the charge recorded as a result of the enactment ) . the tax act significantly modified the u.s. corporate income tax system by , among other things , reducing the federal income tax rate from 35 % to 21 % beginning in 2018 , limiting certain deductions , including limiting the deductibility of interest expense to 30 % of u.s. earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) , imposing a mandatory one-time deemed repatriation tax on accumulated foreign earnings and creating a territorial tax system that changes the manner in which foreign earnings are now subject to u.s. tax . after considering the impacts of the tax act , we anticipate a 2019 and ongoing effective tax rate of 20 % to 22 % , compared to our pre-2018 annual guidance of 26 % to 27 % , as we expect to benefit from the lower u.s. tax rate and the territorial tax system due to a majority of our earnings being generated outside the u.s. we anticipate this benefit will be partially offset by taxes incurred under the global intangible low-taxed income ( `` gilti '' ) provisions of the tax act . we originally anticipated that our 2018 effective tax would be slightly below the ongoing anticipated range of 20 % to 22 % , primarily due to a delay in the applicability of the gilti provisions of the tax act . our actual 2018 effective tax rate , excluding special items of 20.4 % was higher than we originally expected .
| results of operations summary all comparisons within this summary are versus the same period a year ago . for 2018 , gaap diluted eps from continuing operations increased 24 % to $ 4.69 per share , and diluted eps from continuing operations excluding special items , increased 7 % to $ 3.17 per share . 2018 financial highlights : replace_table_token_5_th additionally : during the year , we opened 1,757 net new units and added 1,282 telepizza units for 7 % net new unit growth . during the year , we refranchised 660 restaurants , including 364 kfc , 97 pizza hut and 199 taco bell units , for pre-tax proceeds of $ 825 million . we recorded net refranchising gains of $ 540 million in special items . during the year , we repurchased 28.2 million shares totaling $ 2.4 billion at an average share price of $ 85. for 2017 , gaap diluted eps from continuing operations increased 48 % to $ 3.77 per share , and diluted eps from continuing operations excluding special items , increased 20 % to $ 2.96 per share . 26 2017 financial highlights : replace_table_token_6_th replace_table_token_7_th additionally : during the year , we opened 1,407 net new units for 3 % net new unit growth . during the year , we refranchised 1,470 restaurants , including 828 kfc , 389 pizza hut and 253 taco bell units , for pre-tax proceeds of $ 1.8 billion . we recorded net refranchising gains of $ 1.1 billion in special items . during the year , we repurchased 26.6 million shares totaling $ 1.9 billion at an average share price of $ 72 . 27 worldwide gaap results replace_table_token_8_th ( a ) see note 3 for the number of shares used in these calculations . performance metrics replace_table_token_9_th ( a ) includes 1,282 telepizza units as of december 31 , 2018. see description of the telepizza strategic alliance within this md & a .
| 3,915 |
investment securities and securities available for sale - the company designates its securities as held to maturity , available for sale , or trading , depending on the company 's intent with regard story_separator_special_tag overview bfc financial corporation ( “ bfc ” or , unless otherwise indicated or the context otherwise requires , “ we ” , “ us ” , “ our ” or the “ company ” ) is a holding company whose principal holdings include direct or indirect controlling interests in bbx capital corporation ( formerly bankatlantic bancorp , inc. ) and its subsidiaries ( “ bbx capital ” ) and bluegreen corporation and its subsidiaries ( “ bluegreen ” ) . we currently hold shares of bbx capital 's class a common stock and class b common stock representing an approximately 75 % voting interest and 53 % equity interest in bbx capital . bbx capital 's principal asset until july 31 , 2012 was its investment in bankatlantic , a federal savings bank headquartered in fort lauderdale , florida . as described in further detail below under “ recent developments – sale of bankatlantic , ” on july 31 , 2012 , bbx capital completed its sale to bb & t corporation ( “ bb & t ” ) of all of the issued and outstanding shares of capital stock of bankatlantic . following the sale of bankatlantic to bb & t , bbx capital has managed , and plans to continue to manage , the assets retained by it in the sales transaction and engage in investments in real estate and other business opportunities as well as specialty finance activities over time as such assets are monetized . in addition , as described in further detail below under “ recent developments – proposed bluegreen merger , ” it is contemplated that bbx capital will invest $ 71.75 million in our subsidiary , woodbridge holdings , llc ( “ woodbridge ” ) , upon consummation of woodbridge 's acquisition of bluegreen , in exchange for a 46 % equity interest in woodbridge . we will continue to hold the remaining 54 % of woodbridge 's outstanding equity interests . we currently hold shares of bluegreen 's common stock representing approximately 54 % of the issued and outstanding shares of such stock . bluegreen is a sales , marketing and management company focused on the vacation ownership industry . bluegreen markets , sells and manages vacation ownership interests ( “ vois ” ) in resorts , which are generally located in popular , high-volume , “ drive-to ” vacation destinations , and were either developed or acquired by bluegreen or developed and owned by others , in which case bluegreen earns fees for providing such services . bluegreen also provides property association management services , mortgage servicing , voi title services , reservation services , and construction design and development services . in addition , bluegreen provides financing to individual purchasers of vois , which provides significant interest income to bluegreen . as described in further detail below under “ recent developments – proposed bluegreen merger , ” we are currently party to a merger agreement with bluegreen which provides for the acquisition of bluegreen by woodbridge in a cash merger . bfc also holds interests in other investments and subsidiaries as described herein . in addition , bfc held a significant investment in benihana inc. ( “ benihana ” ) until the acquisition of benihana by safflower holdings corp. ( “ safflower ” ) during august 2012. as of december 31 , 2012 , we had total consolidated assets of approximately $ 1.5 billion and shareholders ' equity attributable to bfc of approximately $ 299.0 million . net income attributable to bfc for the year ended december 31 , 2012 was approximately $ 166.0 million , including a gain on sale of bankatlantic of approximately $ 293 million . net loss attributable to bfc was approximately $ 11.3 million and $ 103.8 million for the years ended december 31 , 2011 and 2010 , respectively . bfc 's business strategy has been to invest in and acquire businesses in diverse industries either directly or through controlled subsidiaries . however , in the short-term , bfc has focused on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole . in addition to the currently proposed merger with bluegreen , we expect to consider other opportunities that could alter our ownership in our affiliates . we may also seek to make opportunistic investments outside of our existing portfolio . however , we do not currently have pre-determined parameters as to the industry or structure of any future investment . in furtherance of our goals , we will continue to evaluate various financing transactions , including raising additional debt or equity as well as other alternative sources of new capital . the following events had a significant financial impact on bfc during 2012 : · on july 31 , 2012 , bbx capital completed the sale to bb & t of all of the shares of bankatlantic . in connection with such transaction , bfc , by virtue of its 53 % economic ownership interest in bbx capital , recognized a gain on sale of approximately $ 293.4 million ; 64 · during august 2012 , benihana was acquired by safflower in a cash merger pursuant to which benihana 's shareholders received $ 16.30 in exchange for each share of benihana 's common stock that they held at the effective time of the merger . story_separator_special_tag it is also contemplated that , in connection with the investment , woodbridge 's operating agreement will be amended to set forth bfc 's and bbx capital 's respective rights as members of woodbridge following the investment and provide , among other things , for unanimity on certain specified “ major decisions. ” on march 26 , 2013 , bluegreen issued $ 75 million of senior secured notes in a private transaction , the proceeds of which will be used to fund a portion of the merger consideration . to the extent that bluegreen uses its resources to fund a portion of the merger consideration , bfc anticipates that its shareholders ' equity will be reduced accordingly . see the “ bluegreen resorts liquidity ” section below for further information regarding this financing transaction . there is no assurance that the 2012 merger will be consummated on the contemplated terms , or at all . following the announcement of the 2011 merger agreement , seven purported class action lawsuits were filed seeking to enjoin the 2011 merger or , if it was completed , to recover relief as determined by the applicable presiding court . four of these lawsuits were filed in florida and have been consolidated into a single action . the other three lawsuits , which were filed in massachusetts , have also been consolidated into a single action , which has been stayed in favor of the consolidated action in florida . following the announcement of the termination of the 2011 merger agreement and entry into the 2012 merger agreement , the plaintiffs in the florida action filed a supplemental complaint alleging that the consideration to be received by bluegreen 's shareholders pursuant to the 2012 merger agreement remains inadequate and continues to be unfair to bluegreen 's minority shareholders . see “ item 3 – legal proceedings ” for additional information regarding the litigation . sale of bluegreen communities on may 4 , 2012 , bluegreen sold substantially all of the assets that comprised its residential communities business , bluegreen communities , to southstar development partners , inc. ( “ southstar ” ) for a purchase price of $ 29.0 million in cash . southstar also agreed to pay an amount equal to 20 % of the net proceeds ( as calculated in accordance with the terms of the agreement ) , of its sale , if any , of two specified parcels of real estate purchased by southstar under the agreement . southstar sold one of such parcels during 2012 and paid to bluegreen the proceeds of the sale to which bluegreen was entitled , which was insignificant . assets excluded from the sale included primarily bluegreen 's communities notes receivable portfolio . bluegreen communities is classified as a discontinued operation for all periods presented in the accompanying consolidated financial statements . see note 5 to the consolidated financial statements included herein for additional information regarding discontinued operations . benihana 's acquisition by safflower as previously described , bfc held a significant investment in benihana prior to the merger between benihana and safflower during august 2012. pursuant to the merger agreement , safflower acquired benihana for a cash purchase price of $ 16.30 per share of benihana 's common stock . bfc received approximately $ 24.5 million in exchange for the 1,505,330 shares of benihana 's common stock that it held at the effective time of the transaction . prior to safflower 's acquisition of benihana , bfc sold approximately 77,000 shares of benihana 's common stock during july and august 2012 pursuant to the terms of a rule 10b5-1 trading plan and received net proceeds from such sales of approximately $ 1.25 million . bfc recognized a gain on sale of approximately $ 9.3 million in connection with its sales of shares of benihana 's common stock during july and august 2012 and disposition of its remaining shares of benihana 's common stock pursuant to the merger between benihana and safflower during august 2012. in addition , during each of the first three quarters of 2012 , bfc received approximately $ 127,000 of dividend payments with respect to its shares of benihana 's common stock . 66 sale of bankatlantic on july 31 , 2012 bbx capital completed the sale to bb & t corporation ( “ bb & t ” ) of all of the shares of bankatlantic ( the sale and related transactions , the “ bankatlantic sale ” ) . in connection with the bankatlantic sale , bankatlantic 's community banking , investments , tax certificates and capital services reporting units are reported as discontinued operations for the years ended december 31 , 2012 and 2011. bbx capital 's activities during each of the years in the three year period ended december 31 , 2012 consisted of managing a commercial loan portfolio which included construction , residential development , land acquisition and commercial business loans . the activities of managing these loan portfolios included renewing , modifying , increasing , extending , refinancing and making protective advances on these loans , as well as managing and liquidating real estate properties acquired through foreclosure . pursuant to the terms of the bb & t agreement , prior to the closing of the transaction bankatlantic formed two subsidiaries , bbx capital asset management , llc ( “ cam ” ) and florida asset resolution group , llc ( “ far ” ) . bankatlantic contributed to far certain performing and non-performing loans , tax certificates , and real estate owned that had an aggregate carrying value on bankatlantic 's balance sheet of approximately $ 346 million at july 31 , 2012 ( the date the bb & t transaction was consummated ) . far assumed all liabilities related to these assets . bankatlantic also contributed approximately $ 50 million in cash to far on july 31 , 2012 and thereafter distributed all of the membership interests in far to bbx capital .
| bbx results of operations the following table is a condensed income statement summarizing the results of operations of bbx capital 's business segment ( “ bbx ” ) ( in thousands ) : replace_table_token_32_th net interest income the reduction in net interest income during each of the years in the three year period ended december 31 , 2012 resulted primarily from a significant reduction in the origination and purchase of commercial loans throughout the three year period reflecting bankatlantic 's efforts to reduce assets in order to improve regulatory capital and the limitations under the bank order . the average loan balance declines were also impacted by loan repayments , 112 md & a ( b bx capital ) migration of loans to real estate owned and loan sales . additionally , pursuant to the bb & t transaction , $ 297 million of commercial loans were transferred to bb & t and $ 223.8 million of commercial loans were transferred to far significantly reducing the average balance of commercial loans reported in the bbx reportable segment during the year ended december 31 , 2012. the balances of commercial loans in the bbx reportable segment declined from $ 1.03 billion as of december 31 , 2010 to $ 799 million as of december 31 , 2011 to $ 56 million as of december 31 , 2012. provision for loan losses changes in the allowance for loan losses were as follows ( in thousands ) : replace_table_token_33_th discontinued operations represent the activity in the allowance for loan losses associated with the community banking and capital services reporting units . commercial real estate loan charge-offs during the year ended december 31 , 2012 included $ 46.7 million of charge-offs related to previously established specific valuation allowances . bbx charged-off specific valuation allowances on collateral dependent loans during the first quarter of 2012 in accordance with occ guidance ( which is discussed in more detail below ) .
| 3,916 |
the table below summarizes activity relating to the valuation allowance : replace_table_token_43_th the net deferred tax assets after valuation allowance as of december 27 , 2014 and december 28 , 2013 were $ 29.9 million and $ 30.2 million , story_separator_special_tag the information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included 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 27a of the securities act of 1933 , as amended , and section 21e of the securities and exchange act of 1934 , as amended , or the exchange act , and are subject to the “ safe harbor ” created by those sections . in particular , statements contained in this annual report on form 10-k that are not historical facts , including , but not limited to statements concerning new product sales , product development and offerings , roomba , scooba , looj , braava and mirra products , packbot tactical military robots , the small unmanned ground vehicle , firstlook , ava , our home robots , defense and security robots and remote presence robots business units , our competition , our strategy , our market position , market acceptance of our products , seasonal factors , revenue recognition , our profits , growth of our revenues , product life cycle revenue , composition of our revenues , our cost of revenues , units shipped , average selling prices , funding of our defense and security robot development programs , operating expenses , selling and marketing expenses , general and administrative expenses , research and development expenses , and compensation costs , our projected income tax rate , our credit and letter of credit facilities , our valuations of investments , valuation and composition of our stock-based awards , and liquidity , constitute forward-looking statements and are made under these safe harbor provisions . some of the forward-looking statements can be identified by the use of forward-looking terms such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ could , ” “ seek , ” “ intends , ” “ plans , ” “ estimates , ” “ anticipates , ” or other comparable terms . forward-looking statements involve inherent risks and uncertainties , which could cause actual results to differ materially from those in the forward-looking statements . we urge you to consider the risks and uncertainties discussed in greater detail under the heading “ risk factors ” in evaluating our forward-looking statements . we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report . we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . overview irobot designs and builds robots that empower people to do more . for nearly 25 years , we have developed proprietary technology incorporating advanced concepts in navigation , mobility , manipulation and artificial intelligence to build industry-leading robots . our home care robots perform time-consuming domestic chores while our defense and security robots perform tasks such as battlefield reconnaissance and bomb disposal , and multi-purpose tasks for law enforcement agencies and first responders , as well as certain commercial users . our remote presence robots expand the reach of medical care by connecting physicians with patients from anywhere in the world and also provide autonomous telepresence capabilities enabling remote workers to more personally collaborate throughout the workplace . we sell our robots through a variety of distribution channels , including chain stores and other national retailers , through our on-line store , through value-added distributors and resellers , and to the u.s. military and other government agencies worldwide . as of december 27 , 2014 , we had 572 full-time employees . we have developed expertise in the disciplines necessary to build durable , high-performance and cost-effective robots through the close integration of software , electronics and hardware . our core technologies serve as reusable building blocks that we adapt and expand to develop next generation and new products , reducing the time , cost and risk of product development . our significant expertise in robot design and engineering , combined with our management team 's experience in consumer , military and enterprise markets , positions us to capitalize on the expected growth in the market for robot-based products . although we have successfully launched consumer and defense and security products , our continued success depends upon our ability to respond to a number of future challenges . we believe the most significant of these challenges include increasing competition in the markets for both our consumer and defense and security products , and our ability to successfully develop and introduce products and product enhancements into both new and existing markets . 24 our total revenue for 2014 was $ 556.8 million , which represents a 14 % increase from 2013 revenue of $ 487.4 million . this increase in revenue was largely attributable to a $ 79.6 million increase in revenue in our home robots business as a direct result of growth in both domestic and international markets , which was primarily driven by expanded distribution of our roomba 800 series robot worldwide , growth in china and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores . the increase in home robots revenue was partially offset by a decrease in revenue of $ 4.5 million in our defense and security business related to continued budget reductions within the u.s. government in 2014. we began selling our remote presence robots into the healthcare market and the enterprise market in 2013 and 2014 , respectively . story_separator_special_tag for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , total cost of revenue was 53.7 % , 54.6 % and 55.4 % of total revenue , respectively . raw material costs , which are our most significant cost items , can fluctuate materially on a periodic basis , although many components have been historically stable . additionally , unit costs can vary significantly depending on the mix of products sold . there can be no assurance that our costs of raw materials will not increase . labor costs also comprise a significant portion of our cost of revenue . we outsource the manufacture of our home robots to contract manufacturers in china . while labor costs in china traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , they have recently been increasing . in addition , fluctuations in currency exchange rates could increase the cost of labor . consequently , the labor costs for our home robots could increase in the future . gross margin our gross margin as a percentage of revenue varies according to the mix of product and contract revenue , the mix of products sold , total sales volume , the level of defective product returns , and levels of other product costs such as warranty , scrap , re-work and manufacturing overhead . for the years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , gross margin was 46.3 % , 45.4 % and 44.6 % of total revenue , respectively . research and development expenses research and development expenses consist primarily of : salaries and related costs for our engineers ; costs for high technology components used in product and prototype development ; costs of test equipment used during product development ; and occupancy and other overhead costs . we have significantly expanded our research and development capabilities and expect to continue to expand these capabilities in the future . we are committed to consistently maintaining the level of innovative design and development of new products as we strive to enhance our ability to serve our existing consumer and military markets as well as new markets for robots , such as telepresence . we anticipate that research and development expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue in the foreseeable future . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 , research and development expense was $ 69.4 million , $ 63.6 million and $ 57.1 million , or 12.5 % , 13.1 % and 13.1 % of total revenue , respectively . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of : salaries and related costs for sales and marketing personnel ; salaries and related costs for executives and administrative personnel ; advertising , marketing and other brand-building costs ; customer service costs ; professional services costs ; information systems and infrastructure costs ; travel and related costs ; and occupancy and other overhead costs . we anticipate that selling , general and administrative expenses will increase in absolute dollars but remain relatively consistent , or decrease slightly , as a percentage of revenue in the foreseeable future as we continue to build the irobot brand . for the fiscal years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 selling , general and administrative expense was $ 135.5 million , $ 124.9 million and $ 112.1 million , or 24.3 % , 25.6 % and 25.7 % of total revenue , respectively . fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our 26 fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we derive our revenue from product sales and , to a lesser extent , government and commercial research and development contracts . we sell products directly to customers and indirectly through resellers and distributors . we recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns , provided that collection is determined to be reasonably assured and no significant obligations remain . sales to domestic and canadian resellers of home robots are typically subject to agreements allowing for limited rights of return , rebates and price protection . we also provide limited rights of returns for direct-to-consumer sales generated through our on-line stores . accordingly , we reduce revenue for our estimates of liabilities for these rights of return , rebates and price protection at the time the related sale is recorded . these estimates for rights of return are directly based on specific terms and conditions included in the reseller agreements , historical returns experience and various other assumptions that we believe are reasonable under the circumstances .
| overview of results of operations the following table sets forth our results of operations for the periods shown : replace_table_token_4_th _ ( 1 ) stock-based compensation recorded in fiscal 2014 , 2013 and 2012 breaks down by expense classification as follows . replace_table_token_5_th 29 the following table sets forth our results of operations as a percentage of revenue for the periods shown : replace_table_token_6_th comparison of years ended december 27 , 2014 and december 28 , 2013 revenue fiscal year ended december 27 , 2014 december 28 , 2013 dollar change percent change ( in thousands ) total revenue $ 556,846 $ 487,401 $ 69,445 14.2 % our revenue increased 14.2 % to $ 556.8 million in fiscal 2014 from $ 487.4 million in fiscal 2013. revenue increased $ 79.6 million , or 18.6 % , in our home robots business unit , and decreased $ 4.5 million , or 9.0 % , in our defense and security business unit . the $ 79.6 million increase in revenue from our home robots business unit was driven by a 12.5 % increase in units shipped and a 6.1 % increase in net average selling price . in fiscal 2014 , international home robots revenue increased $ 46.0 million , or 16.8 % , and domestic home robots revenue increased $ 33.5 million , or 21.8 % , compared to fiscal 2013. total home robots shipped in fiscal 2014 were 2,174,000 units compared to 1,933,000 units in fiscal 2013. the increase in both domestic and international home robots revenue was primarily driven by expanded distribution of our roomba 800 series robot worldwide , and the replacement of the roomba 500 series robot with the higher-priced roomba 600 series in club stores .
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the company has recognized goodwill on this transaction primarily as story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of berry global group , inc. and its subsidiaries and the accompanying notes thereto , which information is included elsewhere herein . this discussion contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in the “ risk factors ” section . our actual results may differ materially from those contained in any forward-looking statements . segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period . overview berry global group , inc. ( “ berry , ” “ we , ” or the “ company ” ) is a leading global supplier of a broad range of innovative rigid , flexible and non-woven products used every day within consumer and industrial end markets . we sell our products predominantly into stable , consumer-oriented end markets , such as healthcare , personal care , and food and beverage . our customers consist of a diverse mix of leading global , national , mid-sized regional and local specialty businesses . the size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our business . for the fiscal year ended september 28 , 2019 ( “ fiscal 2019 ” ) , no single customer represented more than 5 % of net sales and our top ten customers represented approximately 20 % of net sales . we believe our manufacturing processes , manufacturing footprint and our ability to leverage our scale to reduce costs , positions us as a low-cost manufacturer relative to our competitors . story_separator_special_tag represent the results from acquisitions for the current period . business integration expenses consist of restructuring and impairment charges , acquisition related costs , and other business optimization costs . tables present dollars in millions . replace_table_token_4_th the net sales growth is primarily attributed to acquisition net sales of $ 1,479 million partially offset by prior period divestiture sales of $ 20 million , a $ 48 million unfavorable impact from foreign currency changes , lower selling prices of $ 175 million due to the pass through of lower resin costs , a 1 % decline as the result of a customer product transition and a 2 % base volume decline . the operating income increase is primarily attributed to a $ 214 million gain on the sale of our sfl business , acquisition operating income of $ 114 million , and a $ 37 million decrease in depreciation and amortization . these improvements were partially offset by an increase in business integration costs of $ 28 million , a $ 25 million negative impact from price cost spread , an $ 18 million unfavorable impact from foreign currency changes , a $ 39 million inventory fair value step-up , and a $ 26 million impact from lower base volumes . replace_table_token_5_th the net sales growth in the consumer packaging international segment is primarily attributed to acquisition net sales from the rpc acquisition of $ 1,031 million . the operating income decrease is primarily attributed to an increase in business integration costs of $ 52 million and a $ 36 million inventory fair value step-up related to the rpc acquisition partially offset by acquisition operating income of $ 82 million . replace_table_token_6_th the net sales growth in the consumer packaging north america segment is primarily attributed to acquisition net sales of $ 133 million related to the u.s. portion of the acquired rpc business and a 2 % base volume improvement partially offset by lower selling prices due to the pass through of lower resin costs . the operating income increase is primarily attributed to acquisition operating income of $ 15 million , a $ 23 million decrease in depreciation and amortization , and a $ 13 million increase from the higher base volumes . these increases were partially offset by a $ 13 million increase in business integration costs primarily related to the rpc acquisition . 14 replace_table_token_7_th the net sales decline in the engineered materials segment is primarily attributed to lower selling prices of $ 117 million due to the pass through of lower resin costs and a 5 % base volume decline due to softness in industrial markets and supply chain disruption related to material qualifications . these decreases were partially offset by acquisition net sales of $ 151 million related mainly to the laddawn acquisition . the operating income decrease is primarily attributed to a $ 33 million unfavorable impact from price cost spread and a $ 23 million impact from the base volume decline partially offset by acquisition operating income of $ 6 million . replace_table_token_8_th the net sales decline in the health , hygiene & specialties segment is primarily attributed to lower selling prices of $ 40 million due to the pass through of lower resin costs , a 2 % decline as the result of a customer product transition , a 3 % base volume decline as a result of weakness in the north american baby care market , prior year sales of $ 20 million related to the divested sfl business and a $ 46 million unfavorable impact from foreign currency changes . these declines were partially offset by acquisition net sales of $ 164 million related to the clopay acquisition . the operating income increase is primarily attributed to a $ 214 million gain on the sale of our sfl business and a decrease in business integration costs of $ 30 million . these improvements were partially offset by a $ 15 million unfavorable impact from foreign currency changes and a $ 15 million impact from lower base volumes . story_separator_special_tag replace_table_token_18_th the other expense increase is primarily attributed to a year over year increase of $ 19 million in unfavorable foreign currency changes related to the remeasurement of non-operating intercompany balances , partially offset by an $ 8 million decrease in debt extinguishment expense related to fewer term loan modifications in 2018 compared to 2017 . 17 replace_table_token_19_th the interest expense decrease is primarily attributed to reduced interest rates resulting from the term loan modifications , partially offset by additional expense attributed to the $ 500 million 4.5 % second priority senior secured notes . replace_table_token_20_th t he income tax decrease is primarily attributed to the $ 124 million transition benefit recorded in fiscal 2018 as a result of the recent u.s. tax legislation . after the exclusion of the tax reform benefit , our effective tax rate for fiscal 2018 was 22 % and was positively impacted by 2 % from the share-based compensation excess tax benefit , 2 % from the release of foreign valuation allowances , 1 % from research and development credits , and a 1 % benefit from the domestic manufacturing deduction . these favorable items were partially offset by increases of 3 % from u.s. state taxes and other discrete items . replace_table_token_21_th the decrease in comprehensive income is primarily attributed to a $ 161 million decrease in currency translation and a $ 35 million decrease in unrealized gains on the company 's pension plans , partially offset by a $ 156 million increase in net income and a $ 21 million favorable change in the fair value of interest rate hedges . currency translation gains are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation was primarily attributed to locations utilizing the euro , brazilian real , and canadian dollar as their functional currency . the change in unrealized gains on pension plans in the current period was primarily attributable to actuarial losses from an increase in the underlying discount rate . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income . the change in fair value of these instruments in fiscal 2018 versus fiscal 2017 is primarily attributed to a change in the forward interest curve between measurement dates . liquidity and capital resources senior secured credit facility we manage our global cash requirements considering ( i ) available funds among the many subsidiaries through which we conduct business , ( ii ) the geographic location of our liquidity needs , and ( iii ) the cost to access international cash balances . we have a $ 850 million asset-based revolving line of credit that matures in may 2024. at the end of fiscal 2019 , the company had no outstanding balance on the revolving credit facility . the company was in compliance with all covenants at the end of fiscal 2019 ( see note 3. long-term debt for further information ) . 18 contractual obligations and off balance sheet transactions our contractual cash obligations at the end of fiscal 2019 are summarized in the following table which does not give any effect to taxes as we can not reasonably estimate the timing of future cash outflows . replace_table_token_22_th ( a ) includes anticipated interest of $ 9 million over the life of the capital leases . ( b ) based on applicable interest rates in effect end of fiscal 2019. in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) , which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements . under the new standard , the lessee of an operating lease will be required to do the following : 1 ) recognize a right-of-use asset and a lease liability in the statement of financial position , 2 ) recognize a single lease cost allocated over the lease term generally on a straight-line basis , and 3 ) classify all cash payments within operating activities on the statement of cash flows . companies are required to adopt this standard using a modified retrospective transition method . the company will adopt the standard beginning in fiscal 2020 and will recognize the cumulative effect of applying the new standard to retained earnings , which the company does not expect to be material . the standard provides a number of optional practical expedients in transition . we expect to elect the “ package of practical expedients ” , which permits us not to reassess under the standard our prior conclusions about lease identification , lease classification and initial direct costs . the standard also provides practical expedients for the company 's ongoing accounting . we currently expect to elect the short-term lease recognition exemption for all leases that qualify . this means , for those leases that qualify , we will not recognize right-of-use ( “ rou ” ) assets or lease liabilities , and this includes not recognizing rou assets or lease liabilities for existing short-term leases of those assets in transition . cash flows from operating activities net cash provided by operating activities increased $ 197 million from fiscal 2018 primarily attributed to decreases in working capital due to lower raw material costs partially offset by professional fees related to the rpc acquisition . net cash provided by operating activities increased $ 29 million from fiscal 2017 primarily attributed to the settlement of interest rate hedges , improved net income before depreciation , amortization and the net impact of the tax act .
| executive summary business . in july 2019 , the company reorganized into four reporting segments : consumer packaging international , consumer packaging north america , engineered materials and health , hygiene & specialties . the new structure is designed to align us with our customers , provide improved service , drive future growth , and to facilitate synergies realization . the consumer packaging international segment primarily consists of containers , closures , dispensing systems , pharmaceutical devices and packaging , polythene films , and technical components and includes the international portion of the recently acquired rpc group plc ( “ rpc ” ) business . the consumer packaging north america segment primarily consists of containers , foodservice items , closures , overcaps , bottles , prescription vials , and tubes . the engineered materials segment primarily consists of tapes and adhesives , polyethylene-based film products , can liners , and specialty coated and laminated products . the health , hygiene & specialties segment primarily consists of nonwoven specialty materials and films used in hygiene , infection prevention , personal care , industrial , construction , and filtration applications . the company has recast all prior period amounts to conform to this new reporting structure . 12 raw material trends . our primary raw material is plastic resin . polypropylene and polyethylene account for approximately 90 % of our plastic resin pounds purchased . the three-month simple average price per pound , as published by the american market indices , were as follows : replace_table_token_3_th due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs , segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted in the short term when plastic resin costs decrease . this timing lag and competitor behaviors related to passing through raw material cost changes could affect our results as plastic resin costs fluctuate . outlook .
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no properties were classified as held for sale as of december 31 , 2019 or 2018 , and dispositions during the years ended december 31 , story_separator_special_tag the following discussion should be read in conjunction with our financial statements , including the notes to those statements , included in this report , and the section entitled “ cautionary statement regarding forward-looking statements ” in this report . as discussed in more detail in the section entitled “ cautionary statement regarding forward-looking statements , ” this discussion contains forward-looking statements which involve risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause those differences include those discussed in part i , item 1 . “ business ” and part i , item 1a . “ risk factors ” and elsewhere in this report . overview we are a self-managed healthcare real estate company organized in april 2013 to acquire , selectively develop , own , and manage healthcare properties that are leased to physicians , hospitals , and healthcare delivery systems . we invest in real estate that is integral to providing high quality healthcare services . our properties are typically located on a campus with a hospital or other healthcare facilities or strategically affiliated with a hospital or other healthcare facilities . we believe the impact of government programs and continuing trends in the healthcare industry create attractive opportunities for us to invest in healthcare related real estate . in particular , we believe the demand for healthcare will continue to increase as a result of the aging population as older persons generally utilize healthcare services at a rate well in excess of younger people . our management team has significant public healthcare reit experience and has long-established relationships with physicians , hospitals , and healthcare delivery system decision makers that we believe will provide quality investment and growth opportunities . our principal investments include medical office buildings , outpatient treatment facilities , as well as other real estate integral to healthcare providers . in recent years , we have seen increased competition for healthcare properties and we expect this trend to continue . we seek to generate attractive risk-adjusted returns for our shareholders through a combination of stable and increasing dividends and potential long-term appreciation in the value of our properties and our common shares . we have grown our consolidated portfolio of gross real estate investments from approximately $ 124 million at the time of our ipo in july 2013 to approximately $ 4.7 billion as of december 31 , 2019 . during 2020 , we look for continued growth with the potential for selective dispositions , a continued focus on operating performance , and diligent deployment of capital in the market . as of december 31 , 2019 , our consolidated portfolio consisted of 258 healthcare properties located in 31 states with approximately 13,695,255 net leasable square feet , which were approximately 96 % leased with a weighted average remaining lease term of approximately 7.4 years . as of december 31 , 2019 , approximately 90 % of the net leasable square footage of our consolidated portfolio was either on campus with a hospital or other healthcare facility or strategically affiliated with a hospital or other healthcare facility . as of december 31 , 2019 , leases representing a percentage of our consolidated portfolio on the basis of leased square feet will expire as follows : replace_table_token_7_th ( 1 ) includes 9 leases which expired on december 31 , 2019 , representing 0.2 % of portfolio occupied leasable square feet . 44 we receive a cash rental stream from these healthcare providers under our leases . approximately 94 % of the annualized base rent payments from our properties as of december 31 , 2019 are from absolute and triple-net leases , pursuant to which the tenants are responsible for all operating expenses relating to the property , including but not limited to real estate taxes , utilities , property insurance , routine maintenance and repairs , and property management . this structure helps insulate us from increases in certain operating expenses and provides more predictable cash flow . approximately 5 % of the annualized base rent payments from our properties as of december 31 , 2019 are from modified gross leases which allow us to pass through certain increases in future operating expenses ( e.g. , property tax and insurance ) to tenants for reimbursement , thus protecting us from increases in such operating expenses . we seek to structure our triple-net leases to generate attractive returns on a long-term basis . our leases typically have initial terms of 5 to 15 years and include annual rent escalators of approximately 1.5 % to 3.0 % . our operating results depend significantly upon the ability of our tenants to make required rental payments . we believe that our portfolio of medical office buildings and other healthcare facilities will enable us to generate stable cash flows over time because of the diversity of our tenants , staggered lease expiration schedule , long-term leases , and low historical occurrence of tenants defaulting under their leases . we intend to grow our portfolio of high-quality healthcare properties leased to physicians , hospitals , healthcare delivery systems and other healthcare providers primarily through acquisitions of existing healthcare facilities that provide stable revenue growth and predictable long-term cash flows . we may also selectively finance the development of new healthcare facilities through joint venture or fee arrangements with healthcare real estate developers or health system development professionals . generally , we only expect to make investments in new development properties when approximately 80 % or more of the development property has been pre-leased before construction commences . we seek to invest in properties where we can develop strategic alliances with financially sound healthcare providers and healthcare delivery systems that offer need-based healthcare services in sustainable healthcare markets . story_separator_special_tag interest income on real estate loans and other increased $ 3.1 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. the increase is attributable to a lease termination settlement of $ 2.2 million in 2018 , and interest income from note receivables of $ 0.9 million in 2018 when compared to 2017. expenses total expenses increased by $ 66.1 million , or 21.3 % , for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. an analysis of selected expenses follows . 48 interest expense . interest expense for the year ended december 31 , 2018 was $ 66.2 million compared to $ 47.0 million for the year ended december 31 , 2017 , representing an increase of $ 19.2 million , or 40.8 % . the increase is primarily attributable to the issuance of our public senior notes in march 2017 and december 2017 for an increase of $ 3.3 million and $ 12.9 million , respectively . additionally , higher libor rates increased interest expense on our credit facility by $ 3.2 million . general and administrative . general and administrative expenses increased $ 5.9 million or 25.5 % , from $ 23.0 million during the year ended december 31 , 2017 to $ 28.8 million during the year ended december 31 , 2018. the increase is primarily attributable to the adoption of asu 2017-01 , which resulted in the addition of approximately $ 3.9 million of internal acquisition pursuit costs that would have previously been classified as acquisition expenses . the increase is also attributable to an increase in stock compensation of $ 1.9 million , office expenditures of $ 0.4 million , bonus expense of $ 0.3 million , and other payroll and benefit increases of $ 0.4 million . these increases were partially offset by a decrease in professional fees of $ 1.1 million . of the $ 5.9 million increase in general and administrative expenses , non-cash share compensation accounted for $ 3.6 million . operating expenses . operating expenses increased $ 25.6 million or 26.4 % , from $ 97.0 million during the year ended december 31 , 2017 to $ 122.6 million during the year ended december 31 , 2018. the increase is primarily due to our 2018 and 2017 property acquisitions which resulted in additional operating expenses of $ 3.4 million and $ 22.4 million , respectively . in addition , there was an increase of $ 1.9 million from additional operating expenses associated with the remainder of the portfolio , excluding foundation healthcare which had additional operating expenses of $ 1.0 million . this was offset by $ 3.2 million associated with our properties sold during 2018 and 2017. depreciation and amortization . depreciation and amortization increased $ 33.2 million , or 26.6 % , from $ 125.2 million during the year ended december 31 , 2017 to $ 158.4 million during the year ended december 31 , 2018. our 2018 and 2017 property acquisitions resulted in additional depreciation and amortization of $ 5.9 million and $ 27.5 million , respectively . the termination of a lease located at the kennewick mob increased in-place lease intangible amortization by $ 6.6 million and was partially offset by a reduction in depreciation and amortization of $ 6.5 million associated with our properties sold during 2018 and 2017. acquisition expenses . during the first quarter of 2018 , the company adopted asu 2017-01 which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business . the company determined that none of our 2018 acquisitions met the revised definition of a business . as such , acquisition pursuit costs are capitalized in accordance with the new guidance and there is no acquisition expense for the year ended december 31 , 2018. the company recorded acquisition expenses totaling $ 16.7 million during the year ended december 31 , 2017. impairment loss . the company did not record an impairment loss for the year ended december 31 , 2018. the company recorded a $ 1.0 million impairment loss on one medical office building for the year ended december 31 , 2017. equity in income of unconsolidated entities . the change in equity in income of unconsolidated entity for the year ended december 31 , 2017 compared to the year ended december 31 , 2018 is not significant . gain on sale of investment properties , net . during the year ended december 31 , 2018 we sold 34 properties located in 9 states for approximately $ 220.4 million , realizing a net gain of $ 11.7 million . during the year ended december 31 , 2017 we sold 5 properties in 2 states for approximately $ 20.7 million , realizing a net gain of $ 5.9 million . cash flows year ended december 31 , 2019 compared to the year ended december 31 , 2018 ( in thousands ) . replace_table_token_10_th cash flows from operating activities . cash flows provided by operating activities were $ 201.2 million during the year ended december 31 , 2019 compared to $ 208.7 million during the year ended december 31 , 2018 , representing a decrease of 49 $ 7.5 million . this change is primarily attributable to the decrease in operating cash flows resulting from our 2019 and 2018 dispositions . cash flows from investing activities . cash flows used in investing activities was $ 255.3 million during the year ended december 31 , 2019 compared to cash flows used in investing activities of $ 77.2 million during the year ended december 31 , 2018 , representing a change of $ 178.1 million .
| resulted from our net 46 write-offs of straight-line rent receivables and tenant receivables during 2019 at three lifecare properties and the foundation el paso surgical hospital . these decreases were partially offset by increases of $ 3.3 million and $ 5.7 million from our 2019 and 2018 acquisitions , respectively . expense recoveries . expense recoveries increase d $ 3.1 million , or 3.2 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . the increase in expense recoveries primarily resulted from our 2019 and 2018 acquisitions which resulted in additional expense recoveries of $ 0.6 million and $ 2.6 million , respectively . expense recoveries also increased $ 2.6 million resulting from our existing portfolio of properties . these increases were partially offset by a decrease of $ 2.7 million associated with our properties sold during 2019 and 2018 . interest income on real estate loans and other . interest income on real estate loans and other decrease d $ 0.7 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . this decrease is the result of a $ 2.2 million lease termination settlement and $ 0.3 million bankruptcy settlement during 2018 . interest income on real estate loans and other also decrease d $ 0.3 million from interest income on deposit accounts and other . this is offset by an increase of $ 2.2 million in income attributable to the company 's outstanding real estate loan receivables . expenses total expenses decrease d by $ 6.6 million , or 1.8 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . an analysis of selected expenses follows . interest expense .
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2. summary of significant accounting policies cash and cash equivalents the company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents . fair value of financial instruments the company 's financial instruments consist of cash and cash equivalents , investments , receivables , payables , bank debt and foreign currency forward contracts . the company believes that the carrying story_separator_special_tag management 's discussion and analysis of financial condition and results of operations contains “ forward-looking statements ” within the meaning of section 27a of the securities act and section 21e of the exchange act that are based on management 's current expectations , estimates and projections about our business operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors , including the known material factors set forth in “ part i , item 1a . risk factors. ” you should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10-k. macroeconomic environment we provide a broad range of products and services to the oil and gas industry through our accommodations , offshore products and well site services business segments , and our accommodations segment also supports the mining industry . demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas and mining industries , particularly our customers ' willingness to invest capital in the exploration for and development of oil , natural gas , met coal and other mineral reserves . our customers ' capital spending programs are generally based on their outlook for near-term and long-term commodity prices , economic growth , commodity demand and estimates of resource production . as a result , demand for our products and services is largely sensitive to expected commodity prices , principally related to crude oil , met coal and natural gas . in the past few years , crude oil prices in north america have been volatile due to global economic uncertainties as well as inadequate regional take-away pipeline capacity . however , crude oil prices continue to trade at relatively high historic levels . this price volatility moderated in 2013 with some fluctuations in crude oil prices resulting from changing market sentiment regarding the outlook for economic growth in the u.s. and china , decreased crude oil production by organization of the petroleum exporting countries ( opec ) , heightened geopolitical risks in the middle east and north africa and increased oil production in the u.s. the price of west texas intermediate ( wti ) crude oil increased from an average price of $ 88 per barrel in the fourth quarter of 2012 to $ 98 per barrel in 2013 , finishing 2013 at $ 98 per barrel . the price of intercontinental exchange ( ice ) brent crude decreased modestly from an average price of $ 110 per barrel in the fourth quarter of 2012 to $ 109 per barrel in 2013 , finishing 2013 at $ 110 per barrel . as of february 19 , 2014 , wti crude traded at approximately $ 103 per barrel while ice brent crude traded at approximately $ 110 per barrel . the price for wti will influence our customers ' spending in u.s. shale play developments , such as the bakken , niobrara , and eagle ford , as well as the permian basin of texas . spending in these regions will influence the overall drilling and completion activity in the area and , therefore , the activity of our well site services segment . in canada , western canadian select ( wcs ) crude is the benchmark price for our oil sands accommodations ' customers . pricing for wcs is driven by several factors . a significant factor affecting wcs pricing is the underlying price for wti . as wti prices have improved over the past few years with the global economic recovery , wcs prices have also improved . another significant factor affecting wcs pricing has been transportation . historically , wcs has traded at a discount to wti , creating a “ wcs basis differential ” , due to transportation costs and limited capacity to move growing canadian heavy oil production to u.s. refineries . depending on the extent of pipeline capacity availability , the wcs basis differential has varied . with the increase in global oil prices and increased transportation capacity from the oil sands region due to rail and barge alternatives , the absolute price of wcs has increased and the wcs basis differential has decreased . wcs prices in 2013 averaged $ 73.58 per barrel compared to $ 71.80 per barrel in 2012. however , the wcs basis differential widened substantially from below $ 15 per barrel to $ 25 per barrel as of february 19 , 2014 , as production increased and demand from u.s. refineries declined due to maintenance requirements . should the price of wti decline or the wcs basis differential widen further , our oil sands customers ' may delay additional investments or reduce their spending in the oil sands region . 46 given the historical volatility of crude prices and the wcs discount , there remains a risk that prices could deteriorate going forward due to increased domestic crude oil production or slowing growth rates in china , fiscal and financial uncertainty in the u.s. and various european countries and a prolonged level of relatively high unemployment in the u.s. and other advanced economies . however , if the global supply of oil and global inventory levels were to decrease due to government instability in a major oil-producing nation and energy demand continues to increase in countries such as china , india and the u.s. , we could see continued and or additional increases in wti crude prices , which , coupled with an improvement in takeaway capacity from the oil sands , could improve wcs pricing . story_separator_special_tag the spin-off is subject to market conditions , the receipt of an affirmative irs ruling or independent tax opinion , the completion of a review by the commission of a form 10 filed by the accommodations business , the execution of separation and intercompany agreements and final approval of our board of directors , and is expected to be completed in the second quarter of 2014. the accommodations business will initially be spun-off as a c-corporation , which offers a faster path to separation . the accommodations business will continue to assess the feasibility and advisability of a potential future conversion into a real estate investment trust ( reit ) . 49 on september 6 , 2013 , the company entered into a stock purchase agreement with marubeni-itochu for the sale of sooner , which comprised the entirety of the company 's tubular services segment . total consideration received by the company was $ 600.0 million in cash , which remains subject to customary post-closing adjustments . we recognized a net gain on disposal of $ 128.4 million ( $ 84.0 million after-tax ) during 2013 , which is included within “ net income from discontinued operations , net of tax ” in the consolidated statements of income . operating results for the company 's tubular services business have been classified as discontinued operations for all periods presented . recent acquisitions on december 2 , 2013 , we acquired all of the equity of qcs for total cash consideration of $ 42.5 million . headquartered in houston , texas , qcs designs , manufactures and markets a portfolio of proprietary deep and shallow water pipeline connectors for subsea pipeline construction , repair and expansion projects . the operations of qcs have been included in our offshore products segment since the acquisition date . on december 14 , 2012 , we acquired all of the equity of tempress for purchase price consideration of $ 49.8 million consisting of $ 32.8 million in cash plus contingent consideration with an estimated fair value of $ 17.0 million at closing . during 2013 , the estimated fair market value of the contingent liability was increased to $ 20.0 million due to favorable developments related to a patent application by tempress , resulting in a $ 3.0 million , or $ 0.05 per diluted share , charge to other operating expense . the patent was granted in the third quarter of 2013 and the $ 20.0 million of contingent consideration was paid to the former shareholders of tempress . the company 's current escrowed deposits of $ 5.3 million include other consideration for seller transaction indemnities , are considered restricted cash and are classified as “ other current assets ” in our december 31 , 2013 consolidated balance sheet and “ other noncurrent assets ” in our december 31 , 2012 consolidated balance sheet . liabilities for escrowed amounts expected to be paid to the seller also totaled $ 5.3 million and are classified as “ other current liabilities ” in our december 31 , 2013 consolidated balance sheet and “ other noncurrent liabilities ” in our december 31 , 2012 consolidated balance sheet . headquartered in kent , washington , tempress designs , develops and markets a suite of highly specialized , hydraulically-activated tools utilized during downhole completion activities . the operations of tempress have been included in our well site services segment since the acquisition date . on july 2 , 2012 , we acquired all of the operating assets of piper for total cash consideration of $ 48.0 million . headquartered in oklahoma city , oklahoma , piper designs and manufactures high pressure valves and manifold components for oil and gas industry projects located offshore ( both surface and subsea ) and onshore . the operations of piper have been included in our offshore products segment since the acquisition date . we funded all of our 2013 and 2012 acquisitions with cash on hand and or amounts available under our credit facilities . see note 10 to the consolidated financial statements included in this annual report on form 10-k for additional information on our senior secured bank facilities . 50 consolidated results of operations ( in millions ) replace_table_token_10_th year ended december 31 , 2013 compared to year ended december 31 , 2012 we reported net income from continuing operations attributable to the company for the year ended december 31 , 2013 of $ 314.9 million , or $ 5.63 per diluted share , including a loss on the extinguishment of debt of $ 7.4 million , or $ 0.09 per diluted share after tax , a gain on the disposal of land and an associated building of $ 4.6 million , or $ 0.06 per diluted share after tax , a gain of $ 4.0 million , or $ 0.05 per diluted share after tax , from a decrease to a liability associated with contingent acquisition consideration in our u.s. accommodations business and a charge of $ 3.0 million , or $ 0.04 per diluted share , from an increase in contingent acquisition consideration in our completion services business . in addition , the company incurred $ 5.7 million , or $ 0.07 per diluted share after tax , of transaction costs in 2013 which is included in “ other operating ( income ) expense ” primarily related to the proposed spin-off of our accommodations segment . these results compare to net income from continuing operations attributable to the company of $ 401.5 million , or $ 7.25 per diluted share , reported for the year ended december 31 , 2012 , including a gain of $ 17.9 million , or $ 0.23 per diluted share after tax , from a favorable contract settlement reported in our u.s. accommodations business and a gain of $ 2.5 million , or $ 0.03 per diluted share after tax , related to insurance proceeds received for a land drilling rig lost in a fire that occurred in the first quarter of 2012 . 51 revenues .
| overview demand for our accommodations and offshore products segments is primarily tied to the long-term outlook for commodity prices . in contrast , demand for our well site services segment responds to shorter-term movements in oil and natural gas prices and , specifically , changes in north american drilling and completion activity . other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the u.s. , canada , australia and other international markets . 47 generally , our oil sands and mining accommodations ' customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives of ten years to in excess of thirty years and , consequently , these investments are dependent on those customers ' longer-term view of commodity demand and prices . oil sands development and production activity has increased over the past several years and has had a positive impact on our canadian accommodations business . however , the growth rate slowed during 2012 and 2013 due to weaker wcs crude pricing compared to prior years and concerns over a lack of transportation infrastructure given delays by the u.s. government in approving the keystone xl pipeline . sanctioning of new and expanded oil sands projects by our customers , if they occur , may create the opportunity for extensions of existing accommodations contracts and incremental accommodations contracts in canada . we expanded our australian accommodations room capacity in 2012 and 2013 to meet increasing demand , notably in the bowen basin in queensland and in the gunnedah basin in new south wales to support coal production , and in western australia to support lng and other energy-related projects .
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overview/introduction invesco capital management llc ( “ invesco ” ) has served as the managing owner ( the “ managing owner ” ) , commodity pool operator and a commodity trading advisor of the trust and the fund since february 23 , 2015. the managing owner is registered with the commodity futures trading commission ( the “ cftc ” ) as a commodity pool operator and a commodity trading advisor , and it is a member firm of the national futures association ( “ nfa ” ) . the fund establishes short positions in certain futures contracts ( the “ dx contracts ” ) with a view to tracking the changes , whether positive or negative , in the level of the deutsche bank short usd currency portfolio index–excess return tm ( the “ index ” ) over time . the index was renamed effective january 17 , 2017. prior to january 17 , 2017 , the index was known as the deutsche bank 22 short us dollar index ( usdx® ) futures index–excess return tm . the index , as renamed , is identical to the index prior to its name change on january 17 , 2017. the performance of the fund also is intended to reflect the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( “ treasury income ” ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( “ money market income ” ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( “ t-bill etf income ” ) over the expenses of the fund . the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in etfs ( affiliated or otherwise ) that track indexes that measure the performance of t-bill etfs . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance reflects the appreciation and depreciation of those holdings , the fund 's performance , whether positive or negative , is driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . if the managing owner determines in its commercially reasonable judgment that it has become impracticable or inefficient for any reason for the fund to gain full or partial exposure to a dx contract , the fund may invest in : a different month dx contract other than the specific dx contract that was originally required by the index , another futures contract substantially similar to the dx contracts , if available , the futures contracts referencing the index currencies , or a forward agreement , swap , or other otc derivative referencing the index currencies , if , in the commercially reasonable judgment of the managing owner , such an instrument tends to exhibit trading prices that correlate with the dx contract . the index is calculated to reflect the changes in market value over time , whether positive or negative , of short positions in dx contracts . dx contracts are traded through the currency markets of ice futures u.s. ( formerly known as the new york board of trade ® ) , under the symbol “ dx. ” the index reflects the changes in market value over time , whether positive or negative , of the dx contracts which expire during the months of march , june , september and december . the fund seeks to track the index by establishing short positions in dx contracts . dx contracts are linked to the six underlying currencies ( the “ index currencies ” ) of the ice u.s. dollar index ( usdx® ) ( the “ usdx® ” ) . the index currencies are the euro , japanese yen , british pound , canadian dollar , swedish krona and swiss franc . the notional amounts of the index currencies included in the usdx® reflect a geometric weighted average of the change in the index currencies ' exchange rates against the u.s. dollar relative to march 1973. march 1973 was chosen as a base period of the usdx® because it represents a significant milestone in foreign exchange history when the world 's major trading nations allowed their currencies to float freely against each other . the usdx® mark is a registered service mark owned by ice futures u.s. , inc. the shares are intended to provide investment results that generally correspond to the changes , positive or negative , in the levels of the index over time . the value of the shares is expected to fluctuate in relation to changes in the value of the fund 's portfolio . the market price of the shares may not be identical to the nav per share , but these two valuations are expected to be very close . margin calls “ initial ” or “ original ” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts . “ maintenance ” margin is the amount ( generally less than initial margin ) to which a trader 's account may decline before he must deliver additional margin . a margin deposit is like a cash performance bond . it helps assure the futures trader 's performance of the futures contract that the trader purchases or sells . futures contracts are customarily bought and sold on margin that represents a very small percentage ( ranging upward from less than 2 % ) of the purchase price of the underlying commodity being traded . story_separator_special_tag all remaining cash , money market mutual funds , t-bill etfs , if any , and united states treasury obligations are on deposit with the custodian . interest earned on the fund 's interest-bearing funds and dividends from the fund 's holdings of money market mutual funds are paid to the fund . any dividends or distributions of capital gains received from the fund 's holdings of t-bill etfs , if any , are paid to the fund . the fund 's currency futures contracts may be subject to periods of illiquidity because of market conditions , regulatory considerations or for other reasons . for example , u.s. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day . these limits are generally referred to as “ daily price fluctuation limits ” or “ daily limits , ” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “ limit price. ” once a limit price has been reached in a particular contract , it is usually the case that no 24 trades may be made at a different price than specified in the limit . the duration of limit prices generally varies . limit prices may have the effect of precluding the fund from trading in a particular contract or requiring the fund to liquidate contracts at disadvantageous times or prices . either of those outcomes could adversely affect the fund 's ability to pursue its investment objective or achieve favorable performance . because the fund trades futures contracts , its capital is at risk due to changes in the value of futures contracts ( market risk ) or the inability of counterparties ( including the commodity broker and or exchange clearinghouses ) to perform under the terms of the contracts ( credit risk ) . on any business day , an authorized participant may place an order with the transfer agent to redeem one or more blocks of 100,000 shares ( “ creation units ” ) . redemption orders must be placed by 1:00 p.m. , eastern time . the day on which the managing owner receives a valid redemption order is the redemption order date . the day on which a redemption order is settled is the redemption order settlement date . as provided below , the redemption order settlement date may occur up to two business days after the redemption order date . redemption orders are irrevocable . the redemption procedures allow authorized participants to redeem creation units . individual shareholders may not redeem directly from the fund . instead , individual shareholders may only redeem shares in integral multiples of 100,000 and only through an authorized participant . unless otherwise agreed to by the managing owner and the authorized participant as provided in the next sentence , by placing a redemption order , an authorized participant agrees to deliver the creation units to be redeemed through dtc 's book-entry system to the fund no later than the redemption order settlement date as of 2:45 p.m. , eastern time , on the business day immediately following the redemption order date . upon submission of a redemption order , the authorized participant may request the managing owner to agree to a redemption order settlement date up to two business days after the redemption order date . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order . redemption orders may be placed either ( i ) through the continuous net settlement ( “ cns ” ) clearing processes of the national securities clearing corporation ( the “ nscc ” ) ( the “ cns clearing process ” ) or ( ii ) if outside the cns clearing process , only through the facilities of the depository trust company ( “ dtc ” or the “ depository ” ) ( the “ dtc process ” ) , or a successor depository , and only in exchange for cash . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order and such fee is not borne by the fund . capital resources the fund does not have any material commitments for capital expenditures as of the end of the latest fiscal period . the fund is unaware of any ( i ) anticipated known demands , commitments or capital expenditures ; ( ii ) material trends , favorable or unfavorable , in its capital resources ; or ( iii ) trends or uncertainties that will have a material effect on its operation s . cash flows a primary cash flow activity of the fund is to raise capital from authorized participants through the issuance of shares . this cash is used to invest in united states treasury obligations , money market mutual funds and t-bill etfs , if any , and to meet margin requirements as a result of the positions taken in dx contracts to match the fluctuations of the index . as of the date of this report , each of abn amro clearing chicago llc , bank of america merrill lynch , bmo capital markets corp. , bnp paribas securities corp. , cantor fitzgerald & co. , citadel securities llc , citigroup global markets inc. , credit suisse securities ( usa ) llc , deutsche bank securities inc. , goldman sachs & co. , goldman sachs execution & clearing lp , interactive brokers llc , jefferies llc , jp morgan securities inc. , merrill lynch professional clearing corp. , morgan stanley & co. llc , nomura securities international inc. , rbc capital markets llc , ubs securities llc , virtu americas llc and virtu financial capital markets llc has executed a participant agreement and are the only authorized participants .
| performance summary this report covers the years ended december 31 , 2020 and 2019. for a performance discussion related to the year ended december 31 , 2018 , see the annual report for the year ended december 31 , 2018 available at http : //www.invesco.com/etfs . the index is intended to reflect the change in market value of the u.s. dollar relative to the index currencies . past index results are not necessarily indicative of future changes , positive or negative , in the index closing levels . the index provides a general indication of the international value of the u.s. dollar relative to the index currencies . the index was renamed effective january 17 , 2017. prior to january 17 , 2017 , the index was known as the deutsche bank short us dollar index ( usdx® ) futures index–excess return tm . the index , as renamed , is identical to the index prior to its name change on january 17 , 2017. the deutsche bank short usd currency portfolio index—total return tm ( the “ short index-tr ” ) , consists of the index plus 3-month united states treasury obligations returns . past results of the index and the short index-tr are not necessarily indicative of future changes , positive or negative , in the index closing levels . the section “ summary of the deutsche bank short usd currency portfolio index–total return tm and underlying dx contract returns for the years ended december 31 , 2020 and 2019 ” below provides an overview of the changes in the closing levels of the deutsche bank short usd currency portfolio index–total return tm ( the “ short index–tr tm ” ) by disclosing the change in closing levels of the underlying dx contracts of the index through a “ surrogate ” ( and analogous ) index that also reflects the return of 3-month united states treasury bills .
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for more information regarding our assumptions , you should refer to the section entitled forward-looking statements and assumptions contained in this item 7 in this annual report on form 10-k. background we design and manufacture instruments and equipment used by the oil and gas industry to acquire seismic data in order to locate , characterize and monitor hydrocarbon producing reservoirs . the company also designs and manufactures non-seismic products , including industrial products , offshore cables , thermal printing equipment and film . see the information under the heading business in this annual report on form 10-k. consolidated results of operations as we have reported in the past , our sales and operating profits have varied significantly from quarter-to-quarter , and even year-to-year , and are expected to continue that trend in the future , especially when our quarterly or annual financial results are impacted by the presence or absence of relatively large , but somewhat erratic , shipments of permanent seabed reservoir monitoring systems and or wireless data acquisition systems for land and marine applications . we report and evaluate financial information for two segments : seismic and non-seismic . summary financial data by business segment follows ( in thousands ) : replace_table_token_5_th overview fiscal year 2013 compared to fiscal year 2012 consolidated sales for fiscal year 2013 increased $ 108.9 million , or 56.8 % , from fiscal year 2012. this increase in sales reflects greater demand for our seismic permanent reservoir monitoring products . 15 consolidated gross profit for fiscal year 2013 increased by $ 57.7 million , or 70.3 % , from fiscal year 2012. the increase in gross profit resulted from increased sales of our permanent reservoir monitoring products . consolidated operating expenses for fiscal year 2013 increased $ 7.3 million , or 23.5 % , from fiscal year 2012. the increase in operating expenses reflects higher personnel costs and other general expense increases associated with our sales growth and asset expansion . the u.s. statutory tax rate applicable to us for fiscal years 2013 and 2012 was 35.0 % ; however , our effective tax rate was 31.2 % and 32.3 % for fiscal years 2013 and 2012 , respectively . the lower effective tax rate for both fiscal years resulted from ( i ) the impact of the manufacturers'/producers ' deduction available in the united states , and ( ii ) research and experimentation tax credits . fiscal year 2012 compared to fiscal year 2011 consolidated sales for fiscal year 2012 increased $ 18.7 million , or 10.8 % , from fiscal year 2011. the higher level of sales resulted from increased customer demand for our seismic products and particularly robust demand for sales and rentals of our land-based wireless ( or nodal ) data acquisition systems . the increased demand for our seismic products is being driven by strong oil and gas exploration activities throughout the world . consolidated gross profit for fiscal year 2012 increased by $ 8.0 million , or 10.7 % , from fiscal year 2011. the increase in gross profits resulted from increased sales and rentals of our seismic products . consolidated operating expenses for fiscal year 2012 increased $ 1.5 million , or 5.0 % , from fiscal year 2011. the increase in operating expenses resulted from expanded activities associated with our sales growth , and from increased incentive compensation expenses . the u.s. statutory tax rate applicable to us for fiscal years 2012 and 2011 was 35.0 % ; however , our effective tax rate was 32.3 % and 33.4 % for fiscal years 2012 and 2011 , respectively . the lower effective tax rate for both fiscal years resulted from ( i ) the impact of the manufacturers'/producers ' deduction available in the united states , ( ii ) lower tax rates applicable to income earned in foreign tax jurisdictions and ( iii ) research and experimentation tax credits . story_separator_special_tag style= '' margin-top:18.00pt ; margin-bottom:0.00pt ; text-align : left ; margin-left:0.00pt ; text-indent:0.00pt ; font-family : 'times new roman ' ; font-size:10.00pt '' > incentive compensation program we adopted an incentive compensation program for fiscal year 2013 whereby most employees will be eligible to begin earning incentive compensation if the company reaches a five percent pretax return on stockholders ' equity , determined as of september 30 , 2012. to be eligible to participate in this incentive compensation program , employees must participate in our core values program . based on our experience in prior years , we expect one hundred percent of our eligible employees to participate in the core values program . the incentive compensation program does not apply to the employees of our subsidiary in the russian federation since such employees participate in a locally administered bonus program . certain non-executive employees are required to achieve specific goals to earn a significant portion of their total incentive compensation award . any bonus awards earned under this program in fiscal year 2013 will be paid out to eligible employees after the end of the fiscal year . upon reaching the five percent threshold under this proposed program , an incentive compensation accrual will be established equal to 16.7 percent of the amount of any consolidated pretax profits above the five percent pretax return threshold . the maximum aggregate bonus available under the program for fiscal year 2013 was $ 6.5 million . for the fiscal years ended september 30 , 2013 and 2012 , we had accrued $ 6.5 million and $ 5.7 million , respectively , of incentive compensation expense . liquidity and capital resources fiscal year 2013 at september 30 , 2013 , we had $ 2.7 million in cash and cash equivalents . for fiscal year 2013 , we used approximately $ 57.2 million of cash from operating activities . sources of cash generated in our operating activities included our net income of $ 69.6 million . story_separator_special_tag sources of cash generated in our operating activities resulted from net income of $ 29.7 million . additional sources of cash included net non-cash charges of $ 11.8 million for deferred income tax benefit , depreciation , amortization , stock-based compensation , inventory obsolescence and bad debts . other sources of cash included ( i ) a $ 2.0 million decrease in trade accounts and notes receivable primarily resulting from improved cash receipts from customers during fiscal year 19 2011 , ( ii ) a $ 1.8 million increase in accrued expenses and other , primarily resulting from an increase of $ 0.8 million for incentive compensation expenses due to increased consolidated pretax earnings , and a $ 0.7 million increase in warranty accruals due to increased potential warranty exposure resulting from increased product sales , and ( iii ) a $ 1.2 million increase in accounts payable due to increased purchases of raw materials . these sources of cash were offset by ( i ) a $ 29.5 million increase in inventories due to the replenishment of low levels of our wireless data acquisition system inventories , and increasing levels of work-in-process resulting from product orders and anticipated demand for wireless data acquisition system sales and rentals , ( ii ) a $ 11.2 million adjustment to transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale of long-lived assets , ( iii ) a $ 2.5 million increase in other current assets resulting from the advanced payment of income taxes in certain tax jurisdictions , ( iv ) a $ 1.7 million decrease in income tax payable resulting from the payment of income taxes owed on our pretax profits , and ( v ) a $ 0.6 million decrease in deferred revenue resulting from a reduction in the amount of advanced payments received from our customers . for fiscal year 2011 , we used approximately $ 5.2 million of cash in investing activities . the uses of cash primarily resulted from ( i ) our investment of $ 15.4 million for rental equipment , ( ii ) $ 4.7 million of capital expenditures for property and equipment , and ( iii ) a $ 4.9 million investment in short-term investments . in addition , we transferred $ 0.2 million of inventories to our rental equipment during fiscal year 2011 which had a non-cash impact . the uses of cash outlined above were partially offset by $ 19.9 million of proceeds from the sale of used rental equipment . for fiscal year 2011 , we generated approximately $ 2.0 million of cash in the financing activities of our operations . during fiscal year 2011 , we generated $ 9.7 million of proceeds from the exercise of stock options and related tax benefits . partially offsetting these proceeds was a $ 7.7 million cash payment to pay off a mortgage loan obligation . on march 2 , 2011 , we entered into a credit agreement with a bank . on september 27 , 2013 , we amended the credit agreement and increased the borrowing availability to $ 50.0 million ( as amended , the credit agreement ) . our borrowings are principally secured by our accounts receivable , inventories and equipment . in addition , certain of our domestic subsidiaries have guaranteed our obligations under the credit agreement and such subsidiaries have secured the obligations by the pledge of certain of the assets of such subsidiaries . the credit agreement expires on april 27 , 2016 and all borrowed funds are due and payable at that time . we are required to make quarterly interest payments on borrowed funds . the credit agreement limits the incurrence of additional indebtedness , requires the maintenance of certain financial ratios , restricts us and our subsidiaries ' ability to pay cash dividends and contains other covenants customary in agreements of this type . the interest rate for borrowings under the credit agreement is a libor based rate with a margin spread of 250-325 basis points depending upon the maintenance of certain ratios . at september 30 , 2013 , we were in compliance with all covenants . at september 30 , 2013 and 2012 , there were borrowings of $ 0.9 million and zero , respectively , outstanding under the credit agreement . there were standby letters of credit outstanding in the amount of $ 42,000 and additional borrowings available were $ 49.1 million . please see risk factors for more information about the restrictive covenants imposed on us by the credit agreement . off-balance sheet arrangements we do not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a current or future effect on our financial statements or the items contained therein that are material to investors . contractual obligations for information regarding our contractual obligations over the course of the next five years , please refer to note 10 and note 17 to our consolidated financial statements contained in this annual report , which provide detailed information regarding repayment of our credit agreement and an operating lease . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . we consider many factors in selecting appropriate operational and financial accounting policies and controls , and in developing the 20 estimates and assumptions that are used in the preparation of these financial statements . we continually evaluate our estimates , including those related to percentage of completion revenue recognition , bad debt reserves , inventory obsolescence reserves , self-insurance reserves for medical expenses , product warranty reserves , intangible assets , stock-based compensation and deferred income tax assets . we base our estimates on historical experience and various other factors , including the impact from the current economic conditions that we believe to be reasonable under the circumstances .
| segment results of operations seismic products fiscal year 2013 compared to fiscal year 2012 sales sales of our seismic products for the fiscal year ended september 30 , 2013 increased by $ 110.3 million , or 66.9 % , from the prior fiscal year . the components of this increase include the following : · traditional product sales and rentals for the fiscal year ended september 30 , 2013 , revenues from our traditional products decreased $ 17.1 million , or 25.5 % , from the corresponding period of the prior fiscal year . the decline in revenues resulted from lower demand for our geophone products , marine products and connector products . we believe this decline in sales of our traditional products is partially due to a general decline in seismic exploration activities in north america caused by producers focusing investment activities on oil and gas distribution infrastructure during 2013. with increasing production and declining demand for crude oil in north america , we believe the market for many of our traditional seismic products could remain challenged in future periods . · wireless product sales and rentals for the fiscal year ended september 30 , 2013 , sales and rental revenues from our land and marine wireless products increased by $ 4.7 million , or 5.7 % , from the prior fiscal year . during fiscal year 2013 , we sold approximately 81,000 channels of land wireless systems , including the sale of 33,000 channels of used wireless equipment from our rental fleet which generated revenues of $ 22.9 million . we believe demand for land and marine wireless channel sales and rentals , although erratic from quarter-to-quarter , will continue into the future and reflects the 16 seismic industry 's acceptance of our wireless systems in lieu of less efficient legacy cable-based systems . this product line represents a significant part of our revenues and quarterly fluctuations can significantly impact our operating income .
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the corporation intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 and is including this statement for purposes of these safe harbor provisions . forward-looking statements which are based on certain assumptions and describe future plans , strategies , or expectations of the corporation , are generally identifiable by use of the words believe , expect , intend , anticipate , estimate , project , or similar expressions . the corporation 's ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors that could cause actual results to differ from the results in forward-looking statements include , but are not limited to : risk factors risks related to our lending and credit activities · our business may be adversely affected by conditions in the financial markets and economic conditions generally , as our borrowers ' ability to repay loans and the value of the collateral securing our loans decline . · weakness in the markets for residential or commercial real estate , including the secondary residential mortgage loan markets , could reduce our net income and profitability . · as a community banking organization , the corporation 's success depends upon local and regional economic conditions and has different lending risks than larger banks . we manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries and through loan approval and review procedures . we have established an evaluation process designed to determine the adequacy of our allowance for loan losses . while this evaluation process uses historical and other objective information , the classification of loans and the establishment of loan losses is an estimated based on experience , judgment and expectations regarding borrowers and economic conditions , as well as regulator judgments . we can make no assurance that our loan loss reserves will be sufficient to absorb future loan losses of prevent a material adverse effect on its business , profitability or financial condition . · our allowance for loan losses may be insufficient . continuing deterioration in economic conditions affecting borrowers , new information regarding existing loans , identification of additional problem loans , and other factors , both within and outside of our control , may require an increase in our allowance for loan losses . risks related to our operations · we are subject to interest rate risk . our earnings and cash flows are largely dependent upon our net interest income , which is the difference between interest income on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds . there are many factors which influence interest rates that are beyond our control , including but not limited to general economic conditions and governmental policy , in particular , the policies of the frb . · changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition . · we may not realize the expected benefits of our pending acquisition of the first national bank of eagle river . 16 · our controls and procedures may fail or be circumvented . · impairment of deferred income tax assets could require charges to earnings , which could result in an adverse impact on our results of operations . in assessing the realizability of deferred income tax assets , management considers whether it is more likely than not that some allowance requires management to evaluate all available evidence , both negative and positive . positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carry back and carry forward periods is available under the tax law , including the use of tax planning strategies . when negative evidence ( e.g . cumulative losses in recent years , history of operating loss or tax credit carry forwards expiring unused ) exists , more positive evidence than negative evidence will be necessary . at december 31 , 2015 , net deferred tax assets are approximately $ 11.498 million . if a valuation allowance becomes necessary with respect to such balance , it could have a material adverse effect on our business , results of operations and financial condition . · our information systems may experience an interruption of breach in security . risks related to legal and regulatory compliance · we operate in a highly regulated environment , which could increase our cost structure or have other negative impacts on our operations . · the full impact of the recently enacted dodd-frank act is currently unknown given that many of the details and substance of the new laws will be implemented through agency rulemaking . among the many requirements if the dodd-frank act for new banking regulations is a requirement for new capital regulations to be adopted within 18 months . these regulations must be at least as stringent as , and may call for higher levels of capital than , current regulations . strategic risks · maintaining or increasing our market share may depend on lowering prices and market acceptance of new products and services . · future growth or operating results may require us to raise additional capital but that capital may not be available . reputation risks · unauthorized disclosure of sensitive of confidential client or customer information , whether through a breach of our computer system or otherwise , could severely harm our business . liquidity risks · we could experience an unexpected inability to obtain needed liquidity . the ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure , its ability to liquidate assets and its access to alternative sources of funds . we seek to ensure our funding needs are met by maintaining an appropriate level of liquidity through asset/liability management . story_separator_special_tag during 2015 , the corporation recorded a provision for loan loss of $ 1.204 million , compared to a provision of $ 1.200 million in 2014 and $ 1.675 million in 2013. noninterest income noninterest income was $ 3.889 million , $ 3.112 million , and $ 3.938 million in 2015 , 2014 , and 2013 , respectively . the principal recurring sources of noninterest income are the gains on the sale of sba/usda guaranteed loans and secondary market loans . in 2015 , revenues from these two business lines totaled $ 1.681 million compared to $ 1.394 million in 2014 and $ 1.979 million in 2013. the corporation , in recent years , expanded its efforts to generate increased income from secondary market loans by adding additional staff and centralizing processing activities . the corporation also retains the servicing for the majority of mortgage loans sold to the secondary market . in 2015 , income from servicing mortgages amounted to $ .547 million , compared to $ .675 million in 2014 and $ .790 million in 2013. deposit related income totaled $ .836 million in 2015 compared to $ .701 million in 2014 and $ .667 million in 2013. the current regulatory environment may limit the corporation 's ability to grow these revenue sources . the following table details noninterest income for the three years ended december 31 ( dollars in thousands ) : replace_table_token_15_th noninterest expense noninterest expense was $ 23.876 million in 2015 , compared to $ 22.610 million and $ 18.128 million in 2014 and 2013 , respectively . in 2015 , the increase in noninterest expense totaled $ 1.266 million , or 5.60 % . salaries and benefits , at $ 12.449 million , increased by $ 2.146 million , 20.83 % , from the 2014 expenses of $ 10.303 million and compared to $ 9.351 million in 2013. expense increases on salaries and benefits in 2014 were largely due to increased staffing resulting from the pfc acquisition late in 2014. management will continue to review all areas of noninterest expense in order to evaluate where opportunities may exist which could reduce expenses without compromising service to customers . 22 the following table details noninterest expense for the three years ended december 31 ( dollars in thousands ) : replace_table_token_16_th federal income taxes a deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and contain tax carryforwards including past net operating losses and tax credits . for example , a temporary difference is created between the reported amount and the tax basis of a liability for estimated expenses if , for tax purposes , those estimated expenses are not deductible until a future year . settlement of that liability will result in tax deductions in future years , and a deferred tax asset is recognized based on the weight of available evidence . all available evidence , both positive and negative , is considered to determine whether , based on the weight of that evidence , a valuation allowance is needed for some portion or all of a deferred tax asset . judgment must be used in considering the relative impact of negative and positive evidence . the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified . the more negative evidence that exists , ( a ) the more positive evidence is necessary and ( b ) the more difficult it is to support a conclusion that a valuation allowance is not needed . a valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized . the corporation , as of december 31 , 2015 had a net operating loss and tax credit carryforwards for tax purposes of approximately $ 12.738 million , and $ 2.336 million , respectively . the corporation evaluated the future benefits from these carryforwards as of december 31 , 2015 and determined that it was more likely than not that they would be utilized prior to expiration and recognized the additional benefits totaling $ .322 million . it was also determined that the remaining valuation allowance should be eliminated in conjunction with the expiration of various tax credits before they could be utilized . this write-off of deferred tax assets pertaining to expired credits was approximately $ .429 million . the net operating loss carryforwards expire twenty years from the date they originated . these carryforwards , if not utilized , will begin to expire in the year 2023. a portion of the nol and credit carryforwards are subject to the limitations for utilization as set forth in section 382 of the internal revenue code . the annual limitation is $ 1.404 million for the nol and the equivalent value of tax credits , which is approximately $ .476 million . these limitations for use were established in conjunction with the recapitalization of the corporation in december 2004. current federal tax provision the corporation recognized a deferred tax expense of approximately $ 2.333 million for the year ended december 31 , 2015 and a deferred tax expense of $ 1.129 million for the year ended december 31 , 2014. in december 2013 , the corporation reduced the valuation by $ 2.250 million . after a thorough review of projected earnings and the composition and sustainability of those earnings over the projected tax carryover period , an analysis substantiated the ability to utilize these deferred tax assets . the corporation will continue to evaluate the future benefits from these carryforwards in order to determine if any adjustment to the deferred tax asset is warranted . in connection with the peninsula acquisition in december 2014 , the corporation acquired $ .933 million of nol carryforward and approximately $ .217 million of various tax credits , which it expects to utilize prior to expiration .
| executive summary the purpose of this section is to provide a brief summary of the 2015 results of operations and financial condition . a more detailed analysis of the results of operations and financial condition follows this summary . the corporation reported net income of $ 5.596 million , or $ .90 per share for the year ended december 31 , 2015 , compared to $ 1.700 million , or $ .30 per share , in 2014 , and net income of $ 5.629 million , or $ 1.01 per share , for 2013. the 2015 results include a deferred tax valuation adjustment of $ .322 million and one-time charges related to regulatory audit costs incurred in connection with our approval as an sba preferred lender and the transfer of our asset based lending subsidiary assets to mbank , which included a prepayment penalty on its line of credit . the net positive impact of these items was approximately $ .02 per share . the 2014 results include nonrecurring transaction related expenses of $ 2.475 million . the 2013 consolidated and bank results include a deferred tax valuation adjustment of $ 2.250 million , or $ .40 per share . total assets of the corporation at december 31 , 2015 , were $ 739.269 million , a decrease of $ 4.516 million , or .61 % , from total assets of $ 743.785 million reported at december 31 , 2014. at december 31 , 2015 , the corporation 's loans stood at $ 618.394 million , an increase of $ 17.999 million , or 3.00 % , from 2014 year-end balances of $ 600.935 million . total loan production in 2015 amounted to $ 234.271 million , which included $ 53.229 million of secondary market mortgage loans sold . the corporation also sold $ 8.959 million of sba/usda guaranteed loans . loan balances were also impacted by normal amortization and paydowns , some of which related to payoffs on participation loans .
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pss world medical markets and distributes medical products and services throughout the united states . the acquisition of pss world medical expands our existing medical-surgical business . the following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date . due to the recent timing of the acquisition , these amounts are subject to change within the measurement period as our fair value assessments are finalized . replace_table_token_24_th included in the purchase price allocation are acquired identifiable intangibles of $ 557 story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations , referred to as the financial review , is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the company together with its subsidiaries . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. the company 's fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references to a particular year shall mean the company 's fiscal year . certain statements in this report constitute forward-looking statements . see item 1 - business - forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements ; also see item 1a - risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition and results of operations . we conduct our business through two operating segments : mckesson distribution solutions and mckesson technology solutions . see financial note 25 , “ segments of business , ” to the consolidated financial statements appearing in this annual report on form 10-k for a description of these segments . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . based on a recent evaluation we committed to a plan to sell our 49 % equity interest in nadro , s.a. de c.v ( `` nadro '' ) and in the fourth quarter of 2013 recorded a pre-tax non-cash impairment charge of $ 191 million reducing the investment 's carrying value to its estimated fair value . the charge reflects deterioration in nadro 's market position , projected lower revenue growth rates and operating margins and continued business challenges in the wholesale pharmaceutical distribution business in mexico . interest expense decreased in 2013 compared to 2012 and increased in 2012 compared with 2011. interest expense fluctuates based on timing , amounts and interest rates of term debt that is repaid and new debt issued , as well as fees paid on bridge loan facilities used in acquiring businesses . our reported income tax rates were 30.3 % , 26.9 % and 30.9 % in 2013 , 2012 and 2011 . fluctuations in our reported income tax rates are primarily due to changes within our business mix , including varying proportions of income attributable to foreign countries that have lower income tax rates , and discrete items . in 2013 , 2012 and 2011 , income tax expense includes $ 29 million , $ 66 million and $ 34 million of net income tax benefits for discrete items , which primarily relates to the recognition of previously unrecognized tax benefits and accrued interest . included in the 2012 discrete tax benefit , is a $ 31 million credit to income tax expense as a result of the reversal of an income tax reserve relating to our awp litigation . 28 mckesson corporation financial review ( continued ) net income was $ 1,338 million , $ 1,403 million and $ 1,202 million in 2013 , 2012 and 2011 , and diluted earnings per common share were $ 5.59 , $ 5.59 and $ 4.57 . net income for 2011 includes a $ 72 million after-tax gain ( $ 0.28 per diluted share ) on the sale of a wholly-owned subsidiary , mckesson asia pacific pty limited ( “ map ” ) . historical financial results for this subsidiary were not material . diluted earnings per common share were favorably affected by decreases in our weighted average shares outstanding primarily due to the cumulative effect of share repurchases over the past three years . in 2013 , 2012 and 2011 , we repurchased 13 million , 20 million and 29 million of our common shares . revenues : replace_table_token_6_th revenues for 2013 approximated the prior year and increased 10 % to $ 122.7 billion in 2012 . changes in our revenues were primarily impacted by our distribution solutions segment , which accounted for approximately 97 % of our consolidated revenues . the increase in revenues in 2012 includes our december 2010 acquisition of us oncology holdings , inc. ( `` us oncology '' ) . direct distribution and services revenues increased in 2013 compared to 2012 primarily due to market growth , which includes growing drug utilization and price increases , expanded volume with existing customers and new customers , partially offset by price deflation associated with brand to generic drug conversions , the loss of customers and two less sales days . direct distribution and services revenues increased in 2012 compared to 2011 primarily due to market growth and from our acquisition of us oncology . these increases were partially offset by price deflation associated with brand to generic drug conversions . sales to customers ' warehouses for 2013 decreased compared to 2012 primarily due to price deflation associated with brand to generic drugs conversions , net of brand price inflation and two less sales days . sales to customers ' warehouses for 2012 increased compared to 2011 primarily due to a new customer and new business with existing customers . story_separator_special_tag our last-in , first-out ( “ lifo ” ) net inventory expense was $ 13 million in 2013 , $ 11 million in 2012 and $ 3 million for 2011 . our distribution solutions segment uses the lifo method of accounting for the majority of its inventories , which results in cost of sales that more closely reflects replacement cost than under other accounting methods . the practice in the distribution solutions segment 's distribution businesses is to pass on to customers published price changes from suppliers . manufacturers generally provide us with price protection , which limits price-related inventory losses . during 2013 and 2012 , we began to experience a modest net inflationary trend in our pharmaceuticals indices , as price increases on branded pharmaceuticals exceeded the impact of price declines and shifts toward generic pharmaceuticals , including the effect of branded pharmaceutical products that have lost market exclusivity . additional information regarding our lifo accounting is included under the caption “ critical accounting policies and estimates , ” included in this financial review . technology solutions segment 's gross profit margin decreased in 2013 compared to 2012 , primarily due to a change in product and services mix and a $ 10 million impairment of capitalized software held for sale . additionally , 2012 gross profit margin includes $ 31 million of product alignment charges . technology solutions segment 's gross profit margin increased in 2012 compared to 2011 primarily due an increase in higher margin revenues , a $ 72 million asset impairment charge related to our horizon enterprise management tm ( “ hzerm ” ) software product in 2011 and lower amortization expense related to hzerm . these increases were partially offset by product alignment charges of $ 31 million in 2012 . 31 mckesson corporation financial review ( continued ) during the third quarter of 2012 , we approved a plan to align our hospital clinical and revenue cycle healthcare software products within our technology solutions segment . as part of this alignment strategy , we began converging our core clinical and revenue cycle horizon and paragon product lines onto paragon 's microsoft®-based platform . additionally , we stopped development of our hzerm software product . the plan resulted in a pre-tax charge of $ 51 million in 2012 , of which $ 31 million was recorded to cost of sales and $ 20 million was recorded to operating expenses within our technology solutions segment . the majority of these charges were incurred in the third quarter of 2012. the pre-tax charge included $ 24 million of non-cash asset impairment charges , primarily for the write-off of prepaid licenses and commissions and capitalized internal use software that were determined to be obsolete as they would not be utilized going forward , $ 10 million for severance , $ 7 million for customer allowances and $ 10 million for other charges . our capitalized software held for sale is amortized over three years . at each balance sheet date , or earlier if an indicator of an impairment exists , we evaluate the recoverability of unamortized capitalized software costs based on estimated future undiscounted revenues net of estimated related costs over the remaining amortization period . at the end of the second quarter of 2010 , our hzerm software product became generally available . in october 2010 , we decreased our estimated revenues over the next 24 months for our hzerm software product and , as a result , concluded that the estimated future revenues , net of estimated related costs , were insufficient to recover its carrying value . accordingly , we recorded a $ 72 million non-cash impairment charge in the second quarter of 2011 within our technology solutions segment 's cost of sales to reduce the carrying value of the software product to its net realizable value . operating expenses : replace_table_token_9_th ( 1 ) operating expenses for 2013 , 2012 and 2011 include $ 72 million , $ 149 million and $ 213 million of awp litigation charges . ( 2 ) operating expenses for 2013 include a $ 40 million charge for a legal dispute in our canadian business . ( 3 ) operating expenses for 2013 and 2012 include a goodwill impairment charge of $ 36 million and product alignment charges of $ 20 million . ( 4 ) corporate expenses for 2013 are net of an $ 81 million pre-tax gain on business combination . operating expenses increased 6 % to $ 4.7 billion in 2013 and 6 % to $ 4.4 billion in 2012 . operating expenses increased in 2013 primarily due to our business acquisitions , higher employee compensation and benefit costs , a $ 40 million charge for a legal dispute in our canadian business and a $ 36 million non-cash pre-tax goodwill impairment charge . these increases were partially offset by an $ 81 million gain on business combination and lower awp litigation charges . operating expenses increased in 2012 primarily due to the addition of us oncology , higher employee compensation and benefits costs and an increase in expenses associated with supporting higher revenues , partially offset by lower awp litigation charges . operating expenses include pre-tax charges of $ 72 million , $ 149 million and $ 213 million in 2013 , 2012 and 2011 relating to our awp litigation . 32 mckesson corporation financial review ( continued ) acquisition expenses and related adjustments , which include transaction and integration expenses that are directly related to acquisitions by the company and gains and losses related to business combinations were $ 2 million , $ 31 million and $ 52 million in 2013 , 2012 and 2011. expenses for 2013 primarily consist of charges incurred to acquire and integrate pss world medical ; these expenses were almost fully offset by an $ 81 million gain on business combination . expenses for 2012 and 2011 were primarily incurred to acquire and integrate us oncology . additional acquisition-related expenses are expected to be incurred as we integrate our businesses .
| results of operations overview : replace_table_token_5_th nm – not meaningful 27 mckesson corporation financial review ( continued ) revenues for 2013 approximated 2012 and increased in 2012 compared to 2011. revenues over the last two years benefited from market growth , which includes growing drug utilization and price increases , in our distribution solutions segment , which accounted for approximately 97 % of our consolidated revenues , as well as due to our business acquisitions . in addition , revenues for 2013 were impacted by price deflation associated with brand to generics drug conversion and the loss of customers . gross profit and gross profit margin increased over each of the last two years . as a percentage of revenues , gross profit increased 35 basis points ( “ bp ” ) to 5.70 % in 2013 and 2 bp to 5.35 % in 2012 . gross profit margin increased in 2013 compared to 2012 primarily due to higher generics income , business acquisitions , higher buy margin , a $ 44 million benefit associated with the receipt of our share of settlements of antitrust class action lawsuits brought against drug manufacturers and a lower proportion of revenues attributed to sales to customers ' warehouses . additionally , gross profit margin was unfavorably impacted in 2012 by $ 31 million of product alignment charges . these increases in the 2013 gross profit margin were partially offset by a decrease in sell margin . gross profit margin increased in 2012 compared to 2011 primarily due to business acquisitions , higher generics income in our distribution solutions segment and an increase in higher margin revenues in our technology solutions segment . these increases were partially offset by a decline in sell margin and by $ 31 million of product alignment charges .
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” asu 2014-09 , which has been modified on several occasions , provides new guidance designed to enhance the comparability of revenue recognition practices across entities , industries , jurisdictions and capital markets . the core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services . the new guidance also requires disclosures about the nature , amount , timing and uncertainty of revenue and cash flows arising from contracts with customers . the company adopted the new guidance effective january 1 , 2018 , using the full retrospective method , under which the company applies the new guidance to each comparative period presented . under the new guidance , the company 's performance obligation to its customers under agreements currently in force is satisfied when the goods are shipped or picked up by the customer and title of the goods is transferred ( generally upon such shipment or pick up ) ; with regard to a customer for which the company 's inventory is held at the customer 's warehouses , the company 's performance obligation is deemed satisfied when the company is notified of sales by the customer . while the timing of the company 's revenue recognition did not change as a result of the new guidance , certain allowances provided by the company to customers , primarily for cooperative advertising and freight , are now considered a reduction of net sales instead of an expense ( see note 1 for more information ) . f- 19 in november 2016 , the fasb issued asu 2016-18 , which requires that a statement of cash flows explain the change during the reporting period in the total of cash , cash equivalents , and amounts generally described as restricted cash and restricted cash equivalents . the new guidance also requires disclosure of such amounts in the statements of cash flows or in the financial statement footnotes if restricted cash and restricted cash equivalents are presented in separate line items in the balance sheet . the company adopted this guidance effective january 1 , 2018. in accordance with the new guidance , the company includes additional disclosures regarding its cash and restricted cash amounts in its consolidated statements of cash flows for each comparative period presented . the changes to the company 's 2017 statement of cash flows are as follows : replace_table_token_23_th accounting guidance not yet adopted by the company in february 2016 , the fasb issued asu 2016-02 ( topic 842 ) “ leases . ” under this new guidance , lessees ( including lessees under leases classified as finance leases , which are to be classified based on criteria similar to that applicable to capital leases under current guidance , and leases classified as operating leases ) will recognize a right-to-use asset and a lease liability on the balance sheet , initially measured as the present value of lease payments under the lease . under current guidance , operating leases are not recognized on the balance sheet . however , the new guidance permits companies to make an accounting policy election not to apply the recognition provisions of the new guidance to short term leases ( leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise ) . if this election is made , lease payments under short term leases will be recognized on a straight-line basis over the lease term . the company will adopt the new guidance effective january 1 , 2019 using a modified retrospective method , under which it will record an immaterial cumulative adjustment to retained earnings rather than retrospectively adjusting prior periods . this application of the modified retrospective method will result in a balance sheet presentation that will not be comparable to the prior period in the first year of adoption . based on the company 's portfolio of leases at december 31 , 2018 , approximately $ 430,000 of lease assets and liabilities will be recognized on its balance sheet upon adoption , almost all of which relate to the lease for to the company 's executive offices and manufacturing facilities located in ft. lauderdale , florida . the company does not expect the new standard to have a material impact on its results of operations or cash flows . story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements which are contained in a separate section of this report , beginning on page f-1 . overview : we are engaged in the manufacture , marketing and distribution of a broad line of appearance , performance , and maintenance products for the marine , automotive , power sports , recreational vehicle and outdoor power equipment markets , under the star brite® and other trademarks within the united states and canada . in addition , we produce private label formulations of many of our products for various customers and provide custom blending and packaging services for these and other products . we also manufacture , market and distribute a line of products including disinfectants , sanitizers and deodorizers . we sell our products through national retailers and to national and regional distributors . in addition , we sell products to two companies affiliated with peter g. dornau , our chairman , president and chief executive officer ; these companies distribute the products outside of the united states and canada . story_separator_special_tag under this method , deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured and recorded using currently enacted tax rates , which we expect will apply to taxable income in the years in which the differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases are recovered or settled . the differences are attributable to differing methods of financial statement and income tax treatment with respect to depreciation and reserves for trade accounts receivable and inventories . the likelihood of a material change in our expected realization of deferred tax assets is dependent on , among other factors , changes in tax law , future taxable income and settlements with tax authorities . in assessing the realizability of our deferred tax assets , we evaluate positive and negative evidence and use judgments regarding past and future events , including operating results and available tax planning strategies that could be implemented to realize the deferred tax assets . we record a valuation allowance when necessary to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we consider available evidence , both positive and negative , and use judgments regarding past and future events , including operating results and available tax planning strategies , in assessing the need for a valuation allowance . significant judgment is required in determining income tax provisions and in evaluating tax positions . we establish additional provisions for income taxes when , despite the belief that tax positions are fully supportable , there remain certain positions that do not meet the minimum probability threshold , which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority . in the normal course of business , we and our subsidiaries are examined by various federal and state tax authorities . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . we adjust the income tax provision , the current tax liability and deferred taxes in any period in which we become aware of facts that necessitate such an adjustment . the ultimate outcomes of the examinations of our income tax returns could result in increases or decreases to our recorded tax liabilities , which would affect our financial results . 7 intangible assets intangible assets are acquired assets that lack physical substance and that meet specified criteria for recognition apart from goodwill . we own several trademarks and trade names , including star brite® and performacide® . we have determined that these intangible assets have indefinite lives and , therefore , are not amortized . in addition , we own intangible assets that have finite lives , including patents and royalty rights , as well as intangible assets valued at $ 1,307,250 that we acquired from snappy marine in july 2018 , including snappy marine trademarks and trade names , customer lists and product formulas . as these intangible assets have finite lives , their carrying value is amortized over their remaining useful lives . see note 5 to the consolidated financial statements included in this report for additional information regarding our intangible assets . we evaluate our indefinite-lived intangible assets for impairment annually and at other times if events or changes in circumstances indicate that an impairment may have occurred . in evaluating our indefinite-lived intangible assets for impairment , we assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value . if , after completing the qualitative assessment , we determine it is more likely than not that the fair value of the indefinite-lived intangible asset is greater than its carrying amount , the asset is not impaired . if we conclude it is more likely than not that the fair value of the indefinite-lived intangible assets is less than the carrying value , we would then proceed to a quantitative impairment test , which consists of a comparison of the fair value of the intangible assets to their carrying amounts . in 2018 , we performed a qualitative assessment on all of our indefinite lived assets and determined , based on the assessment , that their fair values were more likely than not higher than their carrying values . we assess the remaining useful life and recoverability of intangible assets having finite lives whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable . such events or circumstances may include , for example , the occurrence of an adverse change with respect to a product line that utilizes the intangible assets . significant judgments in this area involve determining whether such an event or circumstance has occurred . any impairment loss , if indicated , equals the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset . story_separator_special_tag and 2017 , respectively . the restricted cash constitutes amounts held in a custodial account that are to be used from time to time to fund additional capital expenditures in connection with the expansion project . see note 8 to the consolidated financial statements included in this report for additional information .
| results of operations : the following table provides a summary of our financial results for the years ended december 31 , 2018 and 2017 : replace_table_token_0_th net sales for the year ended december 31 , 2018 increased by approximately $ 3,859,000 or 10.2 % , as compared to the year ended december 31 , 2017. the net sales increase principally is attributable to sales of our star brite ® branded and private label marine products , winterizing products , and disinfectant group products . the company 's four largest customers accounted for approximately $ 2,100,000 of the increase in net sales . cost of goods sold increased by approximately $ 3,093,000 or 12.7 % in 2018 , as compared to 2017. the increase in cost of goods sold is principally a result of increased sales volume and , to a lesser extent , increased labor and increased costs associated with our expanded manufacturing and distributing facility . 8 gross profit increased by approximately $ 765,000 or 5.6 % for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017. as a percentage of net sales , gross profit decreased to 34.4 % in 2018 from 35.9 % in 2017. the increase in gross profit in 2018 is primarily attributable to increased sales volume . the decrease in gross profit as a percentage of net sales during 2018 is principally a result of our sales mix , lower profit margins on sales of our winterizing products , and increased costs associated with our expanded manufacturing and distributing facility .
| 3,925 |
( “ bancshares ” ) and its banking subsidiary , first-citizens bank & trust company ( “ fcb ” ) . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes presented within this report . intercompany accounts and transactions have been eliminated . see note a , accounting policies and basis of presentation , in the notes to the consolidated financial statements included in part ii , item 8 , of this report for more detail . although certain amounts for prior years have been reclassified to conform to statement presentations for 2019 , the reclassifications had no effect on shareholders ' equity or net income as previously reported . unless otherwise noted , the terms “ we , ” “ us , ” “ our , ” and “ bancshares ” in this section refer to the consolidated financial position and consolidated results of operations for bancshares . year-over-year comparisons of the financial results for 2018 and 2017 are contained in item 7 of bancshares ' form 10-k for 2018 filed with the sec on february 20 , 2019 and available through fcb 's website www.firstcitizens.com or the sec 's edgar database . forward-looking statements this annual report on form 10-k includes statements and exhibits relating to plans , strategies , economic performance and trends , projections of results of specific activities or investments , expectations or beliefs about future events or results and other statements which are not descriptions of historical facts may be forward-looking statements within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking statements may be identified by terms such as “ may , ” “ will , ” “ should , ” “ could , ” “ expects , ” “ plans , ” “ intends , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ forecasts , ” “ projects , ” “ potential ” or “ continue , ” or similar terms or the negative of these terms , or other statements concerning opinions or judgments of bancshares ' management about future events . forward-looking information is inherently subject to risks and uncertainties , and actual results could differ materially from those currently anticipated due to a number of factors which include , but are not limited to , the financial success or changing strategies of our customers , customer acceptance of our services , products and fee structure , the competitive nature of the financial services industry , our ability to compete effectively against other financial institutions in our banking markets , actions of government regulators , the level of market interest rates and our ability to manage our interest rate risk , changes in general economic conditions affecting our loan and lease portfolio , the abilities of our borrowers to repay their loans and leases , the values of real estate and other collateral , the impact of acquisition transactions and or the risks discussed in item 1a . risk factors above and other developments or changes in our business we do not expect . actual results may differ materially from those expressed in or implied by any forward-looking statements . except to the extent required by applicable law or regulation , bancshares undertakes no obligation to revise or update publicly any forward-looking statements for any reason . critical accounting estimates the accounting and reporting policies of bancshares are in accordance with gaap and are described in note a , accounting policies and basis of presentation , of the notes to the consolidated financial statements . the preparation of financial statements in conformity with gaap requires us to exercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses . our financial position and results of operations could be materially affected by changes to these estimates and assumptions . the following is a summary of the more critical areas where these critical assumptions and estimates could impact the financial condition , results of operations and cash flows of bancshares : allowance for loan and lease losses . the allowance for loan and lease losses ( “ alll ” ) represents the best estimate of inherent credit losses within the loan and lease portfolio as of the balance sheet date . estimating credit losses requires judgment in determining the amount and timing of expected cash flows , the value of the underlying collateral and loan specific attributes impacting the borrower 's ability to repay contractual obligations . other factors such as economic conditions , historical loan losses , migration of loans through delinquency stages and changes in the size , composition and risks within the loan portfolio are also considered . loan balances considered uncollectible are charged off against the alll . if it is probable a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement and a loss is probable , a specific valuation allowance is determined . recoveries of amounts previously charged-off are generally credited to the alll . 21 purchased credit impaired ( “ pci ” ) loans are initially recorded at fair value and are generally pooled based upon common risk characteristics . at each balance sheet date , we evaluate whether the estimated cash flows have decreased and if so , recognize an additional allowance . subsequent improvements in expected cash flows results first in the recovery of any allowance established and then in the recognition of additional interest income over the remaining lives of the loans . the alll for non-purchased credit impaired ( “ non-pci ” ) loans is assessed at each balance sheet date and adjustments are recorded in provision for loan and lease losses . story_separator_special_tag we gather deposits from retail and commercial customers as well as secure funding through various non-deposit sources . we invest the liquidity generated from these funding sources in interest-earning assets , including loans , investment securities and overnight investments . we also invest in bank premises , hardware , software , furniture and equipment used to conduct our commercial and retail banking business . we provide treasury services products , cardholder and merchant services , wealth management services and various other products and services typically offered by commercial banks . the fees generated from these products and services are a primary source of noninterest income and an essential component of our total revenue . our strong financial position enables us to pursue growth through strategic acquisitions to enhance organizational value by providing opportunities to grow capital and increase earnings . these transactions allow us to strengthen our presence in existing markets as well as expand our footprint into new markets . the interest rate environment , specifically the decline in short-term rates and flattening of the yield curve in 2019 , has presented significant challenges to the efforts of commercial banks to generate earnings and shareholder value . while our balance sheet is asset sensitive overall , we seek to reduce volatility and minimize the risk to earnings from interest rate movements in either direction . additionally , our initiatives focus on growth of noninterest income sources , management of noninterest expenses , optimization of our branch network and further enhancements to our technology and delivery channels . in lending , we continue to focus our activities within our core competencies of retail , small business , medical , commercial and commercial real estate lending to build a diversified portfolio . our low to moderate risk appetite continues to govern all lending activities . we also pursue noninterest income through enhanced credit card offerings and wealth management and merchant services . we have recently redesigned our credit card programs to offer more competitive products , intended to both increase the number of accounts and frequency of card usage . enhancements include more comprehensive reward programs and improved card benefits . in wealth management , we have broadened our products and services to better align with the specialized needs and desires of those customers . services include holistic financial planning , business owner advisory services and enhanced private banking offerings . our goals are to increase efficiencies and control costs while effectively executing an operating model that best serves our customers ' needs . we seek the appropriate footprint and staffing levels to take advantage of the revenue opportunities in each of our markets . management is pursuing opportunities to improve operational efficiency and increase profitability through expense control , while continuing enterprise sustainability projects to improve the operating environment . such initiatives include the automation of certain manual processes , elimination of duplicated and outdated systems , enhancements to existing technology , implementation of new digital technologies , and actively managing personnel expenses and discretionary spending . we routinely review vendor agreements and larger third party contracts for cost savings . 23 recent economic and industry developments various external factors influence the focus of our business efforts and the results of our operations can change significantly based on those external factors . based on the latest real gross domestic product ( “ gdp ” ) information available , the bureau of economic analysis ' revised estimate of third quarter 2019 gdp growth was 2.1 % , up from 2.0 % gdp growth in the second quarter 2019 . the acceleration in real gdp in the third quarter reflected a smaller decrease in private inventory investment and upturns in exports and residential fixed investment . these were partially offset by decelerations in personal consumption expenditures , federal government spending , and state and local government spending , and a larger decrease in nonresidential fixed investment . the u.s. unemployment rate dropped from 3.9 % in december 2018 to 3.5 % in december 2019 . according to the u.s. department of labor , nonfarm payroll employment growth in 2019 was 2.1 million , compared to 2.7 million in 2018 . during the latter half of 2019 , the fomc lowered the federal funds rate by 75 basis points to a target range of 1.50 % to 1.75 % . the fomc cited the implications of global economic developments , muted inflation pressures as well as weakened business investment and exports for its actions . the fomc also indicated that the u.s. labor market remains strong and economic activity rose at a moderate rate . in its most recent meeting , the fomc decided to leave the federal funds rate target range unchanged . in determining the timing and size of future adjustments to the target range for the federal funds rates , the fomc indicated it will assess realized and expected economic conditions relative to its objectives of maximum employment and 2.0 % inflation . the u.s. census bureau and the department of housing and urban development 's latest estimate for sales of new single-family homes in november 2019 was at a seasonally adjusted annual rate of 719,000 , up 16.9 % from the november 2018 estimate of 615,000. purchases of existing homes in 2019 are also up 2.7 % from a year ago . similar to the economic environment , the performance trends in the banking industry are mixed , as shown in the latest national banking results from the third quarter of 2019 . fdic-insured institutions reported a 7.3 % decrease in net income compared to the third quarter of 2018 primarily a result of nonrecurring events at three large institutions resulting in higher noninterest expense and realized losses on securities . loan-loss provisions increased by 16.9 % while noninterest expense rose by 5.7 % from a year earlier . banking industry average net interest margin ( “ nim ” ) was 3.35 % in the third quarter of 2019 , down from 3.45 % in the same quarter a year ago as average funding costs outpaced average asset yields .
| balance sheet highlights loan growth was strong during 2019 , as loans increased by $ 3.36 billion , or by 13.2 % to $ 28.88 billion , primarily driven by originated portfolio growth and net loans acquired from biscayne bancshares , first south bancorp and entegra . excluding current year acquired loans of $ 2.00 billion , total loans increased by $ 1.36 billion , or 5.3 % . the allowance for loan and lease losses as a percentage of total loans was 0.78 % at december 31 , 2019 , compared to 0.88 % at december 31 , 2018 . at december 31 , 2019 , bancshares ' nonperforming assets , including nonaccrual loans and oreo , increased $ 34.4 million to $ 168.3 million or 0.58 % of total loans from $ 133.9 million or 0.52 % of total loans at december 31 , 2018 . although nonperforming assets have increased , credit quality continues to be strong and ratios remain at historically low levels . deposit growth continued in 2019 , up $ 3.76 billion , or by 12.3 % to $ 34.43 billion , primarily due to organic growth as well as the addition of deposit balances from the biscayne bancshares , first south bancorp and entegra acquisitions . excluding current year acquired deposits of $ 2.27 billion , total deposits increased by $ 1.49 billion , or 4.8 % . capital highlights in 2019 , we returned $ 468.6 million of capital to shareholders through the repurchase of 998,910 shares of class a common stock for $ 450.8 million and cash dividends of $ 17.7 million . common shareholders ' equity increased to $ 3.59 billion on december 31 , 2019 , compared to $ 3.49 billion on december 31 , 2018 as earnings exceeded share repurchases and dividends during the year .
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any shares that are subject to awards outstanding under the company 's 2006 plan and 2015 plan as of the effective date of the story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements 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 . as a result of many important factors , including those set forth in part i. item 1a . “ risk factors ” 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 . as used in this annual report on form 10-k , unless the context otherwise requires , references to “ we , ” “ us , ” “ our , ” “ the company ” and “ precision ” refer to precision biosciences , inc. and its subsidiaries on a consolidated basis . overview we are a life sciences company dedicated to improving life through the application of our pioneering , proprietary arcus genome editing platform . we leverage arcus in the development of our product candidates , which are designed to treat human diseases and create healthy and sustainable food and agricultural solutions . we are actively developing product candidates in three innovative areas : allogeneic car t cell immunotherapy , in vivo gene correction , and food . we are currently conducting a phase 1/2a clinical trial of pbcar0191 in adult patients with relapsed or refractory , or r/r , non-hodgkin lymphoma , or nhl , or r/r b-cell precursor acute lymphoblastic leukemia , or b-all . pbcar0191 is our first gene-edited allogeneic chimeric antigen receptor , or car , t cell therapy candidate targeting cd19 and is being developed in collaboration with servier pursuant to the servier agreement . we have received orphan drug designation for pbcar0191 from the u.s. food and drug administration ( “ fda ” ) , for the treatment of acute lymphoblastic leukemia , or all . in august 2020 , the fda granted fast track designation for pbcar0191 for the treatment of b-all . the nhl cohort will include patients with mantle cell lymphoma ( “ mcl ” ) , an aggressive subtype of nhl , for which we have received orphan drug designation from the fda . made from donor-derived t cells modified using our arcus genome editing technology , pbcar0191 recognizes the well characterized tumor cell surface protein cd19 , an important and validated target in several b-cell cancers , and is designed to avoid graft-versus-host disease , or gvhd , a significant complication associated with donor-derived , cell-based therapies . we believe that this trial , which is designed to assess the safety and tolerability of pbcar0191 at increasing dose levels , as well as to evaluate anti-tumor activity , is the first u.s.-based clinical trial to evaluate an allogeneic car t therapy for r/r nhl . furthermore , we believe that our proprietary , one-step engineering process for producing allogeneic car t cells with a potentially optimized cell phenotype , at large scale in a cost-effective manner , will enable us to overcome the fundamental clinical and manufacturing challenges that have limited the car t field to date . we expect to report updated interim data for the pbcar0191 study in mid-year 2021. in april 2020 , we commenced patient dosing in a phase 1/2a clinical trial with our second allogeneic car t cell therapy product candidate , pbcar20a . pbcar20a is wholly owned by us and targets the validated tumor cell surface target cd20 . it is being investigated in r/r nhl , including those with r/r chronic lymphocytic leukemia , cll , or r/r small lymphocytic lymphoma , or sll . a subset of the nhl patients will have the diagnosis of mcl and we have received orphan drug designation for pbcar20a from the fda for the treatment of this disease . based on the safety profile observed to date with pbcar0191 , the fda allowed us to commence dosing with pbcar20a directly at 1 x 10 6 cells/kg . the study has continued to escalate through dose level two ( 3 x 10 6 cells/kg ) , and , in february 2021 , we commenced patient dosing at dose level 3 ( 480 x 10 6 cell fixed dose ) with a max dose of 6 x 10 6 cells/kg . we expect to report interim data for the pbcar20a study in 2021. in june 2020 , we commenced patient dosing in a phase 1/2a clinical trial with our third allogenic car t cell therapy product candidate , pbcar269a . the starting dose of pbcar269a is 6 x 10 5 cells/kg . pbcar269a is wholly owned by us and is designed to target the validated tumor cell surface target bcma . it is being investigated in subjects with r/r multiple myeloma and we have received orphan drug designation and fast track designation from the fda for this indication . in september 2020 , we announced that we entered into a clinical trial collaboration with springworks , a clinical-stage biopharmaceutical company focused on developing medicines for patients with severe rare diseases and cancer . story_separator_special_tag pre-clinical research has continued to progress , and we expect to provide an update on this program in the first half of 2021. in january 2021 , we disclosed our intention to spinout our wholly owned subsidiary , elo . we are continuing to explore our strategic options , and the timing of any such sale , spinout or other treatment of elo remains uncertain . since our formation in 2006 , we have devoted substantially all of our resources to developing arcus , conducting research and development activities , recruiting skilled personnel , developing manufacturing processes , establishing our intellectual property portfolio and providing general and administrative support for these operations . we have financed our operations primarily with proceeds from upfront payments from collaboration and licensing agreements , our ipo , and private placements of convertible preferred stock and convertible debt . on april 1 , 2019 , we completed our ipo of 9,085,000 shares of common stock , including the underwriters ' full exercise of their option to purchase an additional 1,185,000 additional shares of common stock , at an offering price of $ 16.00 per share , for net proceeds of approximately $ 130.5 million after deducting underwriting discounts and commissions and offering expenses payable by us . as of december 31 , 2020 , we have generated approximately $ 492.5 million from third parties to date . 100 since our inception , we have incurred significant operating losses and have not generated any revenue from the sale of products . our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties . our net losses were $ 109.0 million and $ 92.9 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 286.1 million . we expect our operating expenses to increase substantially in connection with the expansion of our product development programs and capabilities . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties . if we obtain regulatory approval for any of our product candidates , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing and distribution . in addition , we expect to continue to incur additional costs associated with operating as a public company . as a result of these anticipated expenditures , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our cash needs through a combination of public equity , debt financings or other sources , which may include current and new collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we can not assure you that we will ever generate significant revenue to achieve profitability . because of the numerous risks and uncertainties associated with the development of therapeutic and agricultural products , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be required to raise additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we currently conduct our operations through two reportable segments : therapeutics and food . our therapeutics segment is focused on allogeneic car t immunotherapy and in vivo gene correction . our food segment focuses on applying arcus to develop food and nutrition products through collaboration agreements with consumer-facing companies . impact of covid-19 pandemic we are closely monitoring how the ongoing covid-19 pandemic continues to affect our employees , business , preclinical studies and clinical trials . the company has taken steps in line with guidance from the u.s. centers for disease control and prevention ( “ cdc ” ) and the state of north carolina to protect the health and safety of its employees and the community . we have implemented measures to mitigate exposure risks and support operations . we initiated a health and safety program addressing mandatory use of face masks , social distancing , sanitary handwashing practices , use of personal protective equipment stations , stringent cleaning and sanitization of all facilities and measures to reduce total occupancy in facilities . we have also implemented temperature and symptom screening procedures at each location , and we have continuously communicated to all our precisioneers that if they are not comfortable coming to work , regardless of role , then they do not have to do so . per guidance from the cybersecurity & infrastructure security agency , our employees are considered essential workforce and may receive the covid-19 vaccination as centers for disease control and prevention defined group 3 and group 4. we are working closely with our clinical sites , physician partners and the patient community to monitor and manage the impact of the evolving covid-19 pandemic .
| segment results the following tables summarize segment revenues and segment operating loss ( see note 13 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information regarding our segments ) : replace_table_token_5_th 108 we evaluate the operating performance of each segment based on segment operating loss . segment operating loss is derived by deducting operational cash expenditures , net , from gaap revenue . operational cash expenditures are cash disbursements made that are specifically identifiable to the reportable segment ( including specifically identifiable research and development and property , equipment and software expenditures ) . the reportable segment operational cash expenditures include cash disbursements for compensation , laboratory supplies , purchases of property , equipment and software and procuring services from cros , cmos and research organizations . we do not allocate general operational expenses or non-cash income statement amounts to our reportable segments . therapeutics segment revenue for the year ended december 31 , 2020 was $ 21.9 million , compared to $ 20.6 million for the year ended december 31 , 2019. the increase of $ 1.3 million was the result of a $ 10.7 increase in collaboration revenue recognized from servier , partially offset by a $ 9.5 million decrease in revenue recognized from gilead due to the termination of the gilead agreement . segment operational cash expenditures for the year ended december 31 , 2020 were $ 71.8 million , compared to $ 70.1 million for the year ended december 31 , 2019. the increase of $ 1.7 million in operational cash expenditures was primarily due to an increase in employee costs and payments made to service providers for contract manufacturing and clinical trial research , partially offset by a decrease in capital expenditures for fixed assets and a reduction in payments to external vendors for early-stage research .
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domtar corporation 's common stock is listed on the new york stock exchange and the toronto stock exchange . except where otherwise indicated , all financial information reflected herein is determined on the basis of accounting principles generally accepted in the united states ( gaap ) . in accordance with industry practice , in this report , the term ton or the symbol st refers to a short ton , an imperial unit of measurement equal to 0.9072 metric tons . the term metric ton or the symbol admt refers to an air dry metric ton and the term mfbm refers to million foot board measure . in this report , unless otherwise indicated , all dollar amounts are expressed in u.s. dollars , and the term dollars and the symbol $ refer to u.s. dollars . in the following discussion , unless otherwise noted , references to increases or decreases in income and expense items , prices , contribution to net earnings ( loss ) , and shipment volume are based on the twelve month periods ended december 31 , 2011 , 2010 and 2009. the twelve month periods are also referred to as 2011 , 2010 and 2009. story_separator_special_tag annual softwood pulp production capacity of 319,000 metric tons . the former ear falls sawmill had an annual production capacity of 190 mfbm . our dryden pulp mill restarted its pulp production in july 2009. our former ear falls sawmill restarted its operations in august 2009 , but we decided to indefinitely idle the sawmill again , effective in the fourth quarter of 2009. we continue to evaluate potential adjustments to our production capacity , which may include additional closures of machines or entire mills , and we could recognize significant cash and or non-cash charges relating to any such closures in future periods . sale of woodland , maine hardwood market pulp mill on september 30 , 2010 , we sold our woodland hardwood market pulp mill , hydro electric assets and related assets , located in baileyville , maine and new brunswick , canada . the purchase price was for an aggregate value of $ 60 million plus net working capital of $ 8 million . the sale resulted in a gain on disposal of the woodland , maine mill of $ 10 million net of related pension curtailments costs of $ 2 million . the woodland , maine mill was our only non-integrated hardwood market pulp mill . it had an annual production capacity of 395,000 metric tons and employed approximately 300 people . sale of wood business on june 30 , 2010 , we sold our wood business to eacom timber corporation ( eacom ) , following the obtainment of various third party consents and customary closing conditions , which included approvals of transfers of cutting rights in quebec and ontario , for proceeds of $ 75 million ( cdn $ 80 million ) plus elements of working capital of approximately $ 42 million ( cdn $ 45 million ) . we received 19 % of the proceeds in shares of eacom representing an approximate 12 % ownership interest in eacom . the sale resulted in a loss on disposal of the wood business and related pension and other post retirement benefit plan curtailments and settlements of $ 50 million , which was recorded in the second quarter of 2010 in other operating ( income ) loss on the consolidated statement of earnings . our investment in eacom was then accounted for under the equity method . the transaction included the sale of five operating sawmills : timmins , nairn centre and gogama in ontario , and val-d'or and matagami in quebec ; as well as two non-operating sawmills : ear falls in ontario and ste-marie in quebec . the sawmills had approximately 3.5 million cubic meters of annual harvesting rights and a production capacity of close to 900 million board feet . also included in the transaction was the sullivan remanufacturing facility in quebec and our interests in two investments : anthony-domtar inc. and elk lake planning mill limited . in december 2010 , in an unrelated transaction , we sold our remaining investment in eacom timber corporation for cdn $ 0.51 per common share for net proceeds of $ 24 million ( cdn $ 24 million ) resulting in no further gain or loss . we have fiber supply agreements in place with our former wood division at our espanola facility . since these continuing cash outflows are expected to be significant to the former wood business , the sale of the wood business did not qualify as a discontinued operation under asc 205-20. dividend and stock repurchase program in 2011 , we repurchased 5,921,732 shares at $ 83.52 for a total of $ 494 million and paid dividends of $ 49 million . 37 cellulosic biofuel credit in july 2010 , the u.s. internal revenue service ( irs ) office of chief counsel released an advice memorandum concluding that qualifying cellulose biofuel sold or used before january 1 , 2010 , is eligible for the cellulosic biofuel producer credit ( cbpc ) and would not be required to be registered by the environmental protection agency . each gallon of qualifying cellulose biofuel produced by any taxpayer operating a pulp and paper mill and used as a fuel in the taxpayer 's trade or business during calendar year 2009 would qualify for the $ 1.01 non-refundable cbpc . a taxpayer could be able to claim the credit on its federal income tax return for the 2009 tax year upon the receipt of a letter of registration from the irs and any unused cbpc could be carried forward until 2015 to offset a portion of federal taxes otherwise payable . we had approximately 207 million gallons of cellulose biofuel that qualified for this cbpc for which we had not previously claimed under the alternative fuel mixture credit ( afmc ) that represented approximately $ 209 million of cbpc or approximately $ 127 million of after tax benefit to the corporation . story_separator_special_tag the tender offer is scheduled to expire at 12:00 midnight , new york city time , on march 20 , 2012 , unless extended or earlier terminated . we may waive , increase or decrease the maximum payment amount at our sole discretion . our obligation to consummate the tender offer is conditioned upon the satisfaction or waiver of certain conditions , including obtaining approximately $ 250 million of proceeds from a debt financing , on terms and conditions reasonably satisfactory to us , at or before the expiration date of the tender . our business we operate the following business activities : pulp and paper ( previously named papers ) , distribution ( previously named paper merchants ) and personal care . a description of our business is included in part i , item 1 , business of this annual report on form 10-k. pulp and paper we produce 4.3 million metric tons of hardwood , softwood and fluff pulp at 12 of our 13 mills . the majority of our pulp is consumed internally to manufacture paper and consumer products , with the balance being sold as market pulp . we also purchase papergrade pulp from third parties allowing us to optimize the logistics of our pulp capacity while reducing transportation costs . 39 we are the largest integrated manufacturer and marketer of uncoated freesheet paper in north america . we have 10 pulp and paper mills ( eight in the united states and two in canada ) , with an annual paper production capacity of approximately 3.5 million tons of uncoated freesheet paper . our paper manufacturing operations are supported by 15 converting and distribution operations including a network of 12 plants located offsite of our paper making operations . also , we have forms manufacturing operations at one offsite converting and distribution operations and two stand-alone forms manufacturing operations . approximately 78 % of our paper production capacity is in the u.s. , and the remaining 22 % is located in canada . we produce market pulp in excess of our internal requirements at our three non-integrated pulp mills in kamloops , dryden , and plymouth as well as at our pulp and paper mills in espanola , ashdown , hawesville , windsor , marlboro and nekoosa . we have the capacity to sell approximately 1.7 million metric tons of pulp per year depending on market conditions . approximately 43 % of our trade pulp production capacity is in the u.s. , and the remaining 57 % is located in canada . distribution our distribution business involves the purchasing , warehousing , sale and distribution of our various products and those of other manufacturers . these products include business , printing and publishing papers and certain industrial products . these products are sold to a wide and diverse customer base , which includes small , medium and large commercial printers , publishers , quick copy firms , catalog and retail companies and institutional entities . our distribution business operates in the united states and canada under a single banner and umbrella name , ariva . ariva operates throughout the northeast , mid-atlantic and midwest areas from 17 locations in the united states , including 13 distribution centers serving customers across north america . the canadian business operates in two locations in ontario , two locations in quebec ; and from two locations in atlantic canada . sales are executed by our sales force , based at branches strategically located in served markets . we distribute about 51 % of our paper sales from our own warehouse distribution system and approximately 49 % of our paper sales through mill-direct deliveries ( i.e. , deliveries directly from manufacturers , including ourselves , to our customers ) . personal care our personal care business sells and markets a complete line of high quality and innovative adult incontinence products and distributes disposable washcloths marketed primarily under the attends ® brand name . we are one of the leading suppliers of adult incontinence products sold into north american hospitals ( acute care ) and nursing homes ( long-term care ) and we have a strong and growing presence in the domestic homecare and retail channels . we operate nine different production lines to manufacture our products , with all nine lines having the ability to produce multiples items within each category . wood before the sale of our wood business on june 30 , 2010 , our wood business comprised the manufacturing , marketing and distribution of lumber and wood-based value-added products , and the management of forest resources . we operated seven sawmills with a production capacity of approximately 900 million board feet of lumber and one remanufacturing facility . 40 consolidated results of operations and segments review the following table includes the consolidated financial results of domtar corporation for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_7_th 1 refer to part ii , item 8 , financial statements and supplementary data on this annual report on form 10-k , under note 6 earnings per share . 41 year ended december 31 , 2011 versus year ended december 31 , 2010 sales sales for 2011 amounted to $ 5,612 million , a decrease of $ 238 million , or 4 % , from sales of $ 5,850 million in 2010. the decrease in sales is mainly attributable to the closure of our columbus , mississippi paper mill , the sale of our woodland , maine market pulp mill in 2010 ( $ 150 million ) and the sale of our wood business in 2010 ( $ 139 million ) . in addition , volumes for our pulp and paper decreased ( $ 29 million ) and our distribution segment decreased ( $ 118 million ) as a result of the sale of a business unit in the first quarter of 2011 and from difficult market conditions .
| executive summary in 2011 , we reported operating income of $ 592 million , a decrease of $ 11 million compared to $ 603 million in 2010. this decrease is mainly attributable to increased asset impairment and write-down of property , plant and equipment as well as restructuring charges recorded in 2011 , combined with an overall decrease in sales . our overall sales decreased due to decreased demand in our pulp and paper and distribution segments . the operating profit of 2010 included the net loss on the sale of our wood business and our woodland , maine mill . in addition , we recorded $ 25 million of fuel tax credits , which had a positive impact on our results . excluding those 2010 items , operating profit improved as compared to 2010. this is due to the acquisition of attends healthcare inc. , in the third quarter of 2011 and increased sales prices in paper . these and other factors that affected the year-over-year comparison of financial results are discussed in the year-over-year and segment analysis . prices for pulp are still expected to continue to remain under pressure in certain geographies , while market dynamics in the asian markets are stabilizing . in fine papers , north american demand is expected to decline at a rate of 2-4 % in 2012 , consistent with long-term forecasts . any acceleration in employment growth may help mitigate the structural decline in paper demand . inflation on input costs is expected to be moderate in 2012. closure and restructuring activities we regularly review our overall production capacity with the objective of aligning our production capacity with anticipated long-term demand . during the fourth quarter of 2011 , we decided to withdraw from one of our u.s. multiemployer pension plans and recorded an estimated withdrawal liability and a charge to earnings of $ 32 million .
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our fiscal year ends january 31. references to fiscal 2021 , 2020 , and 2019 refer to the fiscal years ended january 31 , 2021 , 2020 , and 2019. basis of presentation this management 's discussion and analysis discusses our financial condition and results of operations for the years ended january 31 , 2021 and 2020. please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended january 31 , 2020 for a comparison of the year ended january 31 , 2020 to the year ended january 31 , 2019. story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > subscription and related services : disruptions to provider operations impact our subscription and related services revenue because of disruptions to sales processes and client implementations . payment processing : any decline in non-essential and elective patient visits directly impacts the revenue we receive from payment processing tools . life sciences : because our life sciences revenue is driven by the number of patients receiving targeted messages , a decline in patient visits may impact our revenue earned through patient engagement . during the third quarter of fiscal 2021 , patient visits returned to pre-pandemic levels as restrictions were lifted . during the fourth quarter of fiscal 2021 , patient visits remained stable despite a surge in covid-19 cases . we have seen positive trends as a result of our ability to use our platform and solutions to assist our healthcare provider clients as they implement new safety protocols in order to continue to see patients , including minimizing contact during intake of patients , mobile check-in , transitioning patients to telehealth visits and enabling providers to screen patients for covid-19 risk factors . our covid-19 screening module was used in over 45 million patient screenings during fiscal 2021. in addition to patient screenings , health care provider clients are also using our covid-19 vaccination management solution to manage vaccine delivery and identify vaccine-hesitant patients . given the unknown timeline and the near-term uncertainty of covid-19 's impact on our business , there continues to be uncertainty as to the extent to which the global covid-19 pandemic may adversely impact our business operations , financial performance , and results of operations at this time . 55 acquisition of queuedr on january 8 , 2021 , we acquired queuedr inc. ( queuedr ) , a saas technology company . over time , we believe the underlying queuedr technology will enhance our appointments solutions and the overall value of the phreesia platform to healthcare providers . the total consideration for the acquisition consists of $ 5.8 million in cash , $ 2.1 million of liabilities incurred and $ 2.2 million in performance-related contingent payments . see note 17 - acquisitions in part ii - item 8 of this annual report on form 10-k for additional information regarding the acquisition of queuedr . key metrics we regularly review the following key metrics to measure our performance , identify trends affecting our business , formulate financial projections , make strategic business decisions and assess working capital needs . replace_table_token_1_th provider clients . we define provider clients as the average number of healthcare provider organizations that generate revenue each month during the applicable period . in cases where we act as a subcontractor providing white-label services to our partner 's clients , we treat the contractual relationship as a single provider client . we believe growth in the number of provider clients is a key indicator of the performance of our business and depends , in part , on our ability to successfully develop and market our platform to healthcare provider organizations that are not yet clients . while growth in the number of provider clients is an important indicator of expected revenue growth , it also informs our management of the areas of our business that will require further investment to support expected future provider client growth . for example , as the number of provider clients increases , we may need to add to our customer support team and invest to maintain effectiveness and performance of our platform and software for our provider clients and their patients . average revenue per provider client . we define average revenue per provider client as the total subscription and related services and payment processing revenue generated from provider clients in a given period divided by the average number of provider clients that generate revenue each month during that same period . we are focused on continually delivering value to our provider clients and believe that our ability to increase average revenue per provider client is an indicator of the long-term value of the phreesia platform . 56 additional information replace_table_token_2_th patient payment volume . we believe that patient payment volume is an indicator of both the underlying health of our provider clients ' businesses and the continuing shift of healthcare costs to patients . we measure patient payment volume as the total dollar volume of transactions between our provider clients and their patients utilizing our payment platform , including via credit and debit cards that we process as a payment facilitator as well as cash and check payments and credit and debit transactions for which phreesia acts as a gateway to other payment processors . payment facilitator volume percentage . we define payment facilitator volume percentage as the volume of credit and debit card patient payment volume that we process as a payment facilitator as a percentage of total patient payment volume . payment facilitator volume is a major driver of our payment processing revenue . 57 results of operations the following tables set forth our results of operations for the periods presented and as a percentage of revenue for those periods : replace_table_token_3_th components of statements of operations revenue we generate revenue primarily from providing an integrated saas-based software and payment platform for the healthcare industry . story_separator_special_tag upon such conversion , we reclassified the warrants to equity and recorded the then current value of the warrant liability on the date of reclassification to additional paid-in-capital , a component of stockholders ' equity . interest income . interest income consists of interest earned on our cash and cash equivalent balances . interest income has not been material to our operations to date . interest expense . interest expense consists primarily of the interest incurred on our financing obligations as well as amortization of discounts and deferred financing costs . ( provision for ) benefit from income taxes based upon our cumulative pre-tax losses in recent years and available evidence , we have determined that it is more likely than not that certain deferred tax assets as of january 31 , 2021 will not be realized in the near term . consequently , we have established a valuation allowance against our net deferred tax assets totaling approximately $ 54.6 million and $ 35.4 million as of january 31 , 2021 and 2020 , respectively , to recognize only the portion of the deferred tax asset that is more likely than not to be realized . in future periods , if we conclude we have future taxable income sufficient to recognize the deferred tax assets , we may reduce or eliminate the valuation allowance . comparison of fiscal 2021 versus fiscal 2020 revenue ( in thousands ) replace_table_token_4_th subscription and related services . our subscription and related services revenue from healthcare organizations increased $ 12.7 million to $ 69.0 million for fiscal 2021 , as compared to $ 56.4 million for fiscal 2020 , primarily due to new provider clients added in fiscal 2021 as well as expansion of and cross-selling to existing provider clients . payment processing fees . our revenue from patient payments processed through the phreesia platform increased $ 3.4 million to $ 49.9 million for fiscal 2021 , as compared to $ 46.5 million for fiscal 2020 due to the addition of more provider clients , expansion of existing provider clients , and increased patient financial responsibility for their care , partially offset by the impact of covid-19 , which decreased patient visits . life sciences . our revenue from life science clients for digital marketing increased $ 7.8 million to $ 29.7 million for fiscal 2021 , as compared to $ 21.9 million for fiscal 2020 due to an increase in new digital marketing solutions programs and deeper patient outreach among the existing programs . 60 cost of revenue ( excluding depreciation and amortization ) fiscal year ended january 31 , ( in thousands ) 2021 2020 $ change % change cost of revenue ( excluding depreciation and amortization ) $ 23,461 $ 16,831 $ 6,630 39 % cost of revenue ( excluding depreciation and amortization ) increased $ 6.6 million to $ 23.5 million for fiscal 2021 , as compared to $ 16.8 million for fiscal 2020. the increase resulted primarily from higher headcount and associated compensation cost as well as higher data center costs , both driven by growth in revenue . the timing of investments in headcount and data center costs occur prior to the recognition of related revenue . stock compensation incurred related to cost of revenue was $ 0.6 million and $ 0.1 million for fiscal 2021 and fiscal 2020 , respectively . payment processing expense fiscal year ended january 31 , ( in thousands ) 2021 2020 $ change % change payment processing expense $ 28,925 $ 27,889 $ 1,036 4 % payment processing expense increased $ 1.0 million to $ 28.9 million in fiscal 2021 , as compared to $ 27.9 million for fiscal 2020. the increase resulted primarily from an increase in patient payments processed through the phreesia platform driven by an increase in patient visits over the prior year period , partially offset by certain lower cost payment routing . sales and marketing fiscal year ended january 31 , ( in thousands ) 2021 2020 $ change % change sales and marketing $ 42,972 $ 32,357 $ 10,615 33 % sales and marketing expense increased $ 10.6 million to $ 43.0 million for fiscal 2021 , as compared to $ 32.4 million for fiscal 2020. the increase was primarily attributable to a $ 9.9 million increase in total compensation costs driven by a growth in sales and marketing headcount to support anticipated growth . stock compensation incurred related to sales and marketing expense was $ 3.5 million and $ 1.4 million for fiscal 2021 and fiscal 2020 , respectively . research and development fiscal year ended january 31 , ( in thousands ) 2021 2020 $ change % change research and development $ 22,622 $ 18,623 $ 3,999 21 % research and development expense increased $ 4.0 million to $ 22.6 million for fiscal 2021 , as compared to $ 18.6 million for fiscal 2020. the increase resulted primarily from a $ 3.9 million increase in total compensation costs driven by an increase in headcount to support our product development efforts . stock compensation incurred related to research and development expense was $ 2.0 million and $ 0.8 million in fiscal 2021 and fiscal 2020 , respectively . general and administrative fiscal year ended january 31 , ( in thousands ) 2021 2020 $ change % change general and administrative $ 40,460 $ 30,458 $ 10,002 33 % general and administrative expense increased $ 10.0 million to $ 40.5 million for fiscal 2021 , as compared to $ 30.5 million for fiscal 2020. the increase resulted primarily from a $ 9.4 million increase in total compensation costs driven by an increase in headcount to support our growth as a public company . 61 stock compensation incurred related to general and administrative expense was $ 7.4 million and $ 3.9 million in fiscal 2021 and fiscal 2020 , respectively .
| financial highlights fiscal 2021 total revenue increased 19 % to $ 148.7 million in fiscal 2021 , compared with $ 124.8 million in fiscal 2020. net loss was $ 27.3 million in fiscal 2021 , compared with $ 20.3 million in fiscal 2020. adjusted ebitda was positive $ 3.8 million in fiscal 2021 , compared with positive $ 4.8 million in fiscal 2020. cash provided by operating activities was $ 2.9 million in fiscal 2021 , compared with $ 0.8 million in fiscal 2020. free cash flow was negative $ 15.7 million in fiscal 2021 compared with negative $ 11.5 million in fiscal 2020. for a reconciliation of adjusted ebitda to net loss and free cash flow to cash provided by operating activities , and for more information as to how we define and calculate such measures , see the section below titled “ non-gaap financial measures. ” overview we are a leading provider of comprehensive software solutions that transform the healthcare experience by engaging patients in their care and enabling healthcare provider organizations to optimize operational efficiency , improve profitability and enhance clinical care and safety . as evidenced in industry survey reports from klas , we have been recognized as a leader based on our integration capabilities with healthcare provider organizations , the broad adoption of our patient intake functionalities , our response to the covid-19 pandemic and by overall client satisfaction . through the saas-based phreesia platform , which we refer to as the phreesia platform or our platform , we offer provider clients a robust suite of solutions to manage the patient intake process and an integrated payments solution for secure processing of patient payments . our platform also provides life sciences companies with an engagement channel for targeted and direct communication with patients .
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the contract revenue is then allocated to the separate units of accounting . revenue and cost of services are recognized for each unit of accounting separately as the related services story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this form 10-k. overview we are a leading provider of integrated multichannel outsourced promotional services to established and emerging pharmaceutical , biotechnology and healthcare companies in the united states . we are a leading provider of outsourced sales teams that target healthcare providers , offering a range of complementary sales support services designed to achieve our customers ' strategic and financial product objectives . in addition to outsourced sales teams in the united states , we also provide other promotional services including clinical educator services , digital communications , medical education and teledetailing . combined , our services offer customers a range of both personal and non-personal promotional options for the commercialization of their products throughout their lifecycles , from development through maturity . we provide innovative and flexible service offerings designed to drive our customers ' businesses forward and successfully respond to a continually changing market . our services provide a vital link between our customers and the medical community through the communication of product information to physicians and other healthcare professionals for use in the care of their patients . we provide these services through three reporting segments : sales services ; marketing services ; and product commercialization services ( pc services ) . these segments are described in detail under the caption description of reporting segments below . our business depends in large part on demand from the pharmaceutical , biotechnology and healthcare industries for outsourced promotional services . in recent years , this demand has been impacted by certain industry-wide factors affecting pharmaceutical , biotechnology and healthcare companies , including , among other things , pressures on pricing and access , successful challenges to intellectual property rights ( including the introduction of competitive generic products ) , a strict regulatory environment , decreased pipeline productivity and a slow-down in the rate of approval of new products by the food and drug administration ( fda ) . additionally , a number of pharmaceutical companies have made changes to their commercial models by reducing the internal number of sales representatives . a significant portion of our revenue is derived from our sales force arrangements with large pharmaceutical companies , and we have therefore benefited from cost control measures implemented by these companies and their resultant increased reliance on outsourced promotional services . during 2010 , certain of our marketing services customers delayed the implementation or reduced the scope of a number of marketing initiatives . in addition to fluctuations in customer demand , we continue to experience a high degree of customer concentration and this trend may continue as a result of recent and continuing consolidation within the pharmaceutical industry . on november 3 , 2010 , we acquired 100 % of the membership interest in group dca , llc ( group dca ) , a privately held interactive digital communications company serving the pharmaceutical , biotechnology and healthcare industries . based in parsippany , new jersey , group dca leverages the strength of the internet , multimedia , tablet pcs , dimensional direct mail and its proprietary software , diagram tm , to deliver non-personal selling solutions via interactive communications exchanges that accommodate the schedules of healthcare providers . group dca 's proprietary software also yields meaningful response data that allows customers the opportunity to better understand the needs and opinions of their audiences and , in turn , the opportunity to market to their audiences more effectively . with the combination of pdi 's traditional outsourced promotional services and group dca 's e-detailing , patient education communications and other digital communications , we expect to be even better positioned to offer customers increased insight and greater engagement , resulting in integrated information and more impactful messages being delivered to healthcare providers across multiple communication channels . the company paid cash ( net ) of approximately $ 23.9 million for group dca , of which $ 1.3 million was held in escrow . as of december 31 , 2010 , $ 1.3 million is still held in escrow and will be paid out at the end of 18 months from the date of acquisition . the final purchase price is subject to working capital adjustment in accordance with the purchase agreement . the purchase agreement also provides for the members of group dca to earn up to an additional $ 30 million from the date of acquisition through december 31 , 2012. these payouts are based on group dca 's achievement of revenue and gross profit metrics and range up to : $ 5.0 million in the period ended december 31 , 2010 ; and $ 12.5 million in each of the years ending december 31 , 2011 and 2012. the metrics for payments related to the period ended december 31 , 2010 were not achieved . on march 3 , 2011 , we announced the launch of a new business unit within our sales services segment , 22 pdi , inc. annual report on form 10-k ( continued ) engagece , that will provide clinical educator services to our customers . the goal of clinical educators is to work with healthcare providers in the management of chronic diseases in order to optimize patient care and outcomes . we have seen a growing demand for these types of services within our customers and we believe that the clinical educator services provided via engagece will complement traditional sales force efforts and enhance our offerings . in july 2010 , we announced our intent to exit the marketing research business conducted by our tvg marketing research & consulting ( tvg ) business unit . story_separator_special_tag in situations where we enter into multiple contracts with one customer at or near the same time , we evaluate the various factors involved in negotiating the arrangements in order to determine if the contracts were negotiated as a package and should be accounted for as a single agreement . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the years ended december 31 , 2010 and 2008 our three largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 77.0 % and 54.7 % of our service revenue , respectively . for the year ended december 31 , 2009 our two largest customers , who each individually represented 10 % or more of our service revenue , together accounted for approximately 61.8 % of our service revenue . see note 15 , significant customers , to our consolidated financial statements included in this annual report on form 10-k. cost of services consists primarily of the costs associated with executing product detailing programs , performance based contracts or other sales and marketing services identified in the contract and includes personnel costs and other direct costs , as well as the initial direct costs associated with staffing a product detailing program . personnel costs , which constitute the largest portion of cost of services , include all labor related costs , such as salaries , bonuses , fringe benefits and payroll taxes for the sales representatives , sales managers and professional staff that are directly responsible for executing a particular program . initial direct program costs are those costs associated with initiating a product detailing program , such as recruiting , hiring , and training the sales representatives who staff a particular program . other direct costs include , but are not limited to , facility rental fees , honoraria and travel expenses , sample expenses and other promotional expenses . all personnel costs , initial direct program costs and other direct costs , other than training costs , are expensed as incurred . reimbursable out-of-pocket expenses include those relating to travel and other similar costs , for which the company is reimbursed at cost by its customers . reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of services in the consolidated statements of operations . for the years ended december 31 , 2010 , 2009 , and 2008 , reimbursable out-of-pocket expenses were $ 21.3 million , $ 8.2 million and $ 12.6 million , respectively . training costs include the costs of training the sales representatives and managers on a particular product 24 pdi , inc. annual report on form 10-k ( continued ) detailing program so that they are qualified to properly perform the services specified in the related contract . for the majority of the company 's contracts , training costs are reimbursable out-of-pocket expenses . for contracts where the company is responsible for training costs , these costs are deferred and amortized on a straight-line basis over the shorter of the life of the contract to which they relate or 12 months . marketing services revenue under marketing service contracts are generally based on a series of deliverable services associated with the design and execution of interactive promotional programs or marketing research/advisory programs . the contracts are generally terminable by the customer for any reason . upon termination , the customer is generally responsible for payment for all work completed to date , plus the cost of any nonrefundable commitments made on behalf of the customer . there is significant customer concentration in our pharmakon and group dca business units , and the loss or termination of one or more large master service agreements could have a material adverse effect on our business and results of operations . revenue from certain promotional contracts that include more than one service offering is accounted for as multiple-element arrangements . for these contracts , the deliverable elements are divided into separate units of accounting provided the following criteria are met : the price is fixed and determinable ; the delivered elements have stand-alone value to the customer ; there is objective and reliable evidence of the fair value of the undelivered elements ; and there is no right of return or refund . the contract revenue is then allocated to the separate units of accounting . revenue and cost of services are recognized for each unit of accounting separately as the related services are rendered and costs are incurred , respectively . interactive digital contracts contain two phases : the content development phase and the delivery phase . revenue related to interactive digital contracts is generally recognized ratably over the delivery phase ( s ) of the contract which are generally between eight and twelve months long . we maintain continuing relationships with our marketing services customers which may lead to multiple ongoing contracts between the two parties . in situations where we enter into multiple contracts with one customer at or near the same time , we evaluate the various factors involved in negotiating the arrangements in order to determine if the contracts were negotiated together and should be accounted for as a single agreement . cost of services consists primarily of the costs associated with executing e-detailing programs or other sales and marketing services identified in the contract and includes personnel costs and other direct costs .
| consolidated results of operations the following table sets forth for the periods indicated below selected statement of operations data as a percentage of revenue . the trends illustrated in this table may not be indicative of future operating results . 28 pdi , inc. annual report on form 10-k ( continued ) replace_table_token_2_th results of continuing operations for the year ended december 31 , 2010 compared to the year ended december 31 , 2009 replace_table_token_3_th operations overview in 2010 , we achieved significantly improved results relative to 2009. in fact , revenue , gross profit and operating loss all improved significantly and we were able to achieve positive cash flow from operations in all four quarters of 2010. these overall positive results were driven by our sales services segment . specifically , these improvements were the result of internal actions that strengthened management , systems and product offerings , and favorable and improving industry trends . from an internal standpoint , throughout 2009 and continuing in 2010 , we strengthened our senior management team in the areas of business development , sales , operations and compliance while also strengthening the layer of management that directly supports senior management across all functions . we upgraded many of our systems that directly support our field sales force , most importantly our sales force automation systems , which in turn improved 29 pdi , inc. annual report on form 10-k ( continued ) field force effectiveness and allowed for integration of our sales force activities with our other channels of communications to healthcare professionals . we have been saying for some time that although we anticipated a continued downsizing of sales forces by the pharmaceutical industry , that we also expected that this downsizing would create an increase in the level of outsourcing of sales and marketing services as the pharmaceutical industry drives to create a new selling model .
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this credit risk rating process includes story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with `` selected consolidated financial data '' under part ii , item 6 and our audited consolidated financial statements and supplementary data as presented under part ii , item 8 of this report . certain prior period amounts have been reclassified to conform to current period presentations . the following discussion and analysis of our financial condition and results of operations contains forward-looking statements . these statements are based on current expectations and assumptions , which are subject to risks and uncertainties . see our cautionary language at the beginning of this report under “ forward-looking statements ” . actual results could differ materially because of various factors , including but not limited to those discussed in “ risk factors , ” under part i , item 1a of this report . our fiscal year ends december 31 st and , unless otherwise noted , references to years or fiscal years are for fiscal years ended december 31 st . overview of company operations svb financial is a diversified financial services company , as well as a bank holding company and a financial holding company . svb financial was incorporated in the state of delaware in march 1999. through our various subsidiaries and divisions , we offer a variety of banking and financial products and services . for more than 35 years , we have been dedicated to helping innovative companies and their investors succeed , especially in the technology , life science/healthcare , private equity/venture capital and premium wine industries . we provide our clients of all sizes and stages with a diverse set of products and services to support them through all stages of their life cycles , and key innovation markets around the world . we offer commercial and private banking products and services through our principal subsidiary , the bank , which is a california-state chartered bank founded in 1983 and a member of the federal reserve system . through its subsidiaries , the bank also offers asset management , private wealth management and other investment services . in addition , through svb financial 's other subsidiaries and divisions , we also offer investment banking services and non-banking products and services , such as funds management , m & a advisory services and venture capital and private equity investment . 34 management 's overview of 2019 financial performance overall , we had strong growth and profitability to cap a record year in 2019 , which was marked by higher net interest and core fee income , record investment securities and equity warrant gains , strong total client funds growth , healthy loan growth and continued stable credit quality . additionally , we saw higher noninterest expense , primarily from increased compensation and benefits expenses , as well as increased professional services expenses reflective of increased expenses to support our domestic and global expansion initiatives , as well as investments made in projects , systems , and technology to support our revenue growth and related initiatives and other operating costs . increases in noninterest income and noninterest expenses were attributable to , in part , the inclusion of svb leerink in our 2019 financial results . our core business continued to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships . we saw continued success in working with private equity/venture capital firms and life science/healthcare clients as well as clients in our private banking division . results for the fiscal year ended , and as of , december 31 , 2019 ( compared to the fiscal year ended , and as of , december 31 , 2018 , where applicable ) : balance sheet earnings assets . $ 63.2 billion in average total assets ( up 14.5 % ) . $ 71.0 billion in period-end total assets ( up 24.7 % ) . loans . $ 29.9 billion in average total loan balances , net of unearned income ( up 16.7 % ) . $ 33.2 billion in period-end total loan balances , net of unearned income ( up 17.0 % ) . total client funds . ( on-balance sheet deposits and off-balance sheet client investment funds ) . $ 146.7 billion in average total client fund balances ( up 19.1 % ) . $ 161.0 billion in period-end total client fund balances ( up 18.9 % ) . afs/htm fixed income investments . $ 24.3 billion in average fixed income investment securities ( down 2.1 % ) . $ 27.9 billion in period-end fixed income investment securities ( up 19.7 % ) . eps . earnings per diluted share of $ 21.73 ( up 20.0 % ) . net income . consolidated net income available to common stockholders of $ 1.1 billion ( up 16.7 % ) . - net interest income of $ 2.1 billion ( up 10.7 % ) . - net interest margin of 3.51 % ( down 6bps ) . - noninterest income of $ 1.2 billion ( up 64.0 % ) , non-gaap core fee income + of $ 641.8 million ( up 24.4 % ) and non-gaap core fee income plus investment banking revenue and commissions ++ of $ 893.4 million ( up 73.2 % ) . - noninterest expense of $ 1.6 billion ( up 34.8 % ) . roe . return on average equity ( “ roe ” ) performance of 20.03 % . operating efficiency ratio . operating efficiency ratio of 48.26 % with a non-gaap core operating efficiency ratio of 48.06 % +++ . capital credit quality capital . continued strong capital , with all capital ratios considered `` well-capitalized '' under banking regulations . svbfg and svb capital ratios , respectively , were : - cet 1 risk-based capital ratio of 12.58 % and 11.12 % . - tier 1 risk-based capital ratio of 13.43 % and 11.12 % . story_separator_special_tag the credit risk ratings for each loan are monitored and updated on an ongoing basis . the allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans . our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model , which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio . the formula allocation provides the average loan loss experience for each portfolio segment , which considers our quarterly historical loss experience since the year 2000 , both by risk-rating category and client industry sector . the resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses . we also supplement our allowance by applying qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . refer to note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report for a summary of the factors management considers for its qualitative allocation as part of management 's estimate of the changing risks in the lending environment . 37 allowance for unfunded credit commitments the allowance for unfunded credit commitments is determined using a methodology that is inherently similar to the methodology used for calculating the allowance for loan losses adjusted for factors specific to binding commitments , including the probability of funding and exposure at funding . our reserve methodology for unfunded loan commitments applies segment specific historical loss experience for our funded loan portfolio and segment specific probability of funding factors to estimate the allowance for unfunded credit commitments . the allowance for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate by management . we consider our accounting policy for the allowance for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by management and is susceptible to changes in the near term . the allowance for unfunded credit commitments equals management 's best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date . for an overview of the impact of cecl to the allowance for loan losses and the allowance for unfunded credit commitments , see “ recent accounting pronouncements ” under part ii , item 7 of this report . fair value measurements we use fair value measurements to record fair value for certain financial instruments and to determine fair value disclosures . we disclose our method and approach for fair value measurements of assets and liabilities in note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report . asc 820 , fair value measurements and disclosures , establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the significant inputs to the valuation methodology used for measurement are observable or unobservable and the significance of the level of the input to the entire measurement . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels for measuring fair value are defined in note 2— “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters . for financial instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value ( level 1 measurements ) . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . for inactive markets , there is little information , if any , to evaluate if individual transactions are orderly . accordingly , we are required to estimate , based upon all available facts and circumstances , the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions ( level 2 measurements ) . in addition , changes in market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . therefore , when market data is not available , we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement ( level 3 measurements ) . significant judgment is required to determine whether certain assets measured at fair value are included in level 2 or level 3. when making this judgment , we consider available information and our understanding of the valuation techniques and significant inputs used . the classification of level 2 or level 3 is based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the level 3 inputs to the instrument 's fair value measurement in its entirety .
| results of operations net interest income and margin ( fully taxable equivalent basis ) net interest income is defined as the difference between : ( i ) interest earned from loans , fixed income investments in our available-for-sale and held-to-maturity securities portfolios and short-term investment securities , and , ( ii ) interest paid on funding sources . net interest margin is defined as net interest income , on a fully taxable equivalent basis , as a percentage of average interest-earning assets . net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the applicable federal statutory tax rate . analysis of net interest income changes due to volume and rate ( fully taxable equivalent basis ) net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as “ volume change. ” net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities , referred to as “ rate change. ” the following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities . the table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the years indicated . for this table , changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate . 40 replace_table_token_5_th net interest income ( fully taxable equivalent basis ) 2019 compared to 2018 net interest income increased by $ 205.4 million to $ 2.1 billion in 2019 , compared to $ 1.9 billion in 2018 .
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” for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see “ general , ” and part i , item 1a , “ risk factors. ” overview we are the leading global leaf tobacco merchant and processor . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . during the last three years , we have seen a rapidly developing supply cycle that began with shortages following the short african burley crops in 2008. those shortages prompted customers to build inventories from the ensuing crops , and the intensity of that demand for all types of cigarette leaf , coupled with competition with commodity crops , increased the price of leaf at the farm level , which is a normal way of increasing supply . as leaf has become more available and prices have been influenced by a weakening u.s. dollar , customers have begun to reduce inventories . lower cigarette demand in developed markets may have also have contributed to those reductions . the industry has now reached oversupply conditions , primarily in cigarette tobaccos . we are beginning to see the traditional effects of oversupply : margin pressures , falling leaf prices at the farm level , and increasing uncommitted dealer inventories . each of the fiscal years in the period is described in the following information : in fiscal year 2009 , green tobacco costs were very high during most of the purchasing season , and farmers ' costs for fertilizer and other input materials to produce crops for the following year were high as well . green tobacco prices increased in u.s. dollar terms as the dollar weakened against most currencies early in the year . those prices also increased in local currency terms to protect supply against competition from commodity crops , which were in great demand . by the end of the year , economic conditions had changed the environment and reduced the pressure on costs heading into fiscal year 2010. the u.s. dollar had strengthened as well , also reducing costs ; however , because of the long product cycle , a significant portion of our cost in some areas had been incurred before the dollar strengthened . in fiscal year 2010 , the market was in balance with no significant amounts of uncommitted inventory in the hands of the dealer group . large african burley crops that had threatened to create some excess were absorbed by the market . although we began to see increased customer concern about costs , the higher cost of leaf was passed through in selling prices . one of our customers , japan tobacco , inc. , responded to higher crop costs and leaf supply concerns by announcing that they were preparing to source some of their leaf directly in the united states , brazil , and malawi . in fiscal year 2011 , we continued to see large burley crops while flue-cured production was reduced somewhat by a weather issue in brazil . during the year , we began to see the signs of oversupply in lower margins and elevated dealer inventories . in addition , we assigned farmer contracts in brazil to a subsidiary of philip morris international as part of their efforts to increase their direct sourcing capability there . in response to the customer efforts in direct sourcing and our need to reduce costs in an oversupplied market , we began a process of reviewing each of our operations with the purpose of rationalizing global operations to fit the new market conditions . that process has given rise to numerous cost-saving initiatives , and it is continuing . we achieved strong results for fiscal year 2011 , particularly in light of the challenging market conditions that we faced . recent customer efforts to obtain leaf directly from farmers have changed parts of our business . in the last two years , both japan tobacco and philip morris international have taken steps to purchase more of their leaf needs directly from farmers . as we have said , we believe we have already experienced the effects of japan tobacco 's increase in direct leaf procurement on our volumes in fiscal year 2011 in the united states , malawi , and brazil . philip morris international 's assumption of farmer contracts will reduce our purchases of brazilian leaf in fiscal year 2012. we continue to expect that , after contracts expire this month , our processing volumes in the united states will decline significantly . as we noted last year , we estimate that reduction will cause a decrease of about $ 30 million in operating income . we have had some success in broadening our customer base and expanding the services we offer our customers . however , in the near term , we will not be able to replace all the processing volumes lost in the united states . 20 at the same time , we are experiencing the effects of leaf oversupply that we have been predicting , and we expect to see the financial impact of lower leaf prices and tighter margins that typify such cycles in fiscal year 2012. we believe that during the two prior fiscal years of higher than normal demand , a number of customers increased their leaf inventory levels . those higher inventories , combined with softer cigarette sales in some markets , have led to reduced leaf demand for current crops , evidenced by slower than normal purchasing in major markets . periodic cycles of under- and oversupply of leaf are not unusual in our business , and we have successfully navigated oversupplied markets throughout the history of the company . although dealer unsold inventories are currently not excessive , we expect them to grow significantly during this season . story_separator_special_tag selling , general , and administrative expenses were also down in this segment , mainly reflecting lower provisions against farmer receivables . 23 results for the other regions segment improved by 30 % , to $ 183 million , largely on the strength of lower currency costs in fiscal year 2010. the reduction in currency costs primarily benefited south american operations where the rapid strengthening of the u.s. dollar in fiscal year 2009 caused a loss in value of local currency balances , primarily related to farmer receivables . the u.s. dollar remained relatively strong through the following spring and reduced the cost of the crop sold in fiscal year 2010. asian trading volumes increased for the second consecutive year . african results were down slightly as delayed shipments related to logistical issues hampered performance , despite significant catch-up shipments late in the year . in europe , higher green leaf costs proved difficult to recover in sales prices , although improvement in smaller operations benefited the region . revenues for the other regions segment increased based primarily on the higher asian trading volumes . cost of sales declined as the stronger u.s. dollar near the beginning of fiscal year 2010 reduced costs despite higher local pricing in many areas . selling , general , and administrative expenses were down substantially for the group on lower currency related costs for fiscal year 2010. other tobacco operations results for the other tobacco operations segment were down by 5 % , or about $ 1.9 million , compared to the fiscal year ended march 31 , 2009 , mainly due to lower earnings from the dark tobacco group . near the end of fiscal year 2009 , the dark tobacco operations experienced a surge in sales as customers accelerated purchases in anticipation of the enactment of u.s. excise tax increases . the dark tobacco group also incurred costs to consolidate their u.s. processing operations in fiscal year 2010. results for the oriental tobacco joint venture benefited from a decrease in interest expense . segment revenues were lower in fiscal year 2010 compared to fiscal year 2009. dark tobacco revenues declined on reduced volumes compared to fiscal year 2009 's accelerated shipments . although the oriental tobacco joint venture is not a consolidated operation , it sells some leaf to a consolidated universal subsidiary for import to customers in the united states . the revenue from those sales is included in revenues for other tobacco operations . some of those sales have been carried over into fiscal year 2011 and reduced revenues for fiscal year 2010. segment volume reductions also reduced cost of sales . selling , general , and administrative expenses for the segment decreased , primarily reflecting currency benefits in fiscal year 2010. accounting pronouncements the financial accounting standards board ( “ fasb ” ) has issued the following accounting standard updates that are relevant to our accounting and financial reporting and will become effective in future periods : · fasb accounting standards update 2009-13 , “ multiple-deliverable revenue arrangements ” ( “ asu 2009-13 ” ) , which was issued by the fasb in october 2009. asu 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable arrangement . it also requires additional disclosures about the methods and assumptions used to evaluate multiple-deliverable arrangements and to identify the significant deliverables within those arrangements . asu 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after june 15 , 2010 , which means that we will be required to adopt the guidance effective april 1 , 2011 , the beginning of our fiscal year 2012. the adoption of asu 2009-13 is not expected to have a material effect on our financial statements . · fasb accounting standards update 2011-04 , “ fair value measurement ” ( “ asu 2011-04 ” ) , which was issued in may 2011. the primary focus of asu 2011-04 is the convergence of accounting requirements for fair value measurements and related financial statement disclosures under u.s. gaap and international financial reporting standards ( “ ifrs ” ) . while asu 2011-04 does not significantly change existing guidance for measuring fair value , it does require additional disclosures about fair value measurements and changes the wording of certain requirements in the guidance to achieve consistency with ifrs . asu 2011-04 is effective for interim and annual periods beginning after december 15 , 2011 , and is required to be applied prospectively . we are currently evaluating the revised guidance to determine the effect it will have on our financial statements . 24 liquidity and capital resources overview during the fiscal year ended march 31 , 2011 , our operations generated positive operating cash flows . seasonal working capital requirements were higher during the year as the weaker dollar and higher crop input prices increased the cost of green tobacco . despite these requirements , we had more than sufficient liquidity to meet our needs . we also continued our conservative financial policies , maintained our discipline on using our free cash flow , and reduced our leverage ratios while returning funds to shareholders . our liquidity and capital resource requirements are predominantly short-term in nature and primarily relate to working capital required for seasonal tobacco crop purchases . working capital needs are seasonal within each geographic region . the geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements , although crop size , prices paid to farmers , and currency fluctuations affect requirements during each year . the marketing of the crop in each geographic area is heavily influenced by weather conditions and follows the cycle of buying , processing , and shipping of the tobacco crop . the timing of individual customer shipping requirements may change the level or the duration of crop financing . despite a predominance of short-term needs , we maintain a relatively large portion of our total debt as long-term to avoid liquidity risk .
| results of operations fiscal year ended march 31 , 2011 , compared to the fiscal year ended march 31 , 2010 for the fiscal year ended march 31 , 2011 , diluted earnings per share were $ 5.42 , down about 5 % from last year 's record earnings of $ 5.68 per diluted share . net income attributable to universal corporation for fiscal year 2011 was $ 156.6 million , a decrease of 7 % compared to $ 168.4 million last year , primarily due to lower results in our south american operations and oriental tobacco joint venture . revenues for fiscal year 2011 were $ 2.6 billion , a 3 % increase compared to last year , reflecting higher selling prices on lower volumes shipped during the period . the price increases were generally related to higher green leaf costs and the effects of a weak u.s. dollar . results for fiscal year 2011 also include the effects of several non-recurring items , which provided a net pretax benefit of $ 5.3 million , or about $ 0.12 per diluted share . during the third fiscal quarter , we recorded a net gain of $ 19.4 million before taxes , or $ 0.44 per diluted share , to recognize the assignment of tobacco production contracts with approximately 8,100 farmers in brazil , along with the sale of related assets , to a subsidiary of philip morris international ( “ pmi ” ) . in addition , the second fiscal quarter included a benefit of $ 7.4 million before taxes , or $ 0.17 per diluted share , for the reversal of a portion of a previously recorded european commission fine after a favorable court ruling . these gains were largely offset by the effects of combined restructuring and impairment charges associated with our initiatives to adjust various operations and reduce costs , including a significant portion related to the closure of our simcoe operations in canada .
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the mill equipment is classified as level 3 of the fair value hierarchy as its value at december 31 , 2017 and 2016 was based on an independent third-party valuation . the mill equipment is included in plant and equipment on the consolidated balance sheets for each period presented . there were no transfers between levels nor were there any changes in valuation methods in 2017 . 11. supplemental cash flow information and material non-cash transactions as of december 31 , 2017 , 2016 and 2015 , all of our cash was held in liquid bank deposits and or government treasury bills/notes in the unites states and australia . there were no significant non-cash transactions for the year ended december 31 , 2017 , 2016 or 2015 . 76 12. income taxes the company 's u.s. and foreign source income/ ( loss ) is as follows : replace_table_token_39_th during the years ended december 31 , 2017 , 2016 and 2015 , the company has recognized ‘ nil ' current and deferred income tax expense or benefit in each of the us , canadian , and other foreign jurisdictions , due to full valuation allowances within each jurisdiction . rate reconciliation a reconciliation of the combined income taxes at the statutory rates and the company 's effective income tax benefit is as follows : replace_table_token_40_th 77 deferred taxes deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the significant components of our deferred tax assets and liabilities as at december 31 are as follows : replace_table_token_41_th valuation allowance on canadian and foreign tax assets we establish a valuation allowance against the future income tax assets if , based on available information , it is more likely than not that all of the assets will not be realized . the valuation allowance of $ 51,406 , $ 50 , 209 , story_separator_special_tag s of operations . the following discussion and analysis should be read in conjunction with our consolidated financial statements for the three years ended december 31 , 2017 , and the related notes thereto , which have been prepared in accordance with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including , but not limited to , those set forth under the section heading “ item 1a . risk factors ” above and elsewhere in this annual report on form 10-k. see section heading “ note regarding forward-looking statements ” above . all dollar amounts stated herein are in u.s. dollars in thousands , except per share amounts and per warrant amounts unless specified otherwise . references to c $ refer to canadian currency , aud or a $ to australian currency , and usd or $ to united states currency . overview vista gold corp. and its subsidiaries ( collectively , “ vista , ” the “ company , ” “ we , ” “ our , ” or “ us ” ) operate in the gold mining industry . we are focused on the evaluation , acquisition , exploration and advancement of gold exploration and potential development projects , which may lead to gold production or value adding strategic transactions such as earn-in right agreements , option agreements , leases to third parties , joint venture arrangements with other mining companies , or outright sales of assets for cash and or other consideration . we look for opportunities to improve the value of our gold projects through exploration drilling and or technical studies focused on optimizing previous engineering work . we do not currently generate cash flows from mining operations . the company 's flagship asset is its 100 % owned mt todd gold project ( “ mt todd ” ) in the northern territory ( “ nt ” ) australia . mt todd is the largest undeveloped gold project in australia . the company recently received authorization for the last major environmental permit needed and completed an updated preliminary feasibility study for mt todd , which confirms the project 's robust economics at today 's gold price . with these important milestones complete , vista is in a position to actively pursue strategic alternatives that provide the best opportunity to maximize value for the company . results from operations story_separator_special_tag under the australian government 's r & d tax incentive program , a program designed to encourage industry to engage in r & d activities that benefit australia ; and relate to costs we incurred during the 2012 , 2013 , 2014 and 2015 fiscal years for qualifying r & d programs . this r & d tax incentive program is a self-assessment process , and as such , the australian government has the right to review the qualifying programs and expenditures for a period of four years . there were no similar grants for the year ended december 31 , 2017. financial position , liquidity and capital resources operating activities net cash provided by/ ( used in ) operating activities was $ ( 8,801 ) , $ ( 5,024 ) and $ 3,009 for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . these amounts in 2016 and 2015 include grants totaling $ 1,295 and $ 10,220 , 52 respectively , net of costs to prepare and file from the government of australia related to research and development expenditures we incurred in 2012 through 2015. other material factors that contributed to the positive year-over-year change are discussed in “ results from operations ” above . story_separator_special_tag the mill equipment is classified as level 3 of the fair value hierarchy as its value at december 31 , 2017 and 2016 was based on an independent third-party valuation . the mill equipment is included in plant and equipment on the consolidated balance sheets for each period presented . there were no transfers between levels nor were there any changes in valuation techniques in 2017. off-balance sheet arrangements we have no off-balance sheet arrangements required to be disclosed in this annual report on form 10-k. contractual obligations we have no material contractual obligations as of december 31 , 2017 . 54 summary of quarterly results replace_table_token_22_th critical accounting policies and recent accounting pronouncements critical accounting policies use of estimates the company 's consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states ( “ u.s . gaap ” ) . the preparation of the company 's consolidated financial statements requires the company to make estimates and assumptions that affect the reported amounts of assets , liabilities , income and expenses during the reporting period . the more significant areas requiring the use of management estimates and assumptions are : the fair value and accounting treatment of financial instruments ; useful lives of assets for asset depreciation purposes ; valuation allowances for deferred tax assets ; the fair value and accounting treatment of stock-based compensation ; the provision for environmental liabilities ; and asset impairments . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . accordingly , actual results will likely differ from the amounts estimated in these financial statements . cash and cash equivalents cash and cash equivalents include cash on hand and government securities with original maturities of three months or less when purchased . because of the short maturity of these investments , the carrying amounts approximate their fair value . foreign currency transactions our functional currency is the u.s. dollar . foreign currency transactions denominated in currency other than the functional currency are recorded at the approximate rate of exchange at the transaction date and gains/ ( losses ) resulting therefrom are recorded in other expense . for each of the years ended december 31 , 2017 , 2016 and 2015 , we recorded insignificant net foreign currency gains/ ( losses ) . short-term investments short-term investments consist of securities with original maturity dates greater than ninety days and less than one year . these securities are typically united states and australian government treasury bills and or notes . australian dollar denominated treasury bills may result in currency risk associated with fluctuation in exchanges rates . short-term investments are recorded at amortized cost and are classified as debt securities held-to-maturity as the company has the intention and ability to hold these instruments until their original maturity date at the time of purchase . mineral properties mineral property acquisition costs , including directly related costs , are capitalized when incurred , and mineral property exploration costs are expensed as incurred . when we determine that a mineral property can be economically developed in accordance with u.s. gaap and sec industry guide 7 reserves are established , the costs then incurred to develop 55 such property will be capitalized . capitalized costs will be depleted using the units-of-production method over the estimated life of the proven and probable reserves . if mineral properties are subsequently abandoned or impaired , any undepleted costs will be charged to loss in that period . the recoverability of the carrying values of our mineral properties is dependent upon economic reserves being discovered or developed on the properties , permitting , financing , start-up , and commercial production from , or the sale/lease of , or other strategic transactions related to these properties . development and or start-up of any of these projects will depend on , among other things , management 's ability to raise sufficient capital for these purposes . we assess the carrying cost of our mineral properties for impairment whenever information or circumstances indicate the potential for impairment . this would include events and circumstances such as our inability to obtain all the necessary permits , changes in the legal status of our mineral properties , government actions , the results of exploration activities and technical evaluations and changes in economic conditions , including the price of gold and other commodities or input prices . such evaluations compare estimated future net cash flows with our carrying costs and future obligations on an undiscounted basis . if it is determined that the estimated future undiscounted cash flows are less than the carrying value of the property , a write-down to the estimated fair value will then be reported in our consolidated statement of income/ ( loss ) and comprehensive income/ ( loss ) for the period . where estimates of future net cash flows are not determinable and where other conditions indicate the potential for impairment , management uses available market information and or third-party valuation experts to assess if the carrying value can be recovered and to estimate fair value . impairment carrying values of long-lived assets , other than mineral properties , are evaluated for impairment at such time that information becomes available indicating that the carrying value may not be recoverable . if it is determined that the fair value is less than the carrying value an impairment charge equal to the difference between the fair value and the carrying value will be recorded in our consolidated statements of income/ ( loss ) and comprehensive income/ ( loss ) . stock-based compensation under our stock option and long-term equity incentive plans , stock incentive options and restricted stock units may be granted to executives , employees , consultants and non-employee directors .
| summary through 2017 , we continued to effectively execute a strategy of strict cost control while completing selected discretionary programs that are expected to add value to mt todd . in january 2018 , we announced completion of an updated pfs for mt todd ( see the section heading “ item 2. properties – mt todd gold project , northern territory , 50 australia ” above ) . as a result of an equity financing completed in 2016 , we believe we are well funded , and we have no debt . consolidated net loss for the year ended december 31 , 2017 was $ 12,035 or $ 0.12 per basic share . consolidated net loss for the year ended december 31 , 2016 was $ 3,133 or $ 0.04 per basic share . consolidated net income for the year ended december 31 , 2015 was $ 1,011 or $ 0.01 per basic share . the principal components of our 2017 net loss and these year-over-year changes are discussed below . exploration , property evaluation and holding costs exploration , property evaluation and holding costs , including fixed cash costs , cash discretionary programs , and non-cash stock-based compensation , were $ 6,931 , $ 4,303 and $ 4,265 during the years ended december 31 , 2017 , 2016 , and 2015 , respectively . these costs are predominantly associated with mt todd . for the years ended december 31 , 2017 , 2016 and 2015 , our fixed costs ( which include cash expenditures necessary to ensure that we preserve our property rights and meet all of our safety , regulatory and environmental responsibilities ) in aud terms were substantially unchanged period over period , consistent with our expectations . the 2017 discretionary programs totaled approximately $ 3,500 , significantly higher than in previous years .
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our income tax returns are subject to adjustment under audit for approximately the last three years . if we are required to pay interest on the underpayment of income taxes , we recognize interest expense in the first period the interest becomes due according to the provisions of the relevant tax law . if we are subject to payment of penalties , we recognize an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return . if the penalty was not recognized in the period when the position was initially taken , the expense is recognized in the period when we change our judgment about meeting minimum statutory thresholds related to the initial position taken . advertising we charge our advertising costs to expense when incurred . during the years ended december 31 , 2013 and 2012 , advertising expense totaled $ 29,440 and $ 108,590 , respectively . stock-based compensation we expense all share-based grants to employees , including grants of employee stock options , based on their estimated fair values at grant date , in accordance with asc topic 718. we record compensation expense for stock options over the vesting period using the estimated fair value on the date of grant , as calculated using the black-scholes-merton model . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and accompanying notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements , based upon our current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under risk factors , forward-looking statements , and elsewhere in this annual report on form 10-k. our history we were incorporated in nevada in july 2002 under the name bluestar financial group , inc. prior to 2010 , we were a shell company under the rules of the securities and exchange commission , or the sec . on march 30 , 2010 , we ( i ) closed a transaction to acquire youchange , inc. , an arizona corporation , or youchange , as a wholly owned subsidiary , ( ii ) ceased being a shell company , and ( iii ) experienced a change in control in which the former stockholders of youchange acquired control of our company . in may 2010 , we changed our name to youchange holdings corp. on october 17 , 2012 , immediately prior to closing a merger transaction with earth911 , we filed amended and restated articles of incorporation to ( i ) change our name to infinity resources holdings corp. , ( ii ) increase our shares of common stock authorized for issuance , ( iii ) authorize shares of preferred stock to be designated in series or classes as our board of directors may determine , ( iv ) effect a 1-for-5 reverse split of our common stock , and ( v ) divide our board of directors into three classes , as nearly equal in number as possible . on october 17 , 2012 , we closed the earth911 merger to acquire earth911 as a wholly owned subsidiary and experienced a change in control in which the former stockholders of earth911 acquired control of our company . because the former stockholders of earth911 acquired more than 50 % of our common stock in the earth911 merger , the financial statements of earth911 became our financial statements even though we were the surviving corporation . on december 11 , 2012 , we changed our fiscal year end from june 30 to december 31. on july 16 , 2013 , we acquired the membership interests of quest held by qrg , comprising 50 % of quest . our wholly owned subsidiary , earth911 , held the remaining 50 % membership interests of quest for several years which was accounted for under the equity method of investment . upon acquisition of the quest interests , we contributed the quest interests to earth911 so that earth911 now owns 100 % of quest . we consolidated quest in our financial statements from july 16 , 2013. on october 28 , 2013 , we changed our name to quest resource holding corporation , increased our shares of common stock authorized for issuance , and changed our trading symbol to qrhc. this management 's discussion and analysis of financial condition and results of operations is based on and relates primarily to the operations of quest resource holding corporation , quest , and earth911 occurring after the earth911 merger . for accounting purposes , the earth911 merger has been accounted for as a reverse acquisition , with earth911 as the accounting acquirer . the consolidated financial statements included in this annual report on form 10-k represent a continuation of the financial statements of earth911 , with one adjustment , which is to retroactively adjust the legal capital of earth911 to reflect the legal capital of quest resource holding corporation . see note 2 of the notes to consolidated financial statements contained in this annual report on form 10-k. 23 our business we provide businesses with one-stop management programs to reuse , recycle , and dispose of a wide variety of waste streams and recyclables generated by their businesses and operate environmentally based social media and online database platforms that contain information and instructions necessary to empower consumers and consumer product companies to recycle or properly dispose of household products and materials . our comprehensive reuse , recycling , and proper disposal management programs are designed to enable regional and national customers , and large local businesses to have a single point of contact for managing a variety of waste streams and recyclables . story_separator_special_tag our business , including revenue , operating expenses , and operating margins vary depending on commodity prices , the blend of services , the nature of the contract , and volumes . our operating activities may require additional cash in the future depending on how we expand our operations and until such time as we generate positive cash flow from operations . cash flows from investing activities cash provided by investing activities for the year ended december 31 , 2013 was $ 5,157,656. this was primarily from distributions received from quest of $ 1,114,304 and the acquisition of $ 4,235,671 of cash as part of the acquisition of the quest interests , offset by the purchase of property and equipment of $ 65,107. cash provided by investing activities for the year ended december 31 , 2012 , was $ 685,106 primarily from distributions received from quest . cash flows from financing activities cash provided by financing activities was $ 1,477,035 and $ 2,346,672 for the years ended december 31 , 2013 and 2012 , respectively . cash provided by financing activities for the year ended december 31 , 2013 was due to $ 1,000,000 of proceeds under our stockbridge senior related party secured convertible note , $ 500,000 of proceeds from our regions bank line of credit , and $ 33,067 from conversion of notes payable , offset by lease obligation payments of $ 56,032. critical accounting estimates and policies general our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . these areas include carrying amounts of long-lived assets , inventory , deferred financing costs , warrant liability , stock-based compensation expense , and deferred taxes . we base our estimates on historical experience , our observance of trends in particular areas , and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . we believe that of our significant accounting policies , the following may involve a higher degree of judgment and complexity : long-lived assets we periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment , or other long-lived assets should be evaluated for possible impairment . instances that may lead to an impairment include the following : ( i ) a significant decrease in the market price of a long-lived asset group ; ( ii ) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition ; ( iii ) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group , including an adverse action or assessment by a regulator ; ( iv ) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group ; ( v ) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group ; or ( vi ) a current expectation that , more likely than not , a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . upon recognition of an event , as previously described , we use an estimate of the related undiscounted cash flows , excluding interest , over the remaining life of the property and equipment and long-lived assets in assessing their recoverability . we measure impairment loss as the amount by which the carrying amount of the asset ( s ) exceeds the fair value of the asset ( s ) . we primarily employ the two following methodologies for determining the fair value of a long-lived asset : ( i ) the amount at which the asset could be bought or sold in a current transaction between willing parties ; or ( ii ) the present value of expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows . beneficial conversion features the intrinsic value of a beneficial conversion feature inherent to a convertible note payable , which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion , is treated as a discount to the convertible note payable . this discount is amortized over the period from the date of issuance to the date the note is due using the 28 effective interest method . if the note payable is retired prior to the end of its contractual term , the unamortized discount is expensed in the period of retirement to interest expense .
| revenue revenue for the year ended december 31 , 2013 was $ 67,504,540 , an increase of $ 66,358,903 , or 5,792 % , over revenue of $ 1,145,637 for the year ended december 31 , 2012. the increase was primarily due to the consolidated recycling and waste service fees and commodity sales revenue of quest subsequent to our acquisition of the quest interests on july 16 , 2013 , which contributed approximately $ 66,355,172 in revenue , offset by a decline in earth911 advertising revenue and lower sales of recycled electronics from youchange operations . 25 cost of revenue/gross profit our cost of revenue of $ 62,430,670 and $ 36,021 for the years ended december 31 , 2013 and 2012 , respectively , was primarily related to the consolidated cost of recycling and waste disposal services and commodities from quest 's operations subsequent to july 16 , 2013 and the sales of recycled electronics from the operations of youchange subsequent to the october 2012 earth911 merger . gross profit margin increased $ 3,964,254 to $ 5,073,870 from $ 1,109,616 in 2012 , representing a 357 % increase from 2012 and 7.5 % of total 2013 net sales , compared to 96.9 % in 2012. the decrease in gross profit margin percentage was primarily due to the majority of the 2013 sales was derived from the lower margin recycling and waste services and commodity sales consolidated subsequent to acquisition of the quest interests on july 16 , 2013 versus only advertising revenue and recycled electronic sales in 2012. we expect 2014 gross profit margins to remain comparable to the year end on average with margins that can range from 5 % -20 % across the various recycling , waste and commodity programs and beyond that range for advertising revenue and consulting .
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f-13 story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , “ business ” and item 8 , “ financial statements and supplementary data. ” for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see “ special note regarding forward-looking statements , ” and part i , item 1a , “ risk factors. ” overview we believe we are a leader in the field of synthetic biology , an emerging and rapidly evolving discipline that applies engineering principles to biological systems . using our suite of proprietary and complementary technologies , we design , build and regulate gene programs , which are dna sequences that consist of key genetic components . a single gene program or a complex , multi-genic program are fabricated and stored within a dna vector . vectors are segments of dna used as a vehicle to transmit genetic information . dna vectors can , in turn , be introduced into cells in order to generate a simple or complex cellular system , which are the basic and complex cellular activities that take place within a cell and the interaction of those systems in the greater cellular environment . it is these genetically modified cell systems that can be used to produce proteins , produce small molecules , or serve as cell-based products , which enable the development of new and improved products and manufacturing processes across a variety of end markets , including health , food , energy , environment , and consumer . our synthetic biology capabilities include the ability to precisely control the amount , location and modification of biological molecules to control the function and output of living cells and optimize for desired results at an industrial scale . we have devised our business model to bring many different commercial products to market through the formation of exclusive channel collaborations , or eccs , with collaborators that have expertise within specific industry sectors . through our eccs , we provide expertise in the engineering , creation and modification of gene programs and cellular systems , and our collaborators are responsible for providing market and product development expertise , as well as regulatory , sales and marketing capabilities . generally , our collaborators compensate us through payment of technology access fees , royalties , milestones and reimbursement of certain costs . this business model allows us to leverage our capabilities and capital across a broader landscape of product opportunities and end markets than we would be capable of addressing on our own . alternatively , where a collaborator wishes to work with us to develop an early-stage program , we may execute a research collaboration pursuant to which we receive reimbursement for our development costs but the exclusive license rights , and related access fee , are deferred until completion of an initial research program . in certain strategic circumstances , we may enter into a joint venture with an ecc collaborator . in that event , we will enter into an ecc with a joint venture entity and may contribute access to our technology , cash or both into the joint venture which we will jointly control with our ecc collaborator . pursuant to a joint venture agreement , we may be required to contribute additional capital to the joint venture , and we may be able to receive a higher financial return than we would normally receive from an ecc to the extent that we and our ecc collaborator are successful in developing one or more products . we currently are party to three such joint venture agreements : s & i ophthalmic , llc , or s & i ophthalmic , which is a joint venture with caraco pharmaceutical laboratories , ltd. , or sun pharmaceutical subsidiary , an indirect subsidiary of sun pharmaceutical industries ltd. , or sun pharmaceutical , an international specialty pharmaceutical company focused on chronic diseases , ovaxon , llc , or ovaxon , which is a joint venture with ovascience , inc. , or ovascience , a life sciences company focused on the discovery , development and commercialization of new treatments for infertility and intrexon energy partners , llc , or intrexon energy partners , a joint venture with a select group of external investors , to optimize and scale-up our gas-to-liquid bioconversion platform for the production of certain fuels and lubricants . on august 13 , 2013 , we completed our initial public offering , or ipo , whereby we sold 11,499,998 shares of common stock ( inclusive of 1,499,999 shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering ) at a price of $ 16.00 per share . the shares began trading on the nyse on august 8 , 2013. the aggregate net proceeds received by us from the ipo were $ 168.3 million , net of underwriting discounts and commissions and estimated offering expenses payable by us . upon the closing of the ipo , all outstanding shares of convertible preferred stock , including accrued but unpaid dividends thereon , converted into 79,705,130 shares of common stock . additionally , in connection with the closing of the ipo , we amended and restated our articles of incorporation pursuant to which we are authorized to issue 200,000,000 shares of common stock and 25,000,000 shares of undesignated preferred stock . 47 mergers and acquisitions we may augment our suite of proprietary technologies through mergers or acquisitions of technologies which then become available to new or existing collaborators . among other things , we seek to ensure that these acquired technologies are complementary to our existing technologies and that these mergers and acquisitions meet our desired return on investment and other economic criteria . story_separator_special_tag our revenues will also depend upon our ability to maintain or improve the volume and pricing of our current product and service offerings and to develop new offerings , including those which may incorporate our technologies . our revenues will also depend upon the ability of aquabounty to receive regulatory approval and establish successful commercialization of its aquadvantage® salmon products . our future revenues may also include additional revenue streams we may acquire through mergers and acquisitions . in light of our limited operating history and experience in consummating new eccs and also the limited experience with our consolidated subsidiaries , there can be no assurance as to the timing , magnitude and predictability of revenues to which we might be entitled . cost of products and services revenues cost of products and services revenues includes primarily labor and related costs , drugs and supplies used primarily in the embryo transfer and in vitro fertilization processes , livestock and feed used in production , and facility charges , including rent and depreciation . fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk . research and development expenses we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and benefits , including stock-based compensation expense , for personnel in research and development functions ; fees paid to consultants and contract research organizations who perform research on our behalf and under our direction ; costs related to laboratory supplies used in our research and development efforts ; depreciation of leasehold improvements and laboratory equipment ; amortization of patents and related technologies acquired in mergers and acquisitions ; and rent and utility costs for our research and development facilities . we have no individually significant research and development projects and our research and development expenses primarily relate to either the costs incurred to expand or otherwise improve our multiple platform technologies or the costs incurred to develop a specific application of our technologies in support of current or prospective collaborators . research and development expenses typically do not include significant development , including pre-clinical or clinical development , activities since they are the responsibility of our collaborators . research and development expenses incurred for programs we support pursuant to an ecc agreement are typically reimbursed by the collaborator at cost and all other research and development programs may be terminated or otherwise deferred at our discretion . the amount of our research and development expenses may be impacted by , among other things , the number of eccs and the number and size of programs we may support on behalf of an ecc . the table below summarizes our research and development expenses incurred to expand or otherwise improve our multiple platform technologies or the costs incurred to develop a specific application of our technologies in support of current or prospective collaborators for the years ended december 31 , 2014 , 2013 , and 2012 . other research and development expenses 49 for these periods include indirect salaries and overhead expenses that are not allocated to either expanding or improving our multiple platform technologies or specific applications of our technologies in support of current or prospective collaborators . replace_table_token_5_th we expect that our research and development expenses will increase as we continue to enter into eccs and as we expand our offerings across additional market sectors . we believe these increases will likely include increased costs related to the hiring of additional personnel in research and development functions , increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies . research and development expenses may also increase as a result of ongoing research and development operations which we might assume through mergers and acquisitions . selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation expense , for employees in executive , operational , finance , sales and marketing , information technology and legal functions . other significant selling , general and administrative expenses include rent and utilities , advertising , insurance , legal services and expenses associated with obtaining and maintaining our intellectual property . we expect that our selling , general and administrative expenses will increase as we continue to operate as a public company . we believe that these increases will likely include costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants , including costs to comply with corporate governance , internal controls and similar requirements applicable to public companies . selling , general and administrative expenses may also increase as a result of ongoing operations which we might assume through mergers and acquisitions . other income ( expense ) , net we hold equity securities received and or purchased from certain collaborators . other than investments accounted for using the equity method discussed below , we elected the fair value option to account for our equity securities held in these collaborators . these equity securities are recorded at fair value at each reporting date . unrealized appreciation ( depreciation ) resulting from fair value adjustments are reported as other income ( expense ) in the consolidated statements of operations . as such , we bear the risk that fluctuations in the securities ' share prices may significantly impact our results of operations . interest income consists of interest earned on our cash and cash equivalents and short-term and long-term investments . interest expense pertains to deferred consideration payable to the former members of trans ova and long term debt . on march 15 , 2013 , we recorded a gain on our previously held equity investment in aquabounty which represented the adjustment to fair value of the pro rata share of our original investment .
| results of operations comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 , together with the changes in those items in dollars and as a percentage : replace_table_token_6_th 51 collaboration revenues the following table shows the collaboration revenue recognized for upfront and milestone payments received from our collaborators and reimbursements for research and development services provided to our collaborators for the years ended december 31 , 2014 and 2013 , together with the changes in those items : replace_table_token_7_th collaboration revenues increased $ 21.7 million due to ( i ) the recognition of deferred revenue for upfront payments received from collaborations or expansions thereof signed by us in 2014 , including intrexon energy partners , a joint venture in which we own 50 percent , ( ii ) the recognition of research and development services performed by us pursuant to these new collaborations , and ( iii ) increased research and development services performed by us for collaborations in effect prior to 2014 as a result of the progression of current programs and initiation of new programs with the collaborations , including ziopharm oncology , inc. , or ziopharm , and our joint ventures with s & i ophthalmic and ovaxon . product and service revenues and cost of products and services product revenue includes $ 10.3 million from the sale of pregnant cows , live calves and livestock used in production . service revenue totaling $ 11.7 million relates to the provision of in vitro fertilization and embryo transfer services performed . cost of products and services were $ 18.9 million which primarily consist of employee compensation costs , livestock , feed , drug supplies and facility charges related to the production of such products and services .
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through our locally operated health plans in 14 states and the commonwealth of puerto rico , we served approximately 3.3 million members as of december 31 , 2019. these health plans are generally operated by our respective wholly owned subsidiaries in those states , each of which is licensed as a health maintenance organization ( “ hmo ” ) . 2019 highlights for 2019 , we met or exceeded our expectations : premium revenue was $ 16.2 billion in 2019 , down from $ 17.6 billion in 2018 , and was in line with our expectations given the previously announced losses of medicaid membership in new mexico and florida . the medical care ratio ( “ mcr ” ) was 85.8 % in 2019 , compared to 85.9 % in 2018 , as our cost containment efforts continued to control medical care costs while ensuring the highest quality of care for our members . we improved our medicaid and medicare margins , and earned exceptionally high marketplace margins . the g & a expense ratio was 7.7 % in 2019 compared to 7.1 % in 2018 , as we leveraged our fixed cost base while beginning to invest in growth . all in , this performance resulted in net income of $ 737 million and earnings per diluted share of $ 11.47 in 2019 , compared to net income of $ 707 million and earnings per diluted share of $ 10.61 in 2018 . in a year when premium revenue decreased by 8 % due to legacy contract losses , we were able to deliver a 4.4 % after-tax margin and earnings per diluted share growth of 8 % in 2019 , a testament to our early-stage focus on margins . during the year , we improved an already strong balance sheet and capital structure , while the business continued to generate significant excess cash flow . in the fourth quarter of 2019 , we harvested an additional $ 305 million of dividends from our operating subsidiaries , bringing the total for 2019 to $ 1,373 million . as of december 31 , 2019 , unrestricted cash and investments at the parent company was $ 997 million . in early december 2019 , our board of directors authorized a share repurchase program of up to $ 500 million . through february 7 , 2019 , under a rule 10b5-1 trading plan , we have purchased approximately 1.9 million shares for $ 257 million , in the aggregate , under this program . we made progress in the second half of 2019 on our pivot to growth strategy . in the past few months , we announced two acquisitions , yourcare in new york , and nextlevel health in illinois . these acquisitions of financially under-performing health plans have stable membership and revenue , but provide opportunity for margin improvement , operating leverage , and membership growth . in the yourcare acquisition , we will serve approximately 46,000 medicaid members in seven counties in the western new york , with premium revenue for the full year 2019 of approximately $ 285 million . the purchase price is approximately $ 40 million . in the nextlevel health acquisition , we will serve approximately 50,000 medicaid and managed long-term services and supports members in cook county , illinois , with premium revenue for the full year 2019 of approximately $ 270 million . the purchase price is approximately $ 50 million . we expect to fund these acquisitions with available cash , and both are expected to close in the first half of 2020 , enhancing our premium revenue growth rate for 2020. molina healthcare , inc. 2019 form 10-k | 33 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; padding-top:8px ; text-align : left ; font-size:10pt ; '' > margin for our health plans segment is referred to as “ medical margin. ” medical margin amounted to $ 2.3 billion and $ 2.5 billion in 2019 and 2018 , respectively . management 's discussion and analysis of the changes in the individual components of medical margin is presented below under “ financial performance. ” see notes to consolidated financial statements , note 18 , “ segments , ” for more information . health plans the health plans segment consists of health plans operating in 14 states and the commonwealth of puerto rico . molina healthcare , inc. 2019 form 10-k | 36 as of december 31 , 2019 , these health plans served approximately 3.3 million members eligible for medicaid , medicare , and other government-sponsored health care programs for low-income families and individuals , including marketplace members , most of whom receive government premium subsidies . trends and uncertainties for a discussion of health plans segment 's trends , uncertainties and other developments , refer to “ item 1. business—our business , ” and “ —legislative and political environment. ” financial performance the tables below summarize premium revenue , medical margin , and mcr by state health plan and by government program for the periods indicated ( in millions , except percentages ) : replace_table_token_9_th ( 1 ) in 2019 , “ other ” includes the new mexico health plan . the new mexico health plan 's medicaid contract terminated on december 31 , 2018 , and therefore its 2019 results are not individually significant to our consolidated operating results . ( 2 ) “ other ” includes the idaho , mississippi , new york , utah and wisconsin health plans , whose results are not individually significant to our consolidated operating results . health plan performance in summary , we believe our health plan portfolio continued to perform well in 2019 , despite headwinds from lower membership from contract losses in florida and new mexico , and cost pressures in certain medicaid markets . story_separator_special_tag liquidity and financial condition liquidity we manage our cash , investments , and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility . we forecast , analyze , and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy . we maintain liquidity at two levels : 1 ) the regulated health plan subsidiaries ; and 2 ) the parent company . our regulated health plan subsidiaries generate significant cash flows from premium revenue . such cash flows are our primary source of liquidity . thus , any future decline in our profitability may have a negative impact on our liquidity . we generally receive premium revenue a short time before we pay for the related health care services . the majority of the assets held by our regulated health plan subsidiaries is in the form of cash , cash equivalents , and investments . when available and as permitted by applicable regulations , cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes . the regulated health plan subsidiaries paid dividends to the parent company amounting to $ 1,373 million in 2019 , and $ 288 million in 2018 . the parent company contributed capital of $ 43 million and $ 145 million in 2019 and 2018 , respectively , to our regulated health plan subsidiaries to satisfy statutory net worth requirements . cash , cash equivalents and investments at the parent company amounted to $ 997 million and $ 170 million as of december 31 , 2019 , and 2018 , respectively . the increase in 2019 was mainly due to the dividends received from regulated health plan subsidiaries , as described above , and proceeds from borrowings under the term loan facility . these cash inflows were partially offset by principal repayments of our outstanding 1.125 % convertible notes and common stock purchases , as described further below in “ cash flow activities. ” investments we generally invest cash of our regulated subsidiaries that exceeds our expected short-term obligations in longer term , investment-grade , marketable debt securities to improve our overall investment return . these investments are purchased pursuant to board approved investment policies which conform to applicable state laws and regulations . our investment policies are designed to provide liquidity , preserve capital , and maximize total return on invested assets , all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest . these investment policies require that our investments have final maturities of less than 10 years , or less than 10 years average life for structured securities . professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents . our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels . our restricted investments are invested principally in cash , cash equivalents , and u.s. treasury securities ; we have the ability to hold such restricted investments until maturity . all of our unrestricted investments are classified as current assets . molina healthcare , inc. 2019 form 10-k | 39 cash flow activities our cash flows are summarized as follows : replace_table_token_11_th operating activities we typically receive capitation payments monthly , in advance of payments for medical claims ; however , government agencies may adjust their payment schedules , positively or negatively impacting our reported cash flows from operating activities in any given period . for example , government agencies may delay our premium payments , or they may prepay the following month 's premium payment . net cash provided by operations was $ 427 million in 2019 , compared with $ 314 million of net cash used in 2018 . the $ 741 million increase in cash flow was mainly due to the impact of timing of premium receipts and settlements with government agencies , the latter being primarily related to the final 2017 csr settlement paid in 2019. investing activities net cash used in investing activities was $ 293 million in 2019 , compared with $ 1,143 million of net cash provided in 2018 , a decrease in cash flow of $ 1,436 million . the year over year decline was primarily due to increased purchases of investments , net of lower proceeds from sales and maturities of investments , in the year ended december 31 , 2019. financing activities net cash used in financing activities was $ 552 million in 2019 , compared with $ 1,193 million in 2018. in 2019 , net cash paid for the aggregate 1.125 % convertible notes-related transactions amounted to $ 730 million , and we paid $ 47 million for common stock purchases , partially offset by proceeds of $ 220 million borrowed under the term loan facility . in 2018 , net cash used in financing activities included net cash paid for the aggregate 1.125 % convertible notes-related transactions of $ 837 million , a $ 300 million repayment of the credit facility , and $ 64 million repayment of the 1.625 % convertible notes . financial condition we believe that our cash resources , borrowing capacity available under our credit agreement as discussed further below in “ future sources and uses of liquidity—future sources , ” and internally generated funds will be sufficient to support our operations , regulatory requirements , debt repayment obligations and capital expenditures for at least the next 12 months . on a consolidated basis , as of december 31 , 2019 , our working capital was $ 2,698 million compared with $ 2,216 million as of december 31 , 2018 . at december 31 , 2019 , our cash and investments amounted to $ 4,477 million , compared with $ 4,629 million of cash and investments at december 31 , 2018 .
| financial summary replace_table_token_8_th ( 1 ) mcr represents medical care costs as a percentage of premium revenue ; premium tax ratio represents premium tax expenses as a percentage of premium revenue plus premium tax revenue . ( 2 ) g & a ratio represents general and administrative expenses as a percentage of total revenue . after-tax margin represents net income as a percentage of total revenue . molina healthcare , inc. 2019 form 10-k | 34 consolidated results net income and operating income net income amounted to $ 737 million , or $ 11.47 per diluted share in 2019 , compared with net income of $ 707 million , or $ 10.61 per diluted share in 2018 . the year over year comparison for net income is impacted by significantly higher costs in 2018 relating to restructuring activities , interest expense , debt repayment and the loss on sales of subsidiaries , as well as the non-deductible hif incurred in 2018 and the moratorium of the hif in 2019. operating income was lower in 2019 compared with 2018 , mainly due to the impact of a year-over-year decline in premium revenue . premium revenue premium revenue decreased $ 1,404 million , or 8 % , in 2019 , when compared with 2018. member months declined 18 % , partially offset by a per-member per-month ( “ pmpm ” ) revenue increase of 10 % . the premium revenue decline was primarily in the medicaid and marketplace programs .
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the next borrowing base redetermination is scheduled for may 2014. at december 31 , 2013 , we had $ 265.0 million in outstanding borrowings under our credit facility . our available borrowings under our credit facility provide us liquidity along with any proceeds received from asset sales . in light of credit market volatility in recent years , which caused many financial institutions to experience liquidity issues , we periodically review the creditworthiness of the banks that fund our credit facility . 2012 debt issuance . on october 3 , 2012 , we issued an additional $ 150.0 million of 7.875 % senior notes due on march 1 , 2022. the notes were issued at 105 % of par , which equates to a yield to worst of 6.993 % . the proceeds from this debt issuance were used to pay down the balance on our credit facility , which increased our available liquidity . asset dispositions and joint ventures . we plan to utilize amounts received from asset sales and joint ventures entered into during 2014 to strengthen our balance sheet , enhance liquidity , and potentially fund a portion of our 2014 capital expenditures . as previously noted ; we are currently negotiating the sale of our central louisiana assets with prospective buyers as well as joint venture proposals with prospective partners related to our south texas eagle ford acreage . the completion of these transactions will affect the level of our 2014 capital expenditures as we better align our capital expenditures with our expected cash flows . 35 contractual commitments and obligations our contractual commitments for the next five years and thereafter as of december 31 , 2013 were as follows ( in thousands ) : replace_table_token_15_th ( 1 ) as of december 31 , 2013 our most significant office lease was in houston , texas and expired february 2015. in february 2014 we amended and extended the lease through november 30 , 2015 . ( 2 ) amounts shown by year are the net present value at december 31 , 2013 . ( 3 ) amounts shown represent fees for the minimum delivery obligations . any amount of transportation utilized in excess of the minimum will reduce future year obligations . ( 4 ) the credit facility expires in november 2017 and these amounts exclude $ 1.7 million standby letters of credit outstanding under this facility . as of december 31 , 2013 , we had no off-balance sheet arrangements requiring disclosure pursuant to article 303 ( a ) of regulation s-k. proved oil and gas reserves we have added proved reserves over the past three years primarily through our drilling activities , including 76.3 mmboe added in 2013 , 43.8 mmboe added in 2012 , and 58.0 mmboe added in 2011. the 2013 proved reserves additions from drilling activities consisted primarily of additions in the fasken eagle ford area in south texas based on the results of the horizontal drilling program conducted in the area during the year , along with additions in the awp eagle ford area . we obtained reasonable certainty regarding these reserves additions by applying the same methodologies that have been used historically in this area . at year-end 2013 , 29 % of our total proved reserves were proved developed , compared with 34 % at year-end 2012 and 35 % at year-end 2011. at december 31 , 2013 , our proved reserves were 219.2 mmboe with a pv-10 value of $ 2.4 billion ( pv-10 value is a non-gaap measure , see the section titled “ oil and natural gas reserves ” in our property section for a reconciliation of this non-gaap measure to the closest gaap measure ) , an increase in the pv-10 value of approximately $ 141 million , or 6 % , from the prior year-end levels . in 2013 , our proved natural gas reserves increased 217.6 bcf , or 36 % , while our proved oil reserves increased 9.7 mmbbl , or 23 % , and our ngl reserves decreased 18.8 mmbbl , or 38 % , for a total equivalent increase of 27.2 mmboe , or 14 % . we use the preceding 12-months ' average price based on closing prices on the first business day of each month in calculating our average prices used in the pv-10 value calculation . our average natural gas price used in the pv-10 value calculation for 2013 was $ 3.41 per mcf . this average price increased from the average price of $ 2.71 per mcf used in the pv-10 calculation for 2012 . our average oil price used in the pv-10 value calculation for 2013 was $ 104.38 per bbl . this average price increased from the average price of $ 103.64 per bbl used in the pv-10 calculation for 2012 . critical accounting policies and new accounting pronouncements property and equipment . we follow the “ full-cost ” method of accounting for oil and natural gas property and equipment costs . under this method of accounting , all productive and nonproductive costs incurred in the exploration , development , and acquisition of oil and natural gas reserves are capitalized including internal costs incurred that are directly related to these activities and which are not related to production , general corporate overhead , or similar activities . future development costs are estimated property-by-property based on current economic conditions and are amortized to expense as our capitalized oil and natural gas 36 property costs are amortized . we compute the provision for depreciation , depletion , and amortization ( “ dd & a ” ) of oil and natural gas properties using the unit-of-production method . the costs of unproved properties not being amortized are assessed quarterly , on a property-by-property basis , to determine whether such properties have been impaired . in determining whether such costs should be impaired , we evaluate current drilling results , lease expiration dates , current oil and gas story_separator_special_tag the next borrowing base redetermination is scheduled for may 2014. at december 31 , 2013 , we had $ 265.0 million in outstanding borrowings under our credit facility . our available borrowings under our credit facility provide us liquidity along with any proceeds received from asset sales . in light of credit market volatility in recent years , which caused many financial institutions to experience liquidity issues , we periodically review the creditworthiness of the banks that fund our credit facility . 2012 debt issuance . on october 3 , 2012 , we issued an additional $ 150.0 million of 7.875 % senior notes due on march 1 , 2022. the notes were issued at 105 % of par , which equates to a yield to worst of 6.993 % . the proceeds from this debt issuance were used to pay down the balance on our credit facility , which increased our available liquidity . asset dispositions and joint ventures . we plan to utilize amounts received from asset sales and joint ventures entered into during 2014 to strengthen our balance sheet , enhance liquidity , and potentially fund a portion of our 2014 capital expenditures . as previously noted ; we are currently negotiating the sale of our central louisiana assets with prospective buyers as well as joint venture proposals with prospective partners related to our south texas eagle ford acreage . the completion of these transactions will affect the level of our 2014 capital expenditures as we better align our capital expenditures with our expected cash flows . 35 contractual commitments and obligations our contractual commitments for the next five years and thereafter as of december 31 , 2013 were as follows ( in thousands ) : replace_table_token_15_th ( 1 ) as of december 31 , 2013 our most significant office lease was in houston , texas and expired february 2015. in february 2014 we amended and extended the lease through november 30 , 2015 . ( 2 ) amounts shown by year are the net present value at december 31 , 2013 . ( 3 ) amounts shown represent fees for the minimum delivery obligations . any amount of transportation utilized in excess of the minimum will reduce future year obligations . ( 4 ) the credit facility expires in november 2017 and these amounts exclude $ 1.7 million standby letters of credit outstanding under this facility . as of december 31 , 2013 , we had no off-balance sheet arrangements requiring disclosure pursuant to article 303 ( a ) of regulation s-k. proved oil and gas reserves we have added proved reserves over the past three years primarily through our drilling activities , including 76.3 mmboe added in 2013 , 43.8 mmboe added in 2012 , and 58.0 mmboe added in 2011. the 2013 proved reserves additions from drilling activities consisted primarily of additions in the fasken eagle ford area in south texas based on the results of the horizontal drilling program conducted in the area during the year , along with additions in the awp eagle ford area . we obtained reasonable certainty regarding these reserves additions by applying the same methodologies that have been used historically in this area . at year-end 2013 , 29 % of our total proved reserves were proved developed , compared with 34 % at year-end 2012 and 35 % at year-end 2011. at december 31 , 2013 , our proved reserves were 219.2 mmboe with a pv-10 value of $ 2.4 billion ( pv-10 value is a non-gaap measure , see the section titled “ oil and natural gas reserves ” in our property section for a reconciliation of this non-gaap measure to the closest gaap measure ) , an increase in the pv-10 value of approximately $ 141 million , or 6 % , from the prior year-end levels . in 2013 , our proved natural gas reserves increased 217.6 bcf , or 36 % , while our proved oil reserves increased 9.7 mmbbl , or 23 % , and our ngl reserves decreased 18.8 mmbbl , or 38 % , for a total equivalent increase of 27.2 mmboe , or 14 % . we use the preceding 12-months ' average price based on closing prices on the first business day of each month in calculating our average prices used in the pv-10 value calculation . our average natural gas price used in the pv-10 value calculation for 2013 was $ 3.41 per mcf . this average price increased from the average price of $ 2.71 per mcf used in the pv-10 calculation for 2012 . our average oil price used in the pv-10 value calculation for 2013 was $ 104.38 per bbl . this average price increased from the average price of $ 103.64 per bbl used in the pv-10 calculation for 2012 . critical accounting policies and new accounting pronouncements property and equipment . we follow the “ full-cost ” method of accounting for oil and natural gas property and equipment costs . under this method of accounting , all productive and nonproductive costs incurred in the exploration , development , and acquisition of oil and natural gas reserves are capitalized including internal costs incurred that are directly related to these activities and which are not related to production , general corporate overhead , or similar activities . future development costs are estimated property-by-property based on current economic conditions and are amortized to expense as our capitalized oil and natural gas 36 property costs are amortized . we compute the provision for depreciation , depletion , and amortization ( “ dd & a ” ) of oil and natural gas properties using the unit-of-production method . the costs of unproved properties not being amortized are assessed quarterly , on a property-by-property basis , to determine whether such properties have been impaired . in determining whether such costs should be impaired , we evaluate current drilling results , lease expiration dates , current oil and gas
| results of operations revenues — years ended december 31 , 2013 , 2012 and 2011 2013 - our revenues in 2013 increased by 5 % compared to revenues in 2012 , due to higher natural gas pricing and higher oil and ngl production , partially offset by lower oil and ngl pricing and lower natural gas production . average oil prices we received were 3 % lower than those received during 2012 , while natural gas prices were 37 % higher , and ngl prices were 10 % lower . 2012 - our revenues in 2012 decreased by 7 % compared to revenues in 2011 , due to lower ngl and natural gas pricing , partially offset by higher natural gas and ngl production . average oil prices we received were 1 % lower than those received during 2011 , while natural gas prices were 35 % lower , and ngl prices were 33 % lower . crude oil production was 33 % , 32 % and 37 % of our production volumes while crude oil sales were 69 % , 72 % and 69 % of oil and gas sales for the years ended december 31 , 2013 , 2012 and 2011 , respectively . natural gas production was 47 % , 52 % and 50 % of our production volumes while natural gas sales were 19 % , 16 % and 20 % of oil and gas sales for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the remaining production in each year was from ngls .
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the cost of the defined contribution plans of laclede gas amounted to $ 3.8 million , $ 3.6 million , and $ 3.6 million for fiscal years 2012 , 2011 , story_separator_special_tag the laclede group , inc. introduction this management 's discussion analyzes the financial condition and results of operations of the laclede group , inc. ( laclede group or the company ) and its subsidiaries . it includes management 's view of factors that affect its business , explanations of past financial results including changes in earnings and costs from the prior year periods , and their effects on the company 's overall financial condition and liquidity . the management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and the notes thereto . story_separator_special_tag font-family : calibri , sans-serif '' > the utility 's ability to access credit markets and maintain working capital sufficient to meet operating requirements ; and , the effect of natural gas price volatility on the business . 25 non-regulated gas marketing segment : the risks of competition ; fluctuations in natural gas prices ; new national pipeline infrastructure projects ; the ability to procure firm transportation and storage services at reasonable rates ; credit and or capital market access ; counterparty risks ; the effect of natural gas price volatility on the business ; and , pursuing additional growth . further information regarding how management seeks to manage these key variables is discussed below . laclede gas continues to provide reliable natural gas service at a reasonable cost , while maintaining and building a secure and dependable infrastructure . the utility 's strategy focuses on improving performance and mitigating the impact of weather fluctuations on laclede gas ' customers while improving the ability to recover its authorized distribution costs and rate of return . the utility 's distribution costs are the essential , primarily fixed , expenditures it must incur to operate and maintain more than 16,000 miles of mains and services comprising its natural gas distribution system and related storage facilities . the utility 's distribution costs include wages and employee benefit costs , depreciation and maintenance expenses , and other regulated utility operating expenses , excluding natural and propane gas expense . distribution costs are considered in the ratemaking process , and recovery of these types of costs is included in revenues generated through the utility 's tariff rates , as approved by the mopsc . the settlement of the utility 's rate case in 2010 retained the utility 's weather mitigation rate design that better ensures the recovery of its fixed costs and margins despite variations in sales volumes due to the impacts of weather and other factors that affect customer usage . the utility 's income from off-system sales and capacity release remains subject to fluctuations in market conditions . the utility is allowed to retain 15 % to 25 % of the first $ 6 million in annual income earned ( depending on the level of income earned ) and 30 % of income exceeding $ 6 million annually . some of the factors impacting the level of off-system sales include the availability and cost of the utility 's natural gas supply , the weather in its service area , and the weather in other markets . when laclede gas ' service area experiences warmer-than-normal weather while other markets experience colder weather or supply constraints , some of the utility 's natural gas supply is available for off-system sales and there may be a demand for such supply in other markets . see the regulatory and other matters section on page 36 of this report for additional information on regulatory issues relative to the utility . laclede gas works actively to reduce the impact of wholesale natural gas price volatility on its costs by strategically structuring its natural gas supply portfolio to increase its gas supply availability and pricing alternatives and through the use of derivative instruments to protect its customers from significant changes in the commodity price of natural gas . nevertheless , the overall cost of purchased gas remains subject to fluctuations in market conditions . the utility 's purchased gas adjustment ( pga ) clause allows laclede gas to flow through to customers , subject to prudence review by the mopsc , the cost of purchased gas supplies , including costs , cost reductions , and related carrying costs associated with the use of derivative instruments to hedge the purchase price of natural gas , as well as gas inventory carrying costs . the utility believes it will continue to be able to obtain sufficient gas supply . the price of natural gas supplies and other economic conditions may affect sales volumes , due to the conservation efforts of customers , and cash flows associated with the timing of collection of gas costs and related accounts receivable from customers . the utility relies on both short-term credit and long-term capital markets , as well as cash flows from operations , to satisfy its seasonal cash requirements and fund its cost of capital expenditures . laclede gas ' ability to issue commercial paper supported by lines of credit , to issue long-term bonds , or to obtain new lines of credit is dependent on current conditions in the credit and capital markets . management focuses on maintaining a strong balance sheet and believes it currently has adequate access to credit and capital markets and will have sufficient capital resources to meet its foreseeable obligations . see the liquidity and capital resources section on page 38 for additional information . 26 ler provides both on-system utility transportation customers and customers outside of laclede gas ' traditional service area with another choice in non-regulated natural gas suppliers . ler utilizes its natural gas supply agreements , transportation agreements , park and loan agreements , storage agreements , and other executory contracts to support a variety of services to its customers at competitive prices . story_separator_special_tag management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful representation of the economic effects of only the actual settled transactions and their effects on results of operations . in addition , management excludes the effect of costs related to unique acquisition , divestiture , and restructuring activities , if any , when evaluating on-going performance , and therefore excludes these costs from net economic earnings . these internal non-gaap operating metrics should not be considered as an alternative to , or more meaningful than , gaap measures such as net income . reconciliations of net economic earnings and net economic earnings per share to the company 's most directly comparable gaap measures are provided below . 28 overview – net income ( loss ) replace_table_token_7_th laclede group 's net income was $ 62.6 million in fiscal year 2012 , compared with $ 63.8 million in fiscal year 2011 , and $ 54.0 million in fiscal year 2010. net economic earnings were $ 62.6 million in fiscal year 2012 , compared with $ 62.4 million in fiscal year 2011 , and $ 56.1 million in fiscal year 2010. earnings decreased in fiscal year 2012 ( compared with fiscal year 2011 ) primarily due to the $ 6.1 million effect of an april 2011 non-regulated sale of propane inventory recorded in other operating income , partially offset by higher income reported by laclede group 's regulated gas distribution and non-regulated gas marketing segments . earnings increased in fiscal year 2011 ( compared with fiscal year 2010 ) primarily due to improved results reported by laclede group 's regulated gas distribution segment and increased other operating income , partially offset by lower income reported by laclede group 's non-regulated gas marketing segment . basic and diluted earnings per share were $ 2.80 and $ 2.79 , respectively for fiscal year 2012 compared with basic and diluted earnings per share of $ 2.87 and $ 2.86 , respectively , for fiscal year 2011 , and $ 2.43 for fiscal year 2010. net economic earnings per share were $ 2.79 in both fiscal years 2012 and 2011 and $ 2.52 in fiscal year 2010. the year-to-year variations in earnings per share and net economic earnings per share were primarily due to the changes in net income and net economic earnings , respectively , in each period . 29 2012 vs. 2011 regulated gas distribution net income and net economic earnings increased by $ 1.3 million and $ 1.2 million , respectively , in 2012 , compared with 2011. the increase was primarily due to the following factors , quantified on a pre-tax basis : decreases in operation and maintenance expenses , excluding pension and group insurance expenses , totaling $ 11.1 million ; and higher infrastructure system replacement surcharge ( isrs ) revenues , totaling $ 4.6 million . these factors were partially offset by : lower system gas sales margins and other variations , totaling $ 7.8 million , primarily due to the effect of weather in the utility 's service area during the fiscal year ended september 30 , 2012 , which was the warmest based on records dating back more than 100 years ; and increases in pension and group insurance expenses totaling $ 5.5 million . the non-regulated gas marketing segment reported net income totaling $ 12.3 million for fiscal year 2012 , an increase in earnings of $ 1.9 million compared with fiscal year 2011. net economic earnings increased $ 3.3 million compared with fiscal year 2011. these increases are primarily due to ler 's reduced transportation costs resulting from the renegotiation of contracts that were renewed during the latter halves of fiscal years 2011 and 2012. increased transaction volume and ler 's ability to procure gas supply at more favorable terms were largely offset by the effects of narrower regional price differences and reduced price volatility . other net income and other net economic earnings decreased by $ 4.4 million and $ 4.3 million , respectively , compared with 2011. the decrease was primarily due to the effect of laclede gas ' april 2011 sale of 320,000 barrels of propane from inventory that were no longer required to serve utility customers . this transaction resulted in income , net of income taxes , totaling $ 6.1 million . 2011 vs. 2010 regulated gas distribution net income and net economic earnings increased by $ 10.9 million and $ 10.8 million , respectively , in 2011 , compared with 2010. the increase was primarily due to the following factors , quantified on a pre-tax basis : the benefit of the general rate increase , effective september 1 , 2010 , totaling $ 28.0 million ; and , decreases in operation and maintenance expenses , excluding pension and group insurance expenses , totaling $ 3.8 million . these factors were partially offset by : increases in pension and group insurance expenses , totaling $ 7.5 million ; lower isrs revenues , totaling $ 6.2 million ; and , lower system gas sales volumes and other variations , totaling $ 1.4 million . the non-regulated gas marketing segment reported net income totaling $ 10.4 million for fiscal year 2011 , a decrease in earnings of $ 3.3 million compared with fiscal year 2010. net economic earnings decreased $ 6.7 million compared with fiscal year 2010. these decreases were primarily due to ler 's reduced margins on sales of natural gas and the effect of 16 % lower sales volumes . the reduced sales margins and volumes were driven primarily by narrow regional price differentials and limited price volatility that have prevailed in the marketplace throughout the year and become the current norm in the marketplace .
| results of operations overview laclede group 's earnings are primarily derived from its regulated gas distribution segment , which reflects the regulated activities of its largest subsidiary , laclede gas company ( laclede gas or the utility ) , missouri 's largest natural gas distribution company . laclede gas is regulated by the missouri public service commission ( mopsc or commission ) and serves the city of st. louis and parts of ten counties in eastern missouri . laclede gas delivers natural gas to retail customers at rates and in accordance with tariffs authorized by the mopsc . the utility 's earnings are primarily generated by the sale of heating energy . the utility 's weather mitigation rate design lessens the impact of weather volatility on laclede gas ' customers during cold winters and stabilizes the utility 's earnings by recovering fixed costs more evenly during the heating season . due to the seasonal nature of the business of laclede gas , laclede group 's earnings are typically concentrated in the november through april period , which generally corresponds with the heating season . laclede energy resources , inc. ( ler ) , which includes its wholly owned subsidiary ler storage services , inc. ( lss ) , is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the non-regulated gas marketing segment . ler markets natural gas to both on-system utility transportation customers and customers outside of laclede gas ' traditional service territory , including large retail and wholesale customers . ler 's operations and customer base are more subject to fluctuations in market conditions than the utility . effective january 1 , 2012 , lss contracted for 1 bcf of natural gas storage capacity for a thirteen month period through january 2013 , and purchased 1 bcf of natural gas inventory .
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the company performed a quantitative assessment of goodwill 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 and financing , includes forward-looking statements that involve risks and uncertainties . you should review the `` special note regarding forward-looking statements '' and `` risk factors '' sections 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 product portfolio emergent biosolutions inc. is a specialty pharmaceutical company seeking to protect and enhance life by offering specialized products to healthcare providers and governments for use in addressing medical needs and emerging health threats . we have two operating divisions : biodefense and biosciences . for financial reporting purposes , we operate in two business segments that correspond to these two divisions . our biodefense division is a specialty pharmaceutical business focused on countermeasures that address cbrn ( chemical , biological , radiological and nuclear ) threats . the united states government is the primary purchaser of our biodefense products , and often provides us with substantial funding for the development of our biodefense product candidates . our biodefense portfolio consists of five revenue-generating products , including biothrax® ( anthrax vaccine adsorbed ) , the only vaccine approved by the u.s. food and drug administration , or the fda , for the prevention of anthrax disease , as well as rsdl® ( decontamination lotion ) and three products we acquired in our recent acquisition of cangene corporation , and various investigational stage product candidates . operations that support this division include manufacturing , regulatory affairs , quality assurance , quality control , international sales and marketing , and domestic government affairs in support of our marketed products , as well as product development and manufacturing infrastructure in support of our investigational stage product candidates . our biosciences division is a specialty pharmaceutical business focused on therapeutics and vaccines in hematology/oncology , transplantation and infectious disease . our biosciences portfolio consists of four revenue generating products , all four of which we acquired in our recent acquisition of cangene corporation , or cangene , as well as various investigational stage product candidates and a contract manufacturing services business . our biodefense segment has generated net income for each of the last five fiscal years . over this timeframe , our biosciences segment has generated revenue through development contracts and collaborative funding , but none of our biosciences product candidates have received marketing approval and , therefore , our biosciences segment has not generated any product sales revenues . as a result , our biosciences segment has incurred a net loss for each of the last five fiscal years . on february 21 , 2014 , we acquired cangene corporation for $ 222 million . as part of the acquisition , we received the following revenue-generating products : bat tm ( botulism antitoxin heptavalent ( a , b , c , d , e , f , g ) -equine ) , aigiv ( anthrax immune globulin intravenous ( human ) ) and vigiv ( vaccinia immune globulin intravenous ( human ) ) in the biodefense division ; and winrho ® sdf ( rh o ( d ) immune globulin intravenous ( human ) ) , hepagam b ® ( hepatitis b immune globulin intravenous ( human ) ) , varizig ® ( varicella zoster immune globulin ( human ) ) and episil ® in the biosciences division . product sales we have derived substantially all of our historical product sales revenues from biothrax sales to the u.s. government . we are currently a party to a contract with the centers for disease control and prevention , or cdc , an operating division of the u.s. department of health and human services , or hhs , to supply up to 44.75 million doses of biothrax for placement into the strategic national stockpile , or sns , over a five-year period . we expect that we will continue to derive substantial product sales revenues from our sales of biothrax to the u.s. government . our total revenues from biothrax sales were $ 246.7 million , $ 215.9 million and $ 202.4 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . in addition , we had rsdl product sales of $ 11.2 million during the year ended december 31 , 2013. we are focused on increasing sales of biothrax and rsdl to u.s. government customers , expanding the market for biothrax and rsdl to other customers domestically and internationally and pursuing label expansions and improvements . contracts and grants we seek to advance development of our product candidates through external funding arrangements . we may slow down development programs or place them on hold during periods that are not covered by external funding . we have received funding from the u.s. government for the following development programs : biothrax as a post-exposure prophylaxis , or pep ; nuthrax ; large-scale manufacturing for biothrax ; and previthrax . we continue to actively pursue additional government sponsored development contracts and grants and commercial collaborative relationships . we also encourage both governmental and non-governmental agencies and philanthropic organizations to provide development funding or to conduct clinical studies of our product candidates . manufacturing infrastructure we have a manufacturing facility focused on bacterial fermentation located at our 12.5 acre , multi-building campus in lansing , michigan . we currently manufacture biothrax at the 100 liter scale at this facility . story_separator_special_tag we record the reimbursement of our costs and any associated fees as contracts and grants revenue and the associated costs as research and development expense . contracts and grants revenues are subject to the estimation processes to the extent that the reimbursable costs underlying these revenues are incurred but not billed and agreed to on a timely basis , and are subject to change in future periods when actual costs are known . to date we have not made material adjustments to these estimates . we recognize revenues from the achievement of research and development milestones , if deemed substantive , when the milestones are achieved . if not deemed substantive , we recognize revenue on a straight line basis over the remaining expected term of continued involvement in the research and development process . we analyze our multiple element revenue-generating arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting . an item can generally be considered a separate unit of accounting if both of the following criteria are met : the delivered item ( s ) has value to the customer on a stand-alone basis and if the arrangement includes a general right of return and delivery or performance of the undelivered item ( s ) is considered probable and substantially in the control of ours . items that can not be divided into separate units are combined with other units of accounting , as appropriate . consideration received is allocated among the separate units based on the unit 's selling price and is recognized in full when the criteria are met . we deem services to be rendered if no continuing obligation exists on the part of us . our contract with barda to establish a ciadm is a service arrangement that includes multiple elements . the ciadm contract requires us to provide a flexible infrastructure to supply medical countermeasures to the u.s. government over the contract period and includes such items as construction and facility design , workforce development and licensure of a pandemic flu vaccine . since none of the individual elements by themselves satisfy the purpose of the contract , we have concluded that the ciadm contract elements can not be separated as they do not have stand-alone value to the u.s. government . therefore , we have concluded that there is a single unit of accounting associated with the ciadm contract . we recognize revenue under the ciadm contract on a straight-line basis , based upon its estimate of the total payments to be received under the contract . we analyze the estimated payments to be received on a quarterly basis to determine if an adjustment to revenue is required . changes in estimates attributed to modifications in the estimate of total payments to be received are recorded prospectively . contingent purchase consideration obligations in accordance with the terms of the company 's august 2013 acquisition of the health protective products division , or hppd , from bracco daignostics inc. , or bracco , we are committed to make potential payments to bracco based on achievement of certain net sales thresholds of rsdl through 2028. we record this obligation at fair value . contingent purchase consideration is based on a percentage of future net rsdl sales . the fair value model used to calculate this obligation is based on the income approach ( a discounted cash flow model ) that has been risk adjusted based on the probability of achievement of net sales . the inputs we use for determining the fair value of the contingent purchase consideration are level 3 fair value measurements . we re-evaluate the fair value on a quarterly basis . changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of or achievement of net sales . any future increase in the fair value of the contingent purchase consideration obligation is based on an increased likelihood that the underlying net sales will be achieved . the associated payment or payments which will therefore become due and payable , will result in a charge to cost of product sales in the period in which the increase is determined . similarly , any future decrease in the fair value of the contingent purchase consideration obligation will result in a reduction in cost of product sales . inventories inventories are stated at the lower of cost or market , with cost being determined using a standard cost method , which approximates average cost . average cost consists primarily of material , labor and manufacturing overhead expenses and includes the services and products of third party suppliers . we analyze our inventory levels quarterly and write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected customer demand . we also write off costs related to expired inventory . income taxes under the asset and liability method of income tax accounting , deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . a net deferred tax asset or liability is reported on the balance sheet . our deferred tax assets include the unamortized portion of in-process research and development expenses , the anticipated future benefit of the net operating losses and other timing differences between the financial reporting and tax basis of assets and liabilities . we have historically incurred net operating losses for income tax purposes in some states , primarily maryland , and in some foreign jurisdictions , primarily the united kingdom . in connection with our october 2010 acquisition of trubion pharmaceuticals , inc. , or trubion , we acquired significant federal net operating losses and research and development tax credits along with other tax attributes .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues product sales revenues increased by $ 42.0 million , or 19 % , to $ 257.9 million for 2013 from $ 215.9 million for 2012. this increase in product sales revenues was due to a 12 % increase in the number of doses of biothrax delivered , attributable to the timing of deliveries to the sns , along with $ 11.2 million in sales from rsdl , which we acquired in august 2013. product sales revenues in 2013 consisted of biothrax sales to the cdc of $ 244.1 million and aggregate international and other sales of $ 2.5 million . rsdl sales in 2013 consisted of sales to the u.s. government of $ 9.9 million and aggregate international and other sales of $ 1.3 million . product sales revenues in 2012 consisted of biothrax sales to the cdc of $ 215.3 million and aggregate international and other sales of $ 546,000. contracts and grants revenues decreased by $ 11.2 million , or 17 % , to $ 54.8 million in 2013 from $ 66.0 million in 2012. the decrease in contracts and grants revenues was primarily due to decreased revenue associated with : milestone payments received for our pep indication for biothrax related to the 2012 achievement of development milestones ; our previthrax product candidate related to the timing of development activities ; the sale of our spi-vec technology during 2012 ; and our agreements with abbott and pfizer that terminated during 2012. these decreases in revenue from 2012 were partially offset by increased revenues in 2013 from barda related to the establishment of our ciadm . contracts and grants revenues in 2013 primarily consisted of $ 54.6 million in development contract and grant revenue from niaid and barda .
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pursuant to the requirements of the securities exchange story_separator_special_tag the following discussion should be read in conjunction with part i , including matters set forth in the “ risk factors ” section of this annual report on form 10-k , and our financial statements and notes thereto included in part ii , item 8 of this form 10-k. except when stated otherwise , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview lmp automotive holdings , inc. , through our subsidiaries , currently offers our customers the opportunity to buy , sell , rent , and subscribe for , and obtain financing for automobiles both online and in person . we describe our business model as “ buy , rent or subscribe , sell and repeat. ” this means that we “ buy ” pre-owned automobiles primarily through auctions or directly from other automobile dealers , and new automobiles from manufacturers and manufacturer distributors at fleet rates . we “ rent or subscribe ” by either renting automobiles to our customers or allowing them to enter into our subscription plan for automobiles in which customers have use of an automobile for a minimum of thirty ( 30 ) days . we “ sell ” our inventory , including automobiles previously included in our rental and subscription programs , to customers as well , and then we hope to “ repeat ” the whole process . recent developments public offerings on february 13 , 2020 , we completed an underwritten public offering of 1,200,000 shares of our common stock at a public offering price of $ 16.00 per share , raising gross proceeds of approximately $ 19,200,000 and net proceeds received after underwriting fees and offering expenses were approximately $ 17,300,000. we have used the proceeds from the offering for strategic acquisitions , to build our vehicle inventory , for working capital and other general corporate purposes . asset acquisition on february 19 , 2020 , we purchased approximately a $ 2,800,000 luxury vehicle fleet and entered into a non-exclusive perpetual software license for a vehicle subscription service app for upcoming launch in the apple app and google play stores . any enhancements to the software will be our exclusive property . the bancorp and sutton leasing have agreed to finance the vehicles . we paid approximately $ 526,000 in cash and issued 33,183 shares of our common stock at $ 14.69 per share ( the closing price of our common stock on february 19 , 2020 ) for the remainder of the transaction . 29 critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires our management to make assumptions , estimates and judgments that affect the amounts reported in the financial statements , including the notes thereto , and related disclosures of commitments and contingencies , if any . we consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements , including the following : revenue recognition used vehicle sales revenue our business consists of retail and wholesale sales of used vehicles to customers . sales are based on a physical showroom and efficient online showrooms on our websites . we offer a home delivery service so that it delivers the car to the place agreed upon with the client . we also sell used vehicles in auctions . we recognize revenue when we satisfy a performance obligation by transferring control of a vehicle to a customer . the prices of the vehicles are stated in its contracts at stand-alone selling prices , which are agreed upon with our customer prior to delivery . we satisfy our performance obligation for used vehicle sales upon delivery when the transfer of title , risks and rewards of ownership and control pass to the customer . we recognize revenue at the agreed-upon price stated in the contract , including any delivery charges . in addition , any noncash consideration received from a customer ( i.e. , trade-in vehicles ) is recognized at fair value . customer payment is received or third-party financing is confirmed prior to vehicle transfer . we lease vehicles to third parties that are accounted for in accordance with fasb asc 842 , leases . these lease terms are short term in nature and generally less than one year . the accounting for investments in leases and leased vehicles is different depending on the type of lease . each lease is classified as either a direct-financing lease , sales-type lease , or operating lease , as appropriate . if a lease meets one of the following five criteria , the lease is classified as either a sales-type lease or direct financing lease ; otherwise , it is classified as an operating lease . ● the lease transfers ownership of the property to the lessee by the end of the lease term ; ● the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise ; ● the lease term is for the major part of the remaining economic life of the underlying asset ; ● the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset ; ● 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 . revenue on direct financing and sales-type leases is recognized at the inception of the lease and the related interest income is recognized over the term of the lease using the effective interest method . story_separator_special_tag basic eps is computed by dividing net loss available to common shareholders ( numerator ) by the weighted average number of shares outstanding ( denominator ) during the period . diluted eps gives effect to all potentially dilutive common shares outstanding during the period . diluted eps excludes all potentially dilutive shares if their effect is anti-dilutive . fair value of financial instruments our financial instruments consist of cash , prepaid expenses , payables , accrued expenses and notes payable . fair value estimates are made at a specific point in time , based on relevant market information about the financial instrument . these estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore can not be determined with precision . we consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value , due to their short-term nature . inventory our inventory consists of automobiles , which are valued at the lower of cost or market , with cost determined by specific identification and with market defined as net realizable value . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . inventories at december 31 , 2020 and 2019 are recorded based on perpetual inventory records . we depreciate our fleet inventory monthly based on 1 % of initial cost starting in 2018 when the subscriptions and rentals were launched . for the year ended december 31 , 2020 and 2019 , fleet vehicle depreciation approximated $ 670,000 and $ 991,000 , respectively , which includes non-standard impairment charges for estimated inventory obsolescence . this depreciation was recorded to cost of revenues – subscription and rental . we periodically review our automobile inventory to determine whether any inventories have become obsolete or have declined in value and record a charge to operations for known and estimated inventory obsolescence . buildings , property and equipment buildings , property and equipment are recorded at cost , less accumulated depreciation . depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets , ranging from 5 to 39 years . valuation of long-lived assets we periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . if the estimated future cash flows ( undiscounted and without interest charges ) from the use of an asset were less than the carrying value , a write-down would be recorded to reduce the related asset to its estimated fair value . leases we adopted asu no . 2016-02 , leases ( “ topic 842 ” ) using the modified retrospective adoption method with an effective date of january 1 , 2019. this standard requires all lessees to recognize a right-of-use asset and a lease liability , initially measured at the present value of the lease payments . to calculate our lease liability , we make certain assumptions related to lease term and discount rate . for lease terms , we evaluate renewal options . when available , we use the rate implicit in the lease to discount lease payments to present value . however , our lease does not provide a readily determinable implicit rate . therefore , we estimate the rate to discount lease payments based on the 5-year treasury constant maturity rate on the date of the commencement of the lease . 32 story_separator_special_tag margins we calculate vehicle sales margins by deducting vehicle sales cost of revenues and inventory impairment from vehicle sales revenue . the following table provides a reconciliation of vehicle sales margins to vehicle sales revenue , the most directly comparable gaap financial measure , on a historical basis and for each of the periods indicated . replace_table_token_5_th plan of operations we completed our ipo in december 2019 where we received proceeds of approximately $ 12.0 million ( net equity of $ 10.5 million after deducting deferred offering expenses and a secondary offering in february 2020 where we raised an additional $ 17.3 million . we have used the net proceeds from these offering for our strategic acquisitions , to build our vehicle inventory , and for working capital and other general corporate purposes liquidity and capital resources cash flow activities as of december 31 , 2020 , we had an accumulated deficit of $ 15,416,151. we have incurred net losses since inception and have funded operations primarily through sales of our common stock and floor plan financing . as of december 31 , 2020 , we had $ 3,935,726 in cash . the following table sets forth the primary sources and uses of cash for the years ended december 31 , 2020 and 2019 : replace_table_token_6_th operating activities we used $ 6,305,033 in cash flows from operating activities during the year ended december 31 , 2020 , as compared to $ 3,981,754 during the year ended december 31 , 2019. in 2020 , the use of cash in operating activities was primarily due to the net loss of $ 4,815,793 and due to $ 13,604,418 of vehicles purchased for use in our sales-type lease contracts during the year ended december 31 , 2020 , offset by $ 6,311,251 of vehicles sold from inventory during the period and principal collections on sales type leases of $ 2,036,581. in 2019 , the use of cash in operating activities was primarily due to the net loss of $ 4,029,851 . 35 investing activities we used $ 7,755,431 and $ 155,342 of cash flows in investing activities during the years ended december 31 , 2020 and 2019 , respectively . the $ 7,600,089 increase in net cash used in investing activities was primarily due to the cash paid for the purchase of real estate and cash paid for escrow deposits for contracted dealership and related real estate acquisitions . we continue to purchase new property and equipment and capitalize software development costs as part of our business plan to grow the company .
| results of operations comparison of the years ended december 31 , 2020 and 2019 revenues and costs of revenues we generated total revenues of $ 30,442,617 for the year ended december 31 , 2020 , including rental and subscription revenue of $ 14,589 and $ 1,857,981 , respectively , as compared with total revenues of $ 10,858,594 , including rental and subscription revenue of $ 351,885 and $ 1,389,679 , respectively , during the comparative year ended december 31 , 2019 , an increase of $ 19,584,023. the increase mainly was due to an increase in revenue from sales type leases of $ 12,669,103 and an increase in vehicle sales of $ 6,229,220. costs of revenues were $ 27,388,025 for the year ended december 31 , 2020 , including subscription and rental costs of $ 824,073 , resulting in a gross profit of $ 3,054,592. costs of revenues were $ 11,005,620 for the year ended december 31 , 2019 , including subscription and rental costs of $ 1,285,907 , resulting in a negative gross margin of $ 147,026. gross profit in 2020 increased $ 3.2 million the increase in the cost of revenues is mainly due to the increase in our vehicle sales . we generated positive gross profit for the first time in 2020 due the increase in sales type leases and the related interest income , an increase in vehicle sales and an increase in subscription revenue .
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in addition , the company operates of a kind , an e-commerce website that features specially commissioned , limited edition items from emerging fashion and home designers ; one kings lane , an authority in home décor and design , offering a unique collection of select home goods , designer and vintage items ; personalizationmall.com ( “ pmall ” ) , an industry-leading online retailer of personalized products ; chef central , a retailer of kitchenware , cookware and homeware items catering to cooking and baking enthusiasts ; and decorist , an online interior design platform that provides personalized home design services . the company also operates linen holdings , a provider of a variety of textile products , amenities and other goods to institutional customers in the hospitality , cruise line , healthcare and other industries . additionally , the company is a partner in a joint venture which operates retail stores in mexico under the name bed bath & beyond . the company accounts for its operations as two operating segments : north american retail and institutional sales . the institutional sales operating segment , which is comprised of linen holdings , does not meet the quantitative thresholds under u.s. generally accepted accounting principles and therefore is not a reportable segment . the company 's mission is to be trusted by its customers as the expert for the home and heart-felt life events . these include certain life events that evoke strong emotional connections such as getting married , moving to a new home , having a baby , going to college and decorating a room , which the company supports through its wedding and baby registries , mover and student life programs , and its design consultation services . the company 's ability to achieve its mission is driven by three broad objectives : first , to present a meaningfully differentiated and complete product assortment for the home , of the right quality , at the right value ; second , to provide services and solutions that enhance the usage and enjoyment of its offerings ; and third , to deliver a convenient , engaging , and inspiring shopping experience that is intelligently personalized over time . the company is undertaking a number of strategic initiatives to support each of these objectives , as well as to drive change across the organization in order to improve operational efficiencies and to create future growth . through this focused approach , the company believes it will further its efforts to be trusted as the expert for the home and heart-felt life events . the integration of retail store and customer facing digital channels allows the company to provide its customers with a seamless shopping experience . in-store purchases are primarily fulfilled from that store 's inventory , or may also be shipped to a customer from one of the company 's distribution facilities , from a vendor , or from another store . purchases , including web and mobile , can be shipped to a customer from the company 's distribution facilities , directly from vendors , or from a store . the company 's customers can also choose to pick up online orders in a store , as well as return online purchases to a store . customers can also make purchases through one of the company 's customer contact centers and in-store through the beyond store , the company 's proprietary , web-based platform . these capabilities allow the company to better serve customers across various channels . 19 operating in the highly competitive retail industry , the company , along with other retail companies , is influenced by a number of factors including , but not limited to , general economic conditions including the housing market , unemployment levels and commodity prices ; the overall macroeconomic environment and related changes in the retailing environment ; consumer preferences , spending habits and adoption of new technologies ; unusual weather patterns and natural disasters ; competition from existing and potential competitors across all channels ; potential supply chain disruption ; the ability to find suitable locations at acceptable occupancy costs and other terms to support the company 's plans for new stores ; and the ability to assess and implement technologies in support of the company 's development of its omnichannel capabilities . the company can not predict whether , when or the manner in which these factors could affect the company 's operating results . the results of operations for the fiscal year ended march 3 , 2018 included decorist since the date of acquisition , march 6 , 2017. the results of operations for the fiscal year ended february 25 , 2017 include one kings lane since the date of acquisition , june 13 , 2016 , and pmall since the date of acquisition , november 23 , 2016. the results of operations for the fiscal year ended february 27 , 2016 include of a kind since the date of acquisition in the second quarter of fiscal 2015. the following represents an overview of the company 's financial performance for the periods indicated : · net sales in fiscal 2017 ( fifty-three weeks ) increased approximately 1.1 % to $ 12.349 billion ; net sales in fiscal 2016 ( fifty-two weeks ) increased approximately 0.9 % to $ 12.216 billion over net sales of $ 12.104 billion in fiscal 2015 ( fifty-two weeks ) . · comparable sales in fiscal 2017 ( fifty-three weeks ) decreased by approximately 1.3 % , as compared to a decrease of approximately 0.6 % for fiscal 2016 ( fifty-two weeks ) and an increase of approximately 1.0 % for fiscal 2015 ( fifty-two weeks ) . comparable sales percentages are calculated based on an equivalent number of weeks in each annual period . for fiscal 2017 , comparable sales consummated through customer facing digital channels continued the trend of year over year strong growth consistent with fiscal 2016 , while comparable sales consummated in-store declined in the mid-single-digit percentage range from the corresponding period in the prior year . story_separator_special_tag · for the fiscal year ended march 3 , 2018 ( fifty-three weeks ) , net earnings per diluted share were $ 3.04 ( $ 424.9 million ) , a decrease of approximately 33.6 % , as compared with net earnings per diluted share of $ 4.58 ( $ 685.1 million ) for fiscal 2016 ( fifty-two weeks ) , which was a decrease of approximately 10.2 % from net earnings per diluted share of $ 5.10 ( $ 841.5 million ) for fiscal 2015 ( fifty-two weeks ) . for the fiscal year ended march 3 , 2018 , the decrease in net earnings per diluted share is the result of the decrease in net earnings due to the items described above , partially offset by an estimated $ 0.05 benefit related to the fifty-third week in fiscal 2017 and the benefit of the company 's repurchases of its common stock . in addition , fiscal 2017 net earnings per diluted share included the net unfavorable impact of the tax act of approximately $ 0.08 , the unfavorable impact of the adoption of asu 2016-09 , stock compensation of approximately $ 0.07 and the cash restructuring charges associated with the acceleration of the realignment of its store management structure of approximately $ 0.04 . 21 for the fiscal year ended february 25 , 2017 , the decrease in net earnings per diluted share is the result of the decrease in net earnings due to the items described above , partially offset by the company 's repurchases of its common stock . capital expenditures for fiscal 2017 , 2016 , and 2015 were $ 375.8 million , $ 373.6 million and $ 328.4 million , respectively . approximately 50 % of the current year capital expenditures were for technology projects , including investments in the company 's digital capabilities , and the development and deployment of new systems and equipment in its stores . the remaining capital expenditures were primarily related to investments in stores , the company 's new las vegas distribution facility , which began shipping to customers during the third quarter of fiscal 2017 , and its new customer contact center in florida . the company continues to review and prioritize its capital needs and remains committed to making the required investments in its infrastructure to help position the company for continued growth and success . the company continues to make the investments and add the resources necessary to position itself for long-term success . key areas of investment include : continuing to improve the presentation and content as well as the functionality , general search and navigation across its customer facing digital channels ; improving customer data integration and customer relations management capabilities ; continuing to enhance service offerings to its customers ; continuing to strengthen and deepen its information technology , analytics , marketing and e-commerce groups ; and creating more flexible fulfillment options that will improve the company 's delivery capabilities and lower the company 's shipping costs . these and other investments are expected to , among other things , provide a seamless and compelling customer experience across the company 's omnichannel retail platform . during fiscal 2017 , the company opened a total of 22 new stores and closed 16 stores . the company plans to continue to actively manage its real estate portfolio in order to permit store sizes , layouts , locations and offerings to evolve over time to optimize market profitability and will renovate or reposition stores within markets when appropriate . over the past several years , the company 's pace of its store openings has slowed , and the company has increased the number of store closings . the company has approximately 400 stores across its retail fleet that will come up for renewal at the natural lease expiration over the next two years , of which the company expects to permanently close approximately 40 stores in fiscal 2018 , unless it is able to negotiate more favorable lease terms with its landlords . these expected closures are primarily bed bath & beyond stores . in fiscal 2018 , the company expects to open approximately 20 new stores , primarily baby and cost plus world market stores . additionally , the company expects to continue to invest in technology related projects , including the deployment of new systems and equipment in its stores , enhancements to the company 's customer facing digital channels , ongoing investment in its data warehouse and data analytics and the continued deployment of a new point of sale system . during fiscal 2017 , 2016 and 2015 , the company repurchased 8.0 million , 12.3 million , and 18.4 million shares , respectively , of its common stock at a total cost of approximately $ 252.4 million , $ 547.0 million and $ 1.101 billion , respectively . the company 's share repurchase program may be influenced by several factors , including business and market conditions . the company reviews its alternatives with respect to its capital structure on an ongoing basis . during fiscal 2016 , the company 's board of directors authorized a quarterly dividend program . during fiscal 2017 and 2016 , total cash dividends of $ 80.9 million and $ 55.6 million were paid , respectively . subsequent to the end of the fourth quarter of fiscal 2017 , on april 11 , 2018 , the company 's board of directors declared a quarterly dividend increase to $ 0.16 per share to be paid on july 17 , 2018 to shareholders of record at the close of business on june 15 , 2018. the company expects to pay quarterly cash dividends on its common stock in the future , subject to the determination by the board of directors , based on an evaluation of the company 's earnings , financial condition and requirements , business conditions and other factors . 22 story_separator_special_tag expenses and related depreciation .
| results of operations the following table sets forth for the periods indicated ( i ) selected statement of earnings data of the company expressed as a percentage of net sales and ( ii ) the percentage change in dollar amounts from the prior year in selected statement of earnings data : replace_table_token_6_th net sales net sales in fiscal 2017 ( fifty-three weeks ) increased $ 133.5 million to $ 12.349 billion , representing an increase of 1.1 % over $ 12.216 billion of net sales in fiscal 2016 ( fifty-two weeks ) , which increased $ 111.9 million or 0.9 % over the $ 12.104 billion of net sales in fiscal 2015 ( fifty-two weeks ) . for fiscal 2017 , the increase was attributable to an increase of approximately 1.8 % due to the fifty-third week and approximately 0.8 % in the company 's non-comparable sales , partially offset by a decrease of approximately 1.5 % in comparable sales , adjusted to compare fifty-three weeks to fifty-two weeks . for fiscal 2016 , the increase was attributable to a 1.5 % increase in the company 's non-comparable sales , including one kings lane , pmall and new store sales , partially offset by a 0.6 % decrease in comparable sales . the decrease in comparable sales for fiscal 2017 ( fifty-three weeks ) was approximately 1.3 % as compared with a decrease of approximately 0.6 % for fiscal 2016 ( fifty-two weeks ) . comparable sales percentages are calculated based on an equivalent number of weeks in each annual period . the decrease in comparable sales for fiscal 2017 was due to a decrease in the number of transactions in stores , partially offset by an increase in the average transaction amount . the decrease in comparable sales for fiscal 2016 was due to a decrease in the number of transactions , partially offset by an increase in the average transaction amount .
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. ( d ) logistics first lien term loan 13.50 % cash , 9/16/2016 $ 3,693,369 3,652,443 3,767,236 3.5 % worldwide express story_separator_special_tag the following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this annual report . in addition to historical information , the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under part i , item 1a risk factors and note about forward-looking statements appearing elsewhere herein . overview we are a maryland corporation that has elected to be treated as a business development company ( bdc ) under the investment company act of 1940 ( the 1940 act ) . our investment objective is to generate current income and , to a lesser extent , capital appreciation from our investments . we invest primarily in leveraged loans and mezzanine debt issued by private u.s. middle market companies , which we define as companies having ebitda of between $ 5 million and $ 50 million , both through direct lending and through participation in loan syndicates . we may also invest up to 30.0 % of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders . such investments may include investments in distressed debt , which may include securities of companies in bankruptcy , foreign debt , private equity , securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds . we have elected and qualified to be treated as a regulated investment company ( ric ) under subchapter m of the internal revenue code of 1986 , as amended ( the code ) . 46 corporate history and recent developments we commenced operations , at the time known as gsc investment corp. , on march 23 , 2007 and completed an initial public offering of shares of common stock on march 28 , 2007. prior to july 30 , 2010 , we were externally managed and advised by gscp ( nj ) , l.p. , an entity affiliated with gsc group , inc. in connection with the consummation of a recapitalization transaction on july 30 , 2010 , we engaged saratoga investment advisors ( sia ) to replace gscp ( nj ) , l.p. as our investment adviser and changed our name to saratoga investment corp. as a result of the event of default under a revolving securitized credit facility with deutsche bank we previously had in place , in december 2008 we engaged the investment banking firm of stifel , nicolaus & company to evaluate strategic transaction opportunities and consider alternatives for us . on april 14 , 2010 , we entered into a stock purchase agreement with saratoga investment advisors and certain of its affiliates and an assignment , assumption and novation agreement with saratoga investment advisors , pursuant to which we assumed certain rights and obligations of saratoga investment advisors under a debt commitment letter saratoga investment advisors received from madison capital funding llc , indicating madison capital funding 's willingness to provide us with a $ 40.0 million senior secured revolving credit facility , subject to the satisfaction of certain terms and conditions . in addition , we and gscp ( nj ) , l.p. entered into a termination and release agreement , to be effective as of the closing of the transaction contemplated by the stock purchase agreement , pursuant to which gscp ( nj ) , l.p. , among other things , agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement . on july 30 , 2010 , the transactions contemplated by the stock purchase agreement with saratoga investment advisors and certain of its affiliates were completed , and included the following actions : · the private sale of 986,842 shares of our common stock for $ 15.0 million in aggregate purchase price to saratoga investment advisors and certain of its affiliates ; · the closing of the $ 40.0 million senior secured revolving credit facility with madison capital funding ; · the execution of a registration rights agreement with the investors in the private sale transaction , pursuant to which , among other things , we agreed to file a registration statement with the sec to register for resale the shares of our common stock sold in the private sale transaction , including any shares of common stock issued or issuable upon any stock split , dividend or other distribution , recapitalization or similar event relating thereto , and to use commercially reasonable efforts to cause such registration statement to be declared effective within 90 days after the date on which the registration statement was initially filed with the sec ; · the execution of a trademark license agreement with saratoga investment advisors pursuant to which saratoga investment advisors granted us a non-exclusive , royalty-free license to use the saratoga name , for so long as saratoga investment advisors or one of its affiliates remains our investment adviser ; and · replacing gscp ( nj ) , l.p. as our investment adviser and administrator with saratoga investment advisors by executing an investment advisory and management agreement , which was approved by our stockholders , and an administration agreement with saratoga investment advisors ; · the resignations of robert f. cummings , jr. and richard m. hayden , both of whom are affiliates of gscp ( nj ) l.p. , as members of the board of directors and the election of christian l. oberbeck and richard a. petrocelli , both of whom are affiliates of saratoga investment advisors , as members of the board of directors ; · the resignation of all of story_separator_special_tag specifically , we use intex cash flow models , or an appropriate substitute , to form the basis for the valuation of our investment in saratoga clo . the models use a set of assumptions including projected default rates , recovery rates , reinvestment rate and prepayment rates in order to arrive at estimated valuations . the assumptions are based on available market data and projections provided by third parties as well as management estimates . we use the output from the intex models ( i.e. , the estimated cash flows ) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in saratoga clo . revenue recognition income recognition interest income , adjusted for amortization of premium and accretion of discount , is recorded on an accrual basis to the extent that such amounts are expected to be collected . the company stops accruing interest on its investments when it is determined that interest is no longer collectible . discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method . the amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments . loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected . accrued interest is generally reserved when a loan is placed on non-accrual status . interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management 's judgment regarding collectability . non-accrual loans are restored to accrual status when past due principal and interest is paid and , in management 's judgment , are likely to remain current , although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection . interest income on our investment in saratoga clo is recorded using the effective interest method in accordance with the provisions of asc topic 325-40 , investments-other , beneficial interests in securitized financial assets , based on the anticipated yield and the estimated cash flows over the projected life of the investment . yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and or re-investments , credit losses or asset pricing . changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed . paid-in-kind interest the company holds debt investments in its portfolio that contain a payment-in-kind ( pik ) interest provision . the pik interest , which represents contractually deferred interest added to the investment balance that is generally due at maturity , is generally recorded on the accrual basis to the extent such amounts are expected to be collected . we stop accruing pik interest if we do not expect the issuer to be able to pay all principal and interest when due . capital gains incentive fee the company records an expense accrual relating to the capital gains incentive fee payable by the company to its investment adviser when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the company were to liquidate its investment portfolio at such time . the actual incentive fee payable to the company 's investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period . 49 revenues we generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains , if any , on equity interests that we may acquire . we expect our debt investments , whether in the form of leveraged loans or mezzanine debt , to have terms of up to ten years , and to bear interest at either a fixed or floating rate . interest on debt will be payable generally either quarterly or semi-annually . in some cases , our debt investments may provide for a portion of the interest to be paid-in-kind ( pik ) . to the extent interest is paid-in-kind , it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation . the principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date . in addition , we may generate revenue in the form of commitment , origination , structuring or diligence fees , fees for providing managerial assistance or investment management services and possibly consulting fees . any such fees will be generated in connection with our investments and recognized as earned . we may also invest in preferred equity securities that pay dividends on a current basis . on january 22 , 2008 , we entered into a collateral management agreement with saratoga clo , pursuant to which we act as its collateral manager and receive a senior collateral management fee of 0.10 % and a subordinate collateral management fee of 0.40 % of the outstanding principal amount of saratoga clo 's assets , paid quarterly to the extent of available proceeds . we are also entitled to an incentive management fee equal to 20.0 % of excess cash flow to the extent the saratoga clo subordinated notes receive an internal rate of return equal to or greater than 12.0 % . we recognize interest income on our investment in the subordinated notes of saratoga clo using the effective interest method , based on the anticipated yield and the estimated cash flows over the projected life of the investment .
| results of operations operating results for the years ended february 28 , 2013 , february 29 , 2012 , and february 28 , 2011 are as follows : replace_table_token_13_th investment income the composition of our investment income in each period was as follows : replace_table_token_14_th for the year ended february 28 , 2013 , total investment income increased $ 3.5 million , or 25.9 % compared to the fiscal year ended february 29 , 2012. interest income from investments increased $ 3.2 million , or 28.4 % , to $ 14.4 million for the year ended february 28 , 2013 from $ 11.2 million for the fiscal year ended february 29 , 2012. for the year ended february 29 , 2012 , total investment income decreased $ 0.6 million , or 4.7 % compared to the fiscal year ended february 28 , 2011. interest income from our investment in the subordinated notes of saratoga clo increased $ 0.9 million , or 27.4 % , to $ 4.2 million for the year ended february 29 , 2012 from $ 3.3 million for the fiscal year ended february 28 , 2011. for the fiscal years ended february 28 , 2013 , february 29 , 2012 , and february 28 , 2011 , total pik income was $ 1.1 million , $ 1.4 million , and $ 1.1 million , respectively .
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an analysis of the anticipated lifetime revenues of tysabri and avonex is performed annually during our long range planning cycle , which is generally updated in the third quarter of each year , and whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of tysabri or avonex . this analysis serves as the basis for the calculation of our economic consumption models used story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page f-1 of this report . certain totals may not sum due to rounding . executive summary introduction biogen idec is a global biotechnology company focused on discovering , developing , manufacturing and marketing therapies for the treatment of multiple sclerosis ( ms ) and other autoimmune disorders , neurodegenerative diseases and hemophilia . we also collaborate on the development and commercialization of rituxan for the treatment of non-hodgkin 's lymphoma , chronic lymphocytic leukemia and other conditions and share profits and losses for gazyva for the treatment of chronic lymphocytic leukemia . in the near term , our revenues are dependent upon continued sales of our four principal products , avonex , tysabri , tecfidera and rituxan . in the longer term , our revenue growth will be dependent upon the successful clinical development , regulatory approval and launch of new commercial products , our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts , and successful execution of external business development opportunities . as part of our ongoing research and development efforts , we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels . story_separator_special_tag style= '' line-height:120 % ; padding-top:10px ; text-align : left ; text-indent:29px ; font-size:10pt ; '' > tecfidera was approved in canada in april 2013 and australia in july 2013. we acquired tecfidera as part of our acquisition of fumapharm ag in 2006. for more information about this acquisition and associated milestone obligations , please read the subsection entitled “ contractual obligations and off-balance sheet arrangements – contingent consideration related to business combinations ” of this “ management 's discussion and analysis of financial condition and results of operations. ” eloctate and alprolix in october 2012 , we announced positive top-line results from the phase 3 study , known as a-long , investigating eloctate in hemophilia a , a rare inherited disorder which inhibits blood coagulation . top-line results from the a-long study showed that eloctate was effective in the control and prevention of bleeding episodes , routine prophylaxis and perioperative management . based on the results from the a-long clinical trial , we submitted a biologics license application ( bla ) to the fda for marketing approval of eloctate in the first quarter of 2013. in may 2013 , the fda accepted our application for eloctate and granted us a standard review timeline . in october 2013 , we announced that the fda had requested additional information pertaining to the validation of certain steps in the manufacturing process for eloctate . in december 2013 , the fda extended the initial prescription drug user fee act ( pdufa ) date for the fda 's review our application by three months , which is a standard extension period . in september 2012 , we announced positive top-line results from the phase 3 study , known as b-long , investigating alprolix in hemophilia b , a rare inherited disorder which inhibits blood coagulation . top-line results from the b-long study showed that alprolix was effective in the control and prevention of bleeding episodes , routine prophylaxis , and perioperative management . based on this data , we submitted a bla to the fda for marketing approval of alprolix in the fourth quarter of 2012. in march 2013 , the fda accepted our application for alprolix and granted us a standard review timeline . in november 2013 , in response to a request from fda , we submitted additional information to the fda related to the validation of a manufacturing step for alprolix . due to the timing of this submission , the fda extended the initial pdufa date for its review of our application by three months , which is a standard extension period . we have submitted additional regulatory applications for eloctate and alprolix in australia , canada and japan . pediatric data will be required as part of the marketing authorisation applications for eloctate and alprolix that we plan to submit to the ema , and we have initiated global pediatric studies of eloctate and alprolix . we collaborate with swedish orphan biovitrum ab on the development and commercialization of eloctate and alprolix . for information about this collaboration , please read note 20 , collaborative and other relationships to our consolidated financial statements included within this report . plegridy ( peginterferon beta-1a ) during the second quarter of 2013 , we submitted a bla to the fda and a marketing authorisation application to the ema , in each case for marketing approval of plegridy in relapsing forms of ms. the regulatory submission was based on the results from the first year of the two-year global phase 3 advance study . the fda accepted our application in july 2013 , and granted us a standard review timeline . the ema validated our application in june 2013. gazyva gazyva , in combination with chlorambucil , is indicated for the treatment of patients with previously untreated chronic lymphocytic leukemia . the fda granted gazyva breakthrough therapy designation due to the significance of the positive progression-free survival results from the phase 3 cll11 clinical trial and the serious and life threatening nature of cll . gazyva , formerly known as ga101 , was approved by the fda and commenced commercial sales in november 2013 . story_separator_special_tag 43 losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program for tysabri totaled $ 3.8 million in 2013 , compared to gains recognized of $ 9.7 million for 2012 and losses recognized of $ 6.3 million in 2011 . for information relating to our agreement in principle with aifa relating to sales of tysabri in italy , please read note 4 , accounts receivable to our consolidated financial statements included in this report . as described in note 4 , the settlement with aifa is pending approval by italian regulatory authorities . upon approval of the settlement , any deferred revenue related to the periods subsequent to february 2011 that is in excess of the settlement will be recognized as revenue . currently , we expect to record approximately $ 105.0 million of incremental revenue based on amounts deferred through december 31 , 2013 . we expect tysabri to continue facing increased competition in the ms marketplace in both the u.s. and rest of world . we and a number of other companies have commercialized or are working to develop additional treatments for ms , including oral and other alternative formulations that may compete with tysabri . in addition , the launch and growth of tecfidera and the commercialization of certain of our own products may negatively impact future sales of tysabri . increased competition may also lead to reduced unit sales of tysabri , as well as increasing price pressure . in addition , safety warnings included in the tysabri label , such as the risk of progressive multifocal leukoencephalopathy ( pml ) , and any future safety-related label changes , may limit the growth of tysabri unit sales . we continue to research and develop protocols and therapies that may reduce risk and improve outcomes of pml in patients . our efforts to stratify patients into lower or higher risk for developing pml , including through the jcv antibody assay , and other on-going or future clinical trials involving tysabri may have a negative impact on prescribing behavior , which may result in decreased product revenues from sales of tysabri . tecfidera revenues from tecfidera are summarized as follows : replace_table_token_11_th during 2013 , we received marketing approval for tecfidera in the u.s. , canada and australia . u.s. sales began in april 2013. approximately $ 134.0 million of u.s. tecfidera revenues in 2013 represent inventory in the channel at december 31 , 2013 . in the first three quarters subsequent to its commercial launch in the united states , approximately 70 % of new patients taking tecfidera have switched from a different ms therapy , including our products avonex and tysabri . we believe that the previous therapies from which these patients switched to tecfidera is roughly proportionate to the current market share distribution of all products currently approved to treat relapsing remitting ms. as tecfidera has only been approved for nine months , we have limited product history and it is difficult to estimate trends of future product sales of tecfidera and the resulting impact on sales and market share of our other therapies and other competing ms therapies . other product revenues other product revenues are summarized as follows : replace_table_token_12_th we have a license from acorda therapeutics , inc. ( acorda ) to develop and commercialize fampyra in all markets outside the u.s. for information about our relationship with acorda , please read note 20 , collaborative and other relationships to our consolidated financial statements included within this report . 44 for 2013 compared to 2012 , the increase in fampyra revenue was due to the recognition of previously deferred revenue and increased demand in germany and france . fampyra revenue for 2013 includes the recognition of revenues previously deferred in germany as a result of finalizing the contract that included the final negotiated fixed price , which was favorable to the initial range cited by the german pricing authority . unconsolidated joint business revenues we collaborate with genentech , inc. , a wholly-owned member of the roche group , on the development and commercialization of rituxan . in addition , in the u.s. we share operating profits and losses relating to gazyva with genentech . the roche group and its sub-licensees maintain sole responsibility for the development , manufacturing and commercialization of gazyva in the u.s. for additional information related to this collaboration , including information regarding the pre-tax profit sharing formula and its impact on future unconsolidated joint business revenues , please read note 20 , collaborative and other relationships to our consolidated financial statements included within this report . revenues from unconsolidated joint business are summarized as follows : replace_table_token_13_th ( 1 ) gazyva was approved by the fda in november 2013. for 2013 compared to 2012 , our share of revenues from unconsolidated joint business reflects a charge for damages and interest awarded to hoechst in genentech 's arbitration with hoechst . as disclosed in note 21 , litigation to our consolidated financial statements included within this report , genentech and hoechst have completed the arbitration relating to hoechst 's claims under a license agreement between hoechst 's predecessor and genentech that was terminated in october 2008. the license agreement provided for royalty payments of 0.5 % on net sales of certain products defined by the agreement . although we were not a party to the arbitration , we reduced our share of rituxan revenues from unconsolidated joint business by $ 49.7 million during 2013 to reflect our share of the royalties and interest awarded to hoechst , of which revenue on sales in the rest of world for rituxan was reduced by $ 41.2 million and pre-tax profits in the u.s. were reduced by $ 8.5 million . in 2011 , we reduced our share of rituxan revenues from unconsolidated joint business by $ 50.0 million for our share of the estimate of the loss that we expected to be incurred upon completion of the arbitration award unfavorable to genentech .
| financial highlights the following table is a summary of financial results achieved : replace_table_token_6_th ( 1 ) commencing in the second quarter of 2013 , product revenues and total revenues includes 100 % of net revenues related to sales of tysabri as a result of our acquisition of tysabri rights from elan and net revenues related to sales of tecfidera , our new oral first-line treatment for people with relapsing forms of ms , which was approved by the fda and commenced commercial sales . ( 2 ) our share of revenues from unconsolidated joint business reflects a charge of $ 49.7 million for damages and interest awarded to hoechst in genentech 's arbitration with hoechst for rituxan . as described below under “ results of operations , ” our operating results for the year ended december 31 , 2013 , reflect the following : worldwide avonex revenues totaled $ 3,005.5 million for 2013 , representing an increase of 3.2 % over 2012 . worldwide tysabri revenues totaled $ 1,526.5 million for 2013 , representing an increase of 34.4 % over 2012 . the increase in revenue is primarily due to 100 % of net u.s. revenue being recognized starting in april 2013 as a result of our acquisition of tysabri rights . worldwide tecfidera revenues totaled $ 876.1 million for 2013 . approximately $ 134.0 million of u.s. tecfidera revenues in 2013 represent inventory in the channel . our share of revenues from unconsolidated joint business totaled $ 1,126.0 million for 2013 , representing a decrease of 1.0 % from 2012 . total cost and expenses increased 19.8 % for 2013 compared to 2012 .
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in response , equities rallied worldwide , as did the euro , gold and industrial metals . there was a corresponding sell-off in perceived safe haven assets such as u.s. bonds and the u.s. dollar . coming into the month , the agricultural commodities had been in uptrends . however , grain prices corrected after their recent run-up , hurting the fund 's long positions , after reports that the u.s. drought had not damaged crop yields as much as expected . september 's central bank announcements caused a rally in industrial metals , which hurt the fund 's short positions . among financial sector contracts , the “ risk on ” rally caused losses for the fund 's long bond and short euro positions . although the fund 's long equity exposure did generate gains , these were not enough to offset declines elsewhere . overall , the fund finished with a net loss of 5.97 % october october was characterized by trend reversals across a broad range of sectors . weaker than expected corporate earnings prompted a selloff in u.s. equity markets as well as in global risk assets such as oil , industrial metals , and commodity-related currencies . in spite of this , safe haven assets such as bonds and gold did not rally and in fact declined , as investors pared back previous expectations over the scope and duration of quantitative easing by central banks . given the breadth of market reversals , october proved to be a difficult month for trend-following programs across the entire managed futures industry . the fund was no exception and experienced losses that were spread across most sectors in the portfolio . the largest declines came from the fund 's long metals positions in gold , nickel and lead , as wells as long bond positions in the u.s. and europe . on the positive side , the fund successfully navigated the reversal in u.s. stock indices and profited from long positions in non-u.s. equity markets . overall , the fund finished the month with a net loss of 4.20 % . november as the u.s. election maintained the status quo in washington , investor attention turned to the ability of a divided government to deal with the looming “ fiscal cliff ” . the year-end expiration of key tax cuts and automatic reduction in government expenditures , if unaddressed , could potentially cause a recession in 2013 , according to the congressional budget office . global equities sold off over the first half of november as a result . however , sentiment recovered and stocks rebounded in the latter part of the month , as reports indicated some willingness on the part of democrats and republicans to compromise in budget talks . in november , the fund made gains in long positions in the fixed income sector as global bonds rallied on continued easy central bank monetary policy . the currency sector made a small profit from short positions in the japanese yen , which depreciated on speculation of more aggressive money printing with a potential liberal democratic party victory in the country 's upcoming election . however , the fund saw losses due to price reversals in physical commodities . base metals and crude oil prices rebounded from their downward trend on stronger chinese industrial production data , while grain prices declined from their recent highs on higher than expected supply . equity markets also proved difficult to trade during the month , as an early sell-off reversed sharply mid-month with a return of investor risk appetite . overall , the fund finished the month with a net loss of 3.05 % . 13 december in december , u.s. “ fiscal cliff ” negotiations dominated news headlines . investors rotated from bonds into stocks on speculation the two u.s. political parties would ultimately reach a compromise budget deal by the end of the year . meanwhile , in japan , the liberal democratic party ( ldp ) returned to power , pledging to lift the country out of a deflationary spiral with an aggressive fiscal stimulus plan and by pressuring the bank of japan to further weaken the yen . the fund benefited from the outcome of the japanese election as a result of both a short position in the depreciating japanese yen and a long position in the surging nikkei stock index . however , the fund saw losses across a range of physical commodities , particularly in grains , as weakening foreign demand for u.s. crops hurt prices . elsewhere , the fund benefited from its long exposure to global stock indices which rallied on optimism over u.s. budget talks , although these gains were offset by losses from the related decline in bond prices . overall , the fund finished the month with a net loss of .75 % . 2011 january the fund finished 7.04 % lower this month as losses from foreign currencies , equity indices and metals offset profits from agricultural commodities , energy products and interest rate instruments . the most significant losses came from the fund 's positions in international currencies as several foreign exchange prices reversed direction in response to positive economic news in both the u.s. and europe . cross-currency trades in several markets , including the british pound/japanese yen , euro/australian dollar , and british pound/ australian dollar all reversed and moved against the fund 's positions during the month . in agricultural commodities , rising prices in cotton , corn and sugar contributed additional profits . in other sectors , results were mixed leading to flat performance in metals , interest rate instruments , energy products and equity indices . story_separator_special_tag august the fund finished 6.36 % lower this month with losses in currencies , equity indices , energy products , agricultural commodities and metals offsetting profits in interest rate instruments . the fund 's gains for the month came from its positions in interest rate instruments . persistent concerns over weak european and u.s. economies coupled with lingering debt concerns in europe , pushed global bond prices higher , generating profits for the fund 's long positions . in currencies , the largest losses came from sharp price swings in the british pound that went against the fund 's positions . following a sharp sell-off in equity markets during the first week of august , the fund 's trading advisor exited their remaining long positions and went short . for the remainder of the month however , many equity markets bounced from their lows , moving against the fund 's new positions that generated losses in that sector . in metals , the fund generated significant profits from long positions in gold although those profits were offset by losses in industrial metals , especially copper . september the fund finished 3.36 % lower this month as profits from interest rate instruments , metals and energy products were offset by losses in agricultural commodities and currencies . both the equity and interest rate sectors were impacted by concerns about the global economy and sovereign debt issues that are playing out in europe and the u.s. by the end of the month , interest rates were lower , which generated profits for the fund 's long positions in interest rate instruments . in metals , profits from short positions in industrial metals offset losses from long positions in precious metals . in agricultural commodities , a sell-off in soybean and corn prices generated losses for the fund 's long positions . in currencies , sharp declines in the swiss franc , australian dollar , euro and british pound went against the funds positions , generating losses . october the fund was down 5.22 % for the month . october proved to be difficult month for the fund in the face of a near sea change in market sentiment from a risk-averse to a risk-seeking mode . during the month , investors responded optimistically to the latest european plan to solve the greek sovereign debt crisis . furthermore , the bank of england launched a new round of quantitative easing . meanwhile , minutes from the latest fed meeting revealed that members were open to a third round of quantitative easing as a backstop if economic growth should continue to falter . these developments led to sharp reversals across a broad range of markets during october , causing losses for the fund 's largely bearish portfolio . in currency markets , a sudden surge in eurozone optimism hurt the fund 's long u.s. dollar-short european currency positions . in addition , the bank of japan intervened to weaken the yen on the last trading day of the month , hurting the fund 's long positions . the fund was , however , able to profit from a rally in the australian dollar . in physical commodities , a rally in crude oil as well as in base metals caused losses for the fund 's short positions . however , the fund benefited from a rally in gold . the fund 's long fixed income exposures were negatively impacted by a rotation out of bonds into other sectors . during the month , the fund switched from a short to long net position in equities and generated a small profit in that sector as the s & p 500 index recorded its largest monthly percentage gain since 1991 . 15 november november saw a rapid waning of investor enthusiasm for the european sovereign debt rescue package announced in the prior month . attention turned to the possibility of an italian default and doubts arose as to the ability of the european financial stability facility to prevent a more widespread contagion . markets thus reversed from “ risk-on ” in october to “ risk-off ” in early november , with global equities falling , bonds rallying and high-yield currencies depreciating as investors grew less tolerant of risk . however , at month-end the federal reserve , in conjunction with european and asian central banks , intervened to provide a large liquidity injection into the financial system causing a sharp market rebound and yet another trend reversal in financial futures . physical commodity futures proved to be somewhat uncorrelated to other sectors in november , providing profitable trends for the fund . the fund finished the month down 0.06 % . gains were generated in the physical commodities , particularly through short positions in natural gas and nickel . however , these were offset by losses in financial futures markets . in equities , early month declines in the u.s. indices hurt the fund 's long positions . in foreign exchange markets , a long exposure to the high-yielding australian dollar caused losses as investors shifted into perceived safe-haven currencies in the first half of the month . lastly in interest rates , the month end credit easing by central banks went against the fund 's short eurodollar positions . december the european sovereign debt crisis continued to dominate headlines in december . a flight to safety by investors early in the month prompted the european central bank to cut its key policy interest rates by another 25 bps , following a similar move in november . in addition , the ecb provided european banks a record 489 billion in three-year loans to keep credit flowing in the region . the impact of this monetary easing was a further depreciation of the euro , while also sparking a rally in european bond markets , and a small month-end rebound in global equities . the fund posted a positive return of 1.09 % in december , profiting
| results of operations effective december 1 , 2012 , the fund closed to new investments . the fund will continue to trade its assets for existing limited partners , although it will be closed to additional investments . under a provision of the fund 's limited partnership agreement , the fund would suspend trading in the event that net assets decline 50 % or more from the highest net asset value per unit at the start of any fiscal year . the purpose of this policy is to provide downside protection to investors should the fund experience an excessive decline . as of february 28 , 2013 , the estimated net asset value per unit of the fund was $ 1,638.51. the net asset value of the fund would need to decline another 13 % from that point before the fund would suspend trading and liquidate its positions . the returns for the fund for the years ended december 31 , 2012 and 2011 were ( 13.12 ) % and ( 31.05 ) % , respectively . past performance is not indicative of expected future financial condition or results of operations . further analysis of the trading losses are provided below . 2012 january in january , markets responded positively to supportive monetary policy from central banks around the world . in the u.s. , the federal reserve announced that it expected to keep interest rates low through 2014. meanwhile , in europe , the european central bank was expected to extend its long-term refinancing operations program by providing additional loans to the region 's banks later this year , beyond the nearly half trillion euros ( approximately u.s. $ 650 billion ) already distributed to banks in december . this improved the european credit environment , helping france , italy and spain to hold successful bond auctions at reduced yields and allowing them to shrug off standard & poor 's sovereign credit downgrades earlier in the month .
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story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ® teas , starbucks- and tazo-branded single serve products , a variety of ready-to-drink beverages , such as starbucks refreshers beverages , and other branded products sold worldwide through channels such as grocery stores , warehouse clubs , specialty retailers , convenience stores , and us foodservice accounts . ready-to-drink beverages are primarily manufactured and distributed through the north american coffee partnership , a joint venture with the pepsi-cola company . the proportionate share of the results of the joint venture is included , on a net basis , in income from equity investees on the consolidated statements of earnings . acquisitions see note 2 to the consolidated financial statements included in item 8 of part ii of this 10-k for information regarding acquisitions . 22 results of operations — fiscal 2013 compared to fiscal 2012 consolidated results of operations ( in millions ) : revenues replace_table_token_9_th total net revenues were $ 14.9 billion for fiscal 2013 , an increase of $ 1.6 billion , or 12 % , over fiscal 2012 , primarily due to increased revenues from company-operated stores ( contributing $ 1.3 billion ) . the increase in company-operated store revenue was driven by an increase in comparable store sales ( 7 % , or approximately $ 720 million ) and incremental revenues from 492 net new company-operated store openings over the past 12 months ( approximately $ 386 million ) . licensed store revenue growth contributed $ 150 million to the increase in total net revenues in fiscal 2013 , primarily due to higher product sales to and royalty revenues from our licensees , as a result of improved comparable store sales and the opening of 843 net new licensed stores over the past 12 months . cpg , foodservice and other revenues increased $ 184 million , primarily driven by increased sales of premium single serve products ( approximately $ 116 million ) and increased foodservice sales ( approximately $ 37 million ) . operating expenses replace_table_token_10_th cost of sales including occupancy costs as a percentage of total net revenues decreased 80 basis points , primarily due to lower commodity costs ( approximately 50 basis points ) , driven by a decrease in coffee costs . store operating expenses as a percentage of total net revenues decreased 70 basis points . as a percentage of company-operated store revenues , store operating expenses decreased 90 basis points , primarily driven by sales leverage in our americas segment ( approximately 90 basis points ) and store portfolio optimization initiatives in europe that began in the fourth quarter of fiscal 2012 ( approximately 50 basis points ) . this was partially offset by the addition of teavana and continued investment in our emerging brands ( approximately 60 basis points ) . 23 other operating expenses as a percentage of total net revenues decreased 10 basis points . as a percentage of non-company-operated store revenues , other operating expenses decreased 70 basis points , primarily driven by sales leverage ( approximately 40 basis points ) and decreased marketing expenses ( approximately 20 basis points ) . general and administrative expenses as a percentage of total net revenues increased 30 basis points , primarily driven by increased costs to support overall company growth and the costs related to our october global leadership conference . income from equity investees increased $ 41 million , primarily due to increased income from of our joint venture operations in japan and china , as well as improved performance from our north american coffee partnership joint venture , which produces , bottles and distributes our ready-to-drink beverages . litigation charge of $ 2,784.1 million reflects the accrual we recorded as a result of the conclusion of the arbitration with kraft . this charge includes $ 2,227.5 million in damages and $ 556.6 million in estimated interest and attorneys ' fees . the combination of the above resulted in an operating loss of $ 325.4 million and operating margin of ( 220 ) basis points . other income and expenses replace_table_token_11_th net interest income and other increased $ 29 million over the prior year , primarily due to gains on the sale of the equity in our chile and argentina joint ventures in the fourth quarter of fiscal 2013 ( approximately $ 45 million ) and in mexico in the second quarter of fiscal 2013 ( approximately $ 35 million ) . these gains were partially offset by the absence of additional income recognized in the prior year associated with unredeemed gift cards following a court ruling related to state unclaimed property laws ( approximately $ 29 million ) . also offsetting the gains were unfavorable mark-to-market adjustments in fiscal 2013 compared to favorable mark-to-market adjustments in fiscal 2012 from derivatives used to manage our risk of commodity price fluctuations ( approximately $ 24 million ) . income taxes for fiscal year 2013 resulted in an effective tax rate of 103.8 % compared to 32.8 % for fiscal year 2012. the change in our effective tax rate was primarily due to the impact of the litigation charge associated with the kraft arbitration in fiscal 2013. for additional information on the impact to our fiscal 2013 effective tax rate from the litigation charge , see note 13 to the consolidated financial statements included in item 8 of part ii of this 10-k. excluding the impact of the litigation charge , the effective tax rate for fiscal year 2013 decreased slightly compared to fiscal 2012 primarily due to benefits from releasing certain tax reserves in fiscal 2013 and a further benefit in fiscal 2013 primarily relating to state income tax expense adjustments for returns filed in prior years . these items were partially offset by a decrease in tax benefits relating to coffee procurement in the current year . story_separator_special_tag other operating expenses as a percentage of total net revenues decreased 60 basis points , due primarily to lower marketing expenditures ( approximately 20 basis points ) and increased sales leverage ( approximately 20 basis points ) . the above changes contributed to an increase in operating margin of 290 basis points over fiscal 2012. all other segments replace_table_token_16_th all other segments includes teavana , seattle 's best coffee , evolution fresh , and digital ventures . total net revenues for all other segments increased $ 185 million , driven by incremental revenues from the acquisition of teavana in the second quarter of fiscal 2013 ( approximately $ 156 million ) . total operating expenses increased $ 192 million , largely due to incremental expenses from the acquisition of teavana . 28 results of operations — fiscal 2012 compared to fiscal 2011 consolidated results of operations ( in millions ) : revenues replace_table_token_17_th consolidated net revenues were $ 13.3 billion for fiscal 2012 , an increase of 13.7 % , or $ 1.6 billion over fiscal 2011 , primarily due to increased revenues from company-operated stores ( contributing $ 902 million ) , driven by an increase in comparable store sales ( approximately 7 % , or $ 680 million ) . also contributing to the increase were incremental revenues from net new company-operated store openings over the past 12 months ( approximately $ 184 million ) . licensed store revenues contributed $ 203 million to the increase in total net revenues in fiscal 2012 , primarily due to higher product sales to and royalty revenues from our licensees , resulting from improved comparable store sales and the opening of 665 net new licensed stores over the past 12 months . cpg , foodservice and other revenues increased $ 494 million , primarily due to sales of starbucks- and tazo-branded k-cup ® portion packs launched in the cpg channel on november 1 , 2011 ( approximately $ 232 million ) . the benefit of recognizing full revenue from packaged coffee and tea under the direct distribution model ( approximately $ 78 million ) and an increase in foodservice revenues ( approximately $ 50 million ) also contributed . operating expenses replace_table_token_18_th cost of sales including occupancy costs as a percentage of total net revenues increased 170 basis points , driven by increased commodity costs ( approximately 160 basis points ) , primarily due to higher coffee costs . store operating expenses as a percentage of total net revenues decreased 120 basis points , due to increased channel development and licensed store revenues . store operating expenses as a percent of company-operated store revenues decreased 10 basis points due to increased sales leverage . 29 other operating expenses as a percentage of total net revenues decreased 20 basis points . as a percentage of net revenues excluding company-operated store revenues , other operating expenses decreased 350 basis points . this decrease was primarily driven by increased sales leverage ( approximately 150 basis points ) , the absence of charges in fiscal 2012 related to the seattle 's best coffee ® store closures in borders bookstores ( approximately 80 basis points ) and a shift in the timing of marketing spend ( approximately 60 basis points ) . income from equity investees increased $ 37.0 million , primarily due to an increase in income from our north american coffee partnership ( approximately $ 13 million ) , japan ( approximately $ 11 million ) and shanghai ( approximately $ 10 million ) joint venture operations . the combination of these changes , along with increased sales leverage on depreciation and amortization ( approximately 40 basis points ) and general and administrative expenses ( approximately 40 basis points ) , resulted in an increase in operating margin of 20 basis points over fiscal 2011. other income and expenses replace_table_token_19_th net interest income and other decreased $ 21 million over the prior year , primarily due to the absence of the gain recognized in the fourth quarter of fiscal 2011 resulting from the acquisition of the remaining interest in our previous joint venture operations in switzerland and austria ( approximately $ 55 million ) , partially offset by the recognition of additional income associated with unredeemed gifts cards in the second quarter of fiscal 2012 ( approximately $ 29 million ) , following a court ruling related to state unclaimed property laws . income taxes for the fiscal year ended 2012 resulted in an effective tax rate of 32.8 % compared to 31.1 % for fiscal year 2011. the rate increased in fiscal year 2012 primarily due to tax benefits recognized in fiscal 2011 from the switzerland and austria transaction and the release of foreign valuation allowances . 30 segment information the following tables summarize the results of operations by segment ( in millions ) : americas replace_table_token_20_th revenues americas total net revenues for fiscal 2012 increased 10 % , or $ 871 million , primarily due to increased revenues from company-operated stores ( contributing $ 712 million ) , driven by an increase in comparable store sales ( approximately 8 % , or $ 626 million ) . also contributing to the increase were incremental revenues from net new company-operated store openings over the past 12 months ( approximately $ 100 million ) . licensed store revenues also contributed to the increase in total net revenues with an increase of $ 149 million in fiscal 2012 over the prior year period , primarily due to higher product sales to and royalty revenues from our licensees , resulting from improved comparable store sales and the opening of 270 net new licensed stores over the past 12 months . operating expenses cost of sales including occupancy costs as a percentage of total net revenues increased 30 basis points , primarily driven by higher commodity costs ( approximately 110 basis points ) , mainly coffee , partially offset by increased sales leverage on occupancy costs ( approximately 70 basis points ) . store operating expenses as a percentage of total net revenues decreased 60 basis points .
| financial highlights total net revenues increased 12.0 % to $ 14.9 billion in fiscal 2013 compared to $ 13.3 billion in fiscal 2012 . global comparable store sales grew 7 % driven by a 5 % increase in the number of transactions and a 2 % increase in average ticket . consolidated operating income decreased to $ ( 0.3 ) billion in fiscal 2013 compared to $ 2.0 billion in fiscal 2012 and fiscal 2013 operating margin was ( 2.2 ) % compared to 15.0 % in fiscal 2012 . the declines were due to the litigation charge noted below . eps for fiscal 2013 decreased to $ 0.01 , compared to eps of $ 1.79 in fiscal 2012 . the decline was due to the litigation charge noted below . arbitration concluded on litigation with kraft foods global , inc. ( `` kraft '' ) on november 12 , 2013 , which resulted in a pretax charge to fiscal 2013 operating results of $ 2.8 billion . this charge reduced eps by $ 2.25 per share in fiscal 2013. cash flow from operations was $ 2.9 billion in fiscal 2013 compared to $ 1.8 billion in fiscal 2012 . capital expenditures were $ 1.2 billion in fiscal 2013 compared to $ 856 million in fiscal 2012 . available operating cash flow after capital expenditures during fiscal 2013 was directed at returning $ 1.2 billion of cash to our shareholders through dividends and share repurchases . overview starbucks segment results for fiscal 2013 demonstrate the fundamental health of our global business model and our continued ability to successfully execute new growth initiatives in a disciplined manner . our strong revenue growth of 12 % and continued segment margin expansion drove increased operating cash flows , which allowed us to both fund our growth initiatives and increase cash returned to shareholders through dividends and share repurchases .
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additionally , the company unconditionally guaranties all of the obligations of franklin b.v. under the credit agreement . under the credit agreement , the borrowers are required to pay certain fees , including a facility fee of 0.100 % to 0.275 % ( depending on the company 's leverage ratio ) of the aggregate commitment , which fee is payable quarterly in arrears . loans may be made either at ( i ) a eurocurrency rate based on libor plus an applicable margin of 0.75 % to 1.60 % ( depending on the company 's leverage ratio ) or ( ii ) an alternative base rate as defined in the credit agreement . as of december 31 , 2016 , the company had no outstanding borrowings , $ 5.9 million in letters of credit outstanding , and $ 294.1 million of available capacity under the credit agreement . as of january 2 , 2016 , the company had no outstanding borrowings , $ 5.2 million in letters of credit outstanding , and $ 144.8 million of available capacity under the credit agreement . covenants the new york life agreement , the project bonds , the prudential agreement , and the credit agreement contain customary affirmative and negative covenants . the affirmative covenants relate to story_separator_special_tag 2016 vs. 2015 overview sales in 2016 increased from the prior year . net sales in 2016 were $ 949.9 million , an increase of about 3 percent compared to 2015 sales of $ 924.9 million . the sales increase was attributable to both volume and price increases partially offset by the impact of foreign currency translation as the us dollar strengthened against certain foreign currencies . the company 's consolidated gross profit was $ 331.4 million for 2016 , an increase of $ 33.8 million or about 11 percent from 2015. the gross profit as a percent of net sales increased 270 basis points to 34.9 percent in 2016 from 32.2 percent in 2015. the gross profit margin change was due primarily to favorable pricing , lower direct material costs and lower fixed cost on higher sales . for 2016 , diluted earnings per share were $ 1.65 , an increase of 10 percent compared to 2015 diluted earnings per share of $ 1.50. adjusted earnings per share were $ 1.66 , an increase of 13 percent versus the $ 1.47 adjusted earnings per share in 2015 ( see the table below for a reconciliation of the gaap eps to the adjusted eps ) . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > restructuring ( income ) /expense restructuring expenses for 2016 netted to a gain of $ ( 0.6 ) million and increased diluted earnings per share about $ 0.01. restructuring expenses for 2016 included a gain of $ ( 2.0 ) million from the sale of land and building in brazil and $ 1.4 million in expenses related to severance and pension costs , equipment relocation expenses , asset write-downs and other costs related to the transfer of production activities and other restructuring costs from continued manufacturing realignments . restructuring expenses for 2015 were $ 3.0 million and decreased diluted earnings per share about $ 0.04. restructuring expenses in 2015 included severance and pension costs , equipment relocation expenses , and asset write-downs primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . operating income operating income was $ 110.8 million in 2016 , up $ 20.4 million from $ 90.4 million in 2015. replace_table_token_7_th there were specific items in 2016 and 2015 that impacted operating income . 17 in 2016 they were as follows : $ ( 0.6 ) million of net restructuring charges . restructuring ( income ) /expenses in 2016 included a gain of $ ( 2.0 ) million from the sale of land and building in brazil , $ 0.4 million in asset write-offs , $ 0.2 million in severance and pension cost , $ 0.2 million expenses related to equipment transfers and freight costs and $ 0.6 million in other relocation costs primarily related to other manufacturing realignment activities . $ 1.2 million related to executive transition . $ 0.1 million in other miscellaneous costs related to closed acquisitions . in 2015 they were as follows : there were $ 3.0 million of restructuring charges . restructuring expenses in 2015 were $ 0.6 million in severance cost , $ 0.6 million in pension cost , $ 0.6 million expenses related to equipment transfers and freight costs , $ 0.1 million in asset write-offs and $ 1.1 million in other relocation costs primarily related to the closure of the wittlich , germany facility and other manufacturing realignment activities in europe and brazil . $ 1.2 million related to executive transition . $ 0.7 million related to business realignment cost , primarily severance , in targeted fixed cost reduction actions . $ 0.2 million in other miscellaneous costs related to closed acquisitions . the company refers to these items as “ non-gaap adjustments ” for purposes of presenting the non-gaap financial measures of operating income after non-gaap adjustments and percent operating income to net sales after non-gaap adjustments to net sales ( operating income margin after non-gaap adjustments ) . the company believes this information helps investors and management understand underlying trends in the company 's business more easily and by presenting these matters in this way , gives our investors and management a more accurate picture of the actual operational performance of the company . the non-gaap adjustments are for restructuring expenses , reported separately on the income statement , as well as certain legal matters and acquisition related items which are included in sg & a on the income statement . story_separator_special_tag net sales in 2015 were $ 924.9 million , a decrease of about 12 percent compared to 2014 sales of $ 1,047.8 million . the sales decrease was primarily the impact of foreign currency translation as the us dollar strengthened against certain foreign currencies and lower sales volume , partially offset by sales price increases , as well as the company 's acquisitions . the company 's consolidated gross profit was $ 297.6 million for 2015 , a decrease of $ 46.8 million or about 14 percent from 2014. the gross profit as a percent of net sales decreased 70 basis points to 32.2 percent in 2015 from 32.9 percent in 2014. the gross profit margin change was due primarily to lost leverage on fixed cost due to lower sales . for 2015 , diluted earnings per share were $ 1.50 , an increase of 6 percent compared to 2014 diluted earnings per share of $ 1.41. adjusted earnings per share were $ 1.47 , a decrease of 16 percent versus the $ 1.76 adjusted earnings per share in 2014 ( see the table below for a reconciliation of the gaap eps to the adjusted eps ) . results of operations net sales net sales in 2015 were $ 924.9 million , a decrease of $ 122.9 million or about 12 percent compared to 2014 sales of $ 1,047.8 million . the incremental impact of sales from acquired businesses was $ 21.3 million or about 2 percent . sales revenue decreased by $ 89.3 million or about 9 percent in 2015 due to foreign currency translation . the sales change in 2015 , excluding acquisitions and foreign currency translation , was a decrease of $ 54.9 million or about 5 percent . replace_table_token_11_th net sales-water systems water systems sales were $ 707.6 million in 2015 , a decrease of $ 117.0 million or 14 percent versus 2014. the incremental impact of sales from acquired businesses was $ 20.8 million or about 2 percent . foreign currency translation rate changes decreased sales $ 78.3 million , or about 9 percent , compared to sales in 2014. the sales change in 2015 , excluding acquisitions and foreign currency translation , was a decrease of $ 59.5 million or about 7 percent . water systems sales in the u.s. and canada were 36 percent of consolidated sales and declined by about 20 percent in 2015 compared to the prior year . sales revenue decreased by $ 5.9 million or about 1 percent in 2015 due to foreign currency translation . in 2015 , u.s. and canada sales of pioneer branded mobile dewatering equipment declined by about 55 percent . the decline in mobile dewatering equipment is primarily attributed to reduced demand in the oil and gas end markets . sales of 21 groundwater pumping equipment declined by about 14 percent , and sales of surface water pumping equipment declined by about 6 percent versus 2014. the decline in groundwater equipment sales is attributable primarily to weaker demand in the agriculture sector as a result of less favorable weather and to a lesser extent , distributor changes the company made in its primary groundwater distribution channel . sales of surface water pumping equipment also declined due to lower condensate pump sales as cooler temperatures delayed the start to the hvac season . water systems sales in latin america were about 14 percent of consolidated sales for 2015 and declined by about 9 percent compared to the prior year . acquisition related sales during 2015 were $ 10.4 million or about 7 percent . foreign currency translation rate changes decreased sales $ 34.7 million , or about 24 percent , compared to sales in 2014. excluding acquisition and foreign currency translation , sales in latin america grew by about 8 percent during 2015. the growth in sales was led by increased sales in mexico and brazil , in local currency . this sales growth is a result of increasing demand for franklin submersible pumps and motors , customer acceptance of the many product line upgrades that have been implemented over the past two years , and general market conditions . water systems sales in the middle east and africa were about 11 percent of consolidated sales and decreased by about 10 percent compared to 2014. water systems sales in the middle east and africa were reduced by $ 16.5 million or about 14 percent in the year due to foreign currency translation . excluding the impact of foreign currency translation , sales were up about 4 percent compared to 2014. the growth was driven by strong sales of groundwater pumping equipment in turkey . water systems sales in the asia pacific region were 8 percent of consolidated sales and grew by about 7 percent compared to the prior year . acquisition related sales during 2015 increased sales by about 9 percent in asia pacific . foreign currency translation rate changes decreased sales in 2015 in the asia pacific region by about 5 percent . excluding acquisitions and foreign currency translation sales grew by about 3 percent during 2015. the asia pacific region experienced strong year over year growth in southeast asia and korea . these sales increases were partially offset by smaller declines in sales in australia , japan and china . water systems sales in europe were about 7 percent of consolidated sales and decreased by about 20 percent compared to the prior year . foreign currency translation rate changes decreased sales by about 21 percent compared to sales in 2014. excluding foreign currency translation , european sales grew by about 1 percent during 2015. net sales-fueling systems fueling systems sales which represented 23 percent of consolidated sales were $ 217.3 million in 2015 , a decrease of $ 5.9 million or about 3 percent versus 2014. the incremental impact of sales from acquired businesses was $ 0.5 million .
| results of operations net sales net sales in 2016 were $ 949.9 million , an increase of $ 25.0 million or about 3 percent compared to 2015 sales of $ 924.9 million . the incremental impact of sales from acquired businesses was $ 0.7 million . sales revenue decreased by $ 23.2 million or about 2 percent in 2016 due to foreign currency translation . the sales change in 2016 , excluding acquisitions and foreign currency translation , was an increase of $ 47.5 million or about 5 percent . replace_table_token_6_th net sales-water systems water systems sales were $ 723.2 million in 2016 , an increase of $ 15.6 million or 2 percent versus 2015. the incremental impact of sales from acquired businesses was $ 0.7 million . foreign currency translation rate changes decreased sales $ 21.4 million , or about 3 percent , compared to sales in 2015. the sales change in 2016 , excluding acquisitions and foreign currency translation , was an increase of $ 36.3 million or about 5 percent . water systems sales in the u.s. and canada were 36 percent of consolidated sales and increased by about 5 percent in 2016 compared to the prior year . sales revenue decreased by $ 2.1 million or less than 1 percent in 2016 due to foreign currency translation . the sales change in 2016 , excluding acquisitions and foreign currency translation , was an increase of $ 16.4 million or about 5 percent . in 2016 , sales of groundwater pumping equipment increased by about 9 percent . the growth in groundwater equipment sales was led by a 12 percent increase in sales of products for both residential and agricultural applications . sales of pioneer branded mobile dewatering equipment declined by about 12 percent . the decline in mobile dewatering equipment is primarily attributed to reduced demand in the oil and gas end markets .
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” overview of full year 2018 results our key user metrics and financial results for the fiscal year 2018 are as follows : user metrics daily active users , or daus , decreased to 186 million in q4 2018 , compared to 187 million q4 2017. average revenue per user , or arpu , increased 37 % to $ 2.09 in q4 2018 , compared to $ 1.53 in q4 2017. financial results cash used in operating activities was $ 689.9 million in 2018 , compared to $ 734.7 million in 2017. free cash flow was $ ( 810.1 ) million in 2018 , compared to $ ( 819.2 ) million in 2017. common shares outstanding plus shares underlying stock-based awards , including restricted stock units , restricted stock awards , and outstanding stock options , totaled 1,507 million at december 31 , 2018 , compared with 1,453 million one year ago . capital expenditures were $ 120.2 million in 2018 , compared to $ 84.5 million in 2017. cash , cash equivalents , and marketable securities were $ 1.3 billion as of december 31 , 2018. revenue increased 43 % to $ 1.2 billion in 2018 , compared to $ 824.9 million in 2017. total costs and expenses excluding stock-based compensation expense increased 14 % to $ 1.9 billion in 2018 , compared to $ 1.7 billion in 2017. operating loss decreased 64 % to $ 1.3 billion in 2018 , compared to $ 3.5 billion in 2017. net loss decreased 64 % to $ 1.3 billion in 2018 , compared to $ 3.4 billion in 2017. diluted net loss per share decreased 67 % to $ ( 0.97 ) in 2018 , compared to $ ( 2.95 ) in 2017. adjusted ebitda loss decreased 20 % to $ ( 575.6 ) million in 2018 , compared to $ ( 720.1 ) million in 2017. overview snap inc. is a camera company . we believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate . we contribute to human progress by empowering people to express themselves , live in the moment , learn about the world , and have fun together . our flagship product , snapchat , is a camera application that helps people communicate visually with friends and family through short videos and images called snaps . 42 trends in user metrics user engagement we define a daily active user as a registered snapchat user who opens the snapchat application at least once during a defined 24-hour period . we calculate average daily active users for a particular quarter by adding the number of daus on each day of that quarter and dividing that sum by the number of days in that quarter . we also break out daily active users by geography because certain markets have a greater revenue opportunity and lower bandwidth costs . we had 186 million daus on average in the fourth quarter of 2018 , compared to 187 million in the fourth quarter of 2017. in 2018 , we believe our daus declined primarily due to changes in the design of our application and continued performance issues with the android version of our application . in addition , we continue to compete with other companies to attract and retain our users ' attention . quarterly average daily active users ( in millions ) ( 1 ) north america includes mexico , the caribbean , and central america . ( 2 ) europe includes russia and turkey . 43 monetization in the year ended december 31 , 2018 , we recorded revenue of $ 1.2 billion compared to revenue of $ 824.9 million for the year ended december 31 , 2017 , an increase of 43 % year-over-year . we monetize our business primarily through advertising . our advertising products include snap ads and sponsored creative tools like sponsored lenses and sponsored geofilters , and measurement services . while our advertising business is still developing , it has grown rapidly . we measure progress in our business using arpu because it helps us understand the rate at which we 're monetizing our daily user base . we define arpu as quarterly revenue divided by the average daily active users . arpu was $ 2.09 in the fourth quarter of 2018 , up from $ 1.53 a year ago . for purposes of calculating arpu , revenue by user geography is apportioned to each region based on a determination of the geographic location in which advertising impressions are delivered , as this approximates revenue based on user activity . this differs from the presentation of our revenue by geography in the notes to our consolidated financial statements , where revenue is based on the billing address of the advertising customer . quarterly average revenue per user ( 1 ) north america includes mexico , the caribbean , and central america . ( 2 ) europe includes russia and turkey . 44 results of operations components of results of operations revenue we generate substantially all of our revenue through the sale of our advertising products , which include snap ads and sponsored creative tools , and measurement services , referred to as advertising revenue . snap ads may be subject to revenue sharing arrangements between us and the content partner . we also generate revenue from sales of our hardware product , spectacles . this revenue is reported net of allowances for returns . cost of revenue cost of revenue consists primarily of payments to third-party infrastructure partners for hosting our products . infrastructure costs primarily include expenses related to storage , computing , and bandwidth costs . cost of revenue also includes revenue share payments to our content partners , advertising measurement services , and content creation costs . content creation costs include personnel-related costs , including salaries , benefits , and stock-based compensation expenses . in addition , cost of revenue includes facilities and other supporting overhead costs , including depreciation and amortization , and inventory costs for spectacles . story_separator_special_tag 2017 compared to 2016 interest income for the year ended december 31 , 2017 increased $ 16.4 million compared to the same period in 2016. the increase was primarily a result of a larger invested balance in marketable securities and higher interest rates on u.s. government-backed securities . 50 interest expense replace_table_token_15_th 2018 compared to 2017 interest expense for the year ended december 31 , 2018 increased $ 0.4 million , compared to the same period in 2017. interest expense was composed primarily of interest on financing obligations related to a build-to-suit lease and commitment fees and amortization of costs related to our revolving credit facility . 2017 compared to 2016 interest expense for the year ended december 31 , 2017 was $ 3.5 million , compared to $ 1.4 million in the same period in 2016. interest expense was composed primarily of interest on financing obligations related to a build-to-suit lease placed into service in the third quarter of 2016 and commitment fees and amortization of costs related to our revolving credit facility , which was executed in the third quarter of 2016. other income ( expense ) , net replace_table_token_16_th 2018 compared to 2017 other expense , net for the year ended december 31 , 2018 was $ 8.2 million , compared to other income , net of $ 4.5 million for the same period in 2017. the change from the prior period was primarily a result of $ 7.2 of investment impairment expense and an increase in foreign currency transaction losses , partially offset by gains on other non-marketable investments . 2017 compared to 2016 other income , net for the year ended december 31 , 2017 was $ 4.5 million , compared to other expense , net of $ 4.6 million for the same period in 2016. the change from the comparative period was primarily a result of a decrease in our share of losses on non-marketable investments and an increase in foreign currency transaction gains . 51 income tax benefit ( expense ) replace_table_token_17_th 2018 compared to 2017 income tax expense was $ 2.5 million for the year ended december 31 , 2018 , compared to a tax benefit of $ 18.3 million for the same period in 2017. the income tax benefit in the prior period was primarily from the partial release of a valuation allowance against our net deferred tax assets that was not in the current period . the valuation allowance release was the result of net deferred tax liabilities originating from acquisitions that were an available source of income to realize a portion of our deferred tax assets . 2017 compared to 2016 income tax benefit was $ 18.3 million for the year ended december 31 , 2017 , compared to $ 7.1 million for the same period in 2016. the income tax benefits in both periods were primarily from the partial releases of valuation allowances against our net deferred tax assets . the valuation allowance releases were the result of net deferred tax liabilities originating from acquisitions that were an available source of income to realize a portion of our deferred tax assets . our effective tax rate differs from the u.s. statutory tax rate primarily due to a valuation allowance on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized . for additional discussion , see note 9 to our consolidated financial statements included in “ financial statements and supplementary data ” in this annual report on form 10-k. net loss and adjusted ebitda replace_table_token_18_th 2018 compared to 2017 net loss for the year ended december 31 , 2018 was $ 1.3 billion , compared to $ 3.4 billion for the same period in 2017. adjusted ebitda loss for the year ended december 31 , 2018 was $ 575.6 million , compared to $ 720.1 million for the same period in 2017. the change in adjusted ebitda loss for the year ended december 31 , 2018 was driven by increased revenues primarily due to an increase in the number of advertisements delivered , partially offset by increased cost of revenue . the increase in cost of revenue was primarily related to increased infrastructure costs . the decrease in net loss was driven by a decrease in stock-based compensation expense of $ 2.1 billion for the year ended december 31 , 2018 . 2017 compared to 2016 net loss for the year ended december 31 , 2017 was $ 3.4 billion , compared to $ 514.6 million for the same period in 2016. adjusted ebitda loss for the year ended december 31 , 2017 was $ 720.1 million , compared to $ 459.2 million for the same period in 2016. the increase in net loss for the period was driven by a $ 2.6 billion increase in stock-based compensation expense primarily related to the ceo award and the recognition of expense related to rsus with a performance condition satisfied on the effectiveness of the registration statement for our ipo in march 2017. additionally , the increase in net loss was also driven by $ 39.9 million for spectacles inventory-related charges that occurred in the third quarter of 2017. the remaining increase in net loss and the increase in adjusted ebitda was driven by an increase in cost of revenue and operating expenses , which more than offset revenue growth during the period . the increase in cost of revenue was primarily related to higher infrastructure costs . the increase in operating expenses was primarily related to increased headcount . 52 for a discussion of the limitations associated with using adjusted ebitda rather than gaap measures and a reconciliation of this measure to net loss , see “ selected financial data—non-gaap financial measures.
| discussion of results of operations the following table sets forth our consolidated statements of operations data : replace_table_token_5_th ( 1 ) stock-based compensation expense included in the above line items : replace_table_token_6_th 46 ( 2 ) depreciation and amortization expense included in the above line items : replace_table_token_7_th ( 3 ) see “ selected financial data—non-gaap financial measures ” of this annual report on form 10-k for more information and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated and presented in accordance with gaap . the following table sets forth the components of our consolidated statements of operations data for each of the periods presented as a percentage of revenue : replace_table_token_8_th revenue replace_table_token_9_th 2018 compared to 2017 revenue for the year ended december 31 , 2018 increased $ 355.5 million compared to the same period in 2017. the increase in revenue was primarily due to an increase in the number of advertisements delivered . the number of advertisements delivered increased between the periods primarily due to increased advertiser demand , additional ad placements within our application , and increased impressions per user . incremental spend was primarily through our self-serve platform , allowing more advertisers easier access to our inventory which may be at a lower price compared to historical snap-managed campaigns . over the course of 2018 , we moved the majority of our ad products to our self-serve platform . arpu increased due to the growth in revenue as a result of the number of advertisements delivered . 47 2017 compared to 2016 revenue for the year ended december 31 , 2017 increased $ 420.5 million compared to the same period in 2016. the increase in revenue was primarily due to an increase in the number of advertisements delivered .
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factors that could cause our actual results to differ materially from those anticipated include those discussed in business , information regarding forward-looking statements , and risk factors. executive overview the company is a leading provider of seismic data acquisition services throughout the continental united states and canada . we currently operate 15 seismic crews . these seismic crews supply seismic data to companies engaged in the exploration and development of oil and natural gas on land and in land-to-water transition areas . our customers rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of existing hydrocarbons , to optimize the development and production of hydrocarbon reservoirs , to better delineate existing oil and natural gas fields , and to augment reservoir management techniques . we acquire geophysical data using the latest in 3-d survey techniques . we introduce acoustic energy into the ground by using vibration equipment or dynamite detonation , depending on the surface terrain and subsurface requirements . the reflected energy , or echoes , is received through geophones , converted into a digital signal at a multi-channel recording unit , and then transmitted to a central recording vehicle . subsurface requirements dictate the number of channels necessary to perform our services . with our state-of-the-art seismic equipment , including computer technology and multiple channels , we acquire , on a cost-effective basis , immense volumes of seismic data that when processed and interpreted produce more precise images of the earth 's subsurface . our customers then use our seismic data to generate 3-d geologic models that help reduce finding costs and improve recovery rates from existing wells . currently , the seismic data acquisition industry is made up of a number of companies divided into two groups . the first group is made up of four publicly-traded companies with long operating histories which field numerous crews and work in a number of different regions and terrain . this group includes us , dawson geophysical company , geokinetics , inc. and cgg-veritas . these companies field approximately 50 % of the estimated 81 seismic crews currently operating in the continental u.s. and canada . the second group is made up of smaller companies who generally run one or two seismic crews and often specialize in specific regions or types of operation . we provide our seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas in the continental u.s. and canada . the main factors influencing demand for seismic data acquisition services in our industry are the level of drilling activity by oil and natural gas companies and the sizes of such companies ' exploration and development budgets , which , in turn , depend largely on current and anticipated future crude oil and natural gas prices and depletion rates . our customers are major and independent oil and natural gas exploration and development companies . the services we provide to our customers vary according to the size and needs of each customer . our services are marketed by sales , supervisory , and executive personnel who contact customers to determine their needs and respond to customer inquiries regarding the availability of crews . contacts are based principally upon professional relationships developed over a number of years . there are a number of consultants in the oil and natural gas industry who process and interpret seismic data for oil and natural gas companies . these consultants can have a significant influence in determining which company their customers use to acquire seismic data . 14 the acquisition of seismic data for the oil and natural gas industry is a highly competitive business . there are approximately 81 seismic crews currently operating in the continental united states and canada . contracts for such services generally are awarded on the basis of price quotations , crew experience , and the availability of crews to perform in a timely manner , although factors other than price , such as crew safety performance history and technological and operational expertise , are often determinative . our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size . our primary competitors are dawson geophysical company , geokinetics , inc. , and cgg-veritas . in addition to the previously named companies , we also compete for projects from time to time with smaller seismic companies which operate in local markets with only one or two crews . we believe that our long-term industry expertise , the customer relationships developed over our history , and our financial stability give us an advantage over most of our competitors in the industry . story_separator_special_tag operations , and lower margins in the u.s. resulting from depressed demand and a more competitive pricing environment ( especially in the first half of 2010 ) . as a percentage of revenues , cost of services was 79.3 % for the year ended december 31 , 2010 , compared to 72.3 % for the same period of 2009. selling , general , and administrative expenses . sg & a expenses were $ 6,894,500 for the year ended december 31 , 2010 , compared to $ 5,522,939 for the same period of 2009 , an increase of 24.8 % . this increase was primarily attributable to the inclusion of eagle canada for the entire year of 2010. sg & a expense as a percentage of revenues was 6.4 % for the year ended december 31 , 2010 , compared to 6.1 % for the same period of 2009. depreciation and amortization expense . depreciation and amortization expense was $ 15,343,804 for the year ended december 31 , 2010 , compared to $ 14,621,237 for the same period of 2009 , an increase of 4.9 % . story_separator_special_tag during the year ended december 31 , 2011 , capital expenditures of $ 30,730,385 were used to acquire seismic equipment and vehicles , replace similar equipment and vehicles , and to purchase our second gsr system with 3,000 channels to which we added an additional 2,500 channels , our third gsr system with 5,000 channels , an additional 3,000 gsr channels which were added to existing systems , 5,000 additional aram channels , and seven new inova vibration vehicles . cash of $ 22,011,503 , notes of $ 6,765,619 from a commercial bank , and capital lease obligations from a vehicle leasing company of $ 1,953,263 were used to finance these acquisitions . during january of 2012 , we announced that the company entered into an agreement to purchase 14,200 oyo geospace single-channel gsr wireless channels and related equipment for a total purchase price of approximately $ 14,651,000 to be paid with a combination of cash and debt . the company took delivery of this equipment during january and february of 2012. although we do not budget for our capital expenditures , we may purchase additional equipment during 2012 as the demand for our services warrants . capital resources historically , we have relied on cash generated from operations , short-term borrowings from commercial banks and equipment lenders , and loans from directors to fund our working capital requirements and capital expenditures . the company has a revolving line of credit agreement with a commercial bank . the borrowing limit under the revolving line of credit agreement is $ 5,000,000 and was renewed on september 16 , 2010 , and again on september 16 , 2011. the revolving line of credit agreement does not expire until september 16 , 2012. our obligations under this agreement are secured by a security interest in our accounts receivable . interest on the outstanding amount under the line of credit loan agreement is payable monthly at the greater of the prime rate of interest or five percent . as of december 31 , 2011 , we had no borrowings outstanding under the line of credit loan agreement . at december 31 , 2011 , the company had four outstanding notes payable to commercial banks for equipment purchases . the notes have interest rates between 4.50 % and 6.35 % , are due in monthly installments between $ 46,781 and $ 187,934 plus interest , have a total outstanding balance of $ 9,827,949 and are collateralized by equipment . two notes payable with interest of 6.00 % and monthly payments between $ 55,658 and $ 88,889 plus interest were paid off in 2011. these notes were collateralized by equipment . the company had , at december 31 , 2011 , three outstanding notes payable to equipment finance companies for equipment purchases . the notes have interest rates between 5.33 % and 6.00 % , are due in monthly installments between $ 23,740 and $ 61,997 plus interest , have a total outstanding balance of $ 904,103 and are collateralized by equipment . one note payable with interest of 6.38 % and a monthly payment of $ 85,839 plus interest was paid off in 2011. the note was collateralized by equipment . the company had , at december 31 , 2011 , two outstanding notes payable to finance companies for corporate insurance . the notes have interest rates between 4.95 % and 5.56 % , are due in monthly installments between $ 17,957 and $ 227,844 including interest , and have a total outstanding balance of $ 399,353 . 18 in january of 2006 , we leased a 600-square foot facility in houston , texas , to be used as a sales office . in september of 2011 , we moved our houston sales office from this facility to a nearby 1,711-square foot facility . the monthly rent is currently $ 3,137. in july of 2006 , we entered into a lease for 7,269 square feet of office space located in plano , texas . in september of 2006 , we relocated our corporate offices to this facility , and increased the size of this lease to 8,523 square feet in september of 2008 , and to 10,137 square feet of office space in march of 2012. the monthly rent is currently $ 13,192. in october of 2006 , we leased an 800-square foot facility in oklahoma city , oklahoma , to be used as a sales office . this lease is now on a month-to-month basis and the current monthly rent is $ 665. in september of 2008 , we leased a 400-square foot facility is pratt , kansas , to be used as a permit office . this lease is now on a month-to-month basis , and the current monthly rent is $ 500. in november of 2008 , we vacated our plano repair , warehouse , and outdoor storage facilities and moved to a leased repair , warehouse , and outdoor storage facility in denison , texas . the denison , texas , facility consists of one 5,000-square foot building , two 10,000-square foot adjacent buildings , and an outdoor storage area of approximately 60,500 square feet . the monthly rent is currently $ 12,602. in april of 2010 , we leased a 915-square foot office facility in midland , texas , to be used as a sales office . this monthly rent is currently $ 877. upon the acquisition of eagle canada , we assumed a lease entered into in august of 2008 for 3,030 square feet of office space located in calgary , alberta . the monthly rent is currently $ 13,064. in addition , eagle canada leases a 10,088-square foot facility , also located in calgary , alberta , that is used as a shop and warehouse . effective april of 2010 , we entered into a lease agreement for this facility . the monthly rent is currently $ 8,094. prior to this date this facility was leased on a month-to-month basis . the company is not responsible for insuring these facilities .
| results of operations year ended december 31 , 2011 , compared to year ended december 31 , 2010 revenues . our revenues were $ 151,028,582 for the year ended december 31 , 2011 , compared to $ 108,318,801 for the same period of 2010 , an increase of 39.4 % . this increase in revenues was attributable to continued improvement in the north american land seismic acquisition market , increased efficiencies of new wireless recording technology , and our operation of additional seismic crews . we operated seven seismic crews in the u.s. during the first quarter , added an eighth crew in the second quarter , and continued operating eight crews during the third and fourth quarters of 2011 , as compared to six seismic crews during each of the first three quarters and seven crews in the fourth quarter of 2010. we operated six seismic crews in canada during the first quarter , two crews during the second and third quarters , and four crews during the fourth quarter of 2011 , as compared to five seismic crews during the first quarter , no crews during the second quarter , two crews during the third quarter and four crews in the fourth quarter of 2010. cost of services . our cost of services was $ 104,022,944 for the year ended december 31 , 2011 , compared to $ 85,932,862 for the same period of 2010 , an increase of 21.1 % .
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further , rating downgrades of the security issuer or the third parties insuring such investments may require the company to adjust the carrying value of these investments through an impairment charge . the company 's inability to sell all or some of the company 's short-term investments at par or the company 's cost , or rating downgrades of issuers or insurers of these securities , could adversely affect the company 's results of operations or financial condition . for the years ended december 31 , 2013 , 2012 and 2011 , realized gains and realized losses from the sale of investments were not material . impairment of investments the company monitors its investment portfolio for impairment on a periodic basis . in the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . 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 . overview we design , manufacture and sell versatile and high performance video infrastructure products and system solutions that enable our customers to efficiently create , prepare and deliver a full range of video services to consumer devices , including televisions , personal computers , laptops , tablets and smart phones . we sell video processing and production and playout solutions and services worldwide to broadcast and media companies , streaming new media companies , cable operators , and satellite and telecommunications ( telco ) pay-tv service providers . we also sell cable edge solutions and related services to cable operators globally . on march 5 , 2013 , we completed the sale of our cable access hfc business to aurora networks ( `` aurora '' ) for $ 46.0 million in cash . the consolidated statements of operations have been retrospectively adjusted to present the cable access hfc business as discontinued operations , as described in `` note 3 , discontinued operations '' of our consolidated financial statements . unless otherwise noted , all discussions herein with respect to the company 's consolidated financial statements relate to the company 's continuing operations . historically , a majority of our revenue has been derived from relatively few customers , due in part to the consolidation of the ownership of cable operators and satellite pay-tv service providers . sales to our ten largest customers in 2013 , 2012 and 2011 accounted for approximately 31 % , 31 % and 33 % , respectively , of our revenue . 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 2013 , 2012 and 2011 , revenue from comcast accounted for 12 % , 11 % and 10 % , respectively , of our revenue . the loss of comcast or any other significant customer , any material reduction in orders by comcast or any significant customer , or our failure to qualify our new products with a significant customer could materially and adversely affect our operating results , financial condition and cash flows . we recognized revenue of $ 462 million in 2013 , as compared to $ 477 million in 2012 . we believe our international revenue continues to represent a growth opportunity for our business . in 2013 , international revenue represented 57 % of our total revenue , as compared to 56 % in 2012 . in recognition of our growing international business opportunities , we have expanded our international operations and staffing to better support our expansion into international markets . we expect that international sales will continue to account for a significant portion of our net revenue for the foreseeable future and that , due to sales to emerging markets in particular , our international revenue may increase as a percentage of our total net revenue from year to year . historically , our revenue has been dependent upon capital spending in the cable , satellite , telco and broadcast industries . more recently , we also have derived revenue from media companies , including streaming media providers . industry consolidation has in the past constrained , and may in the future constrain , capital spending by our customers . if our product portfolio and product development plans do not position us well to capture an increased portion of the capital spending of customers in the markets on which we focus , 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 and content providers , adapt our products for new applications , take orders at prices resulting in lower margins , and build internal expertise to handle the particular contractual and technical demands of the media market , which could result in higher operating costs . implementation issues with our products or those of other vendors have caused in the past , and may cause in the future , delays in project completion for our customers and delay our recognition of revenue . the impact of economic conditions on certain of our customers and changes in our customers ' deployment plans have adversely affected our business in the past . in 2010 , economic conditions in many of the countries in which we sell products were very weak , and global economic conditions and financial markets experienced a severe downturn . story_separator_special_tag under the residual method , the amount of revenue allocated to delivered elements equals the total arrangement consideration , less the aggregate fair value of any undelivered elements , typically maintenance , provided that vsoe of fair value exists for all undelivered elements . we establish fair value by reference to the price the customer is required to pay when an item is sold separately , using contractually stated , substantive renewal rates , when applicable , or the price of recently completed stand alone sales transactions . accordingly , the determination as to whether appropriate objective and reliable evidence of fair value exists can impact the timing of revenue recognition for an arrangement . solution sales for the design , manufacture , test , integration and installation of products are accounted for in accordance with applicable guidance on accounting for performance of construction/production contracts , using the percentage-of-completion method of accounting when various requirements for the use of this accounting guidance exist . under the percentage-of-completion method , our revenue recognized reflects the portion of the anticipated contract revenue that has been earned , equal to the ratio of actual labor hours expended to total estimated labor hours to complete the project . costs are recognized proportionally to the labor hours incurred . management believes that , for each such project , labor hours expended in proportion to total estimated hours at completion represents the most reliable and meaningful measure for determining a project 's progress toward completion . this requires us to estimate , at the outset of each project , a detailed project plan and associated labor hour estimates for that project . for contracts that include customized services for which labor costs are not reasonably estimable , the company uses the completed contract method of accounting . under the completed contract method , 100 % of the contract 's revenue and cost is recognized upon the completion of all services under the contract . if the estimated costs to complete a project exceed the total contract amount , indicating a loss , the entire anticipated loss is recognized . our application of percentage-of-completion accounting is subject to our estimates of labor hours to complete each project . in the event that actual results differ from these estimates or we adjust these estimates in future periods , our operating results , financial position or cash flows for a particular period could be adversely affected . revenue on shipments to resellers and systems integrators is generally recognized on delivery . allowances are provided for estimated returns and such allowances are adjusted periodically to reflect actual and anticipated experience . resellers and systems integrators purchase our products for specific capital equipment projects of the end-user and do not hold inventory . they perform functions that include importation , delivery to the end-customer , installation or integration , and post-sales service and support . our agreements with these resellers and systems integrators have terms which are generally consistent with the standard terms and conditions for the sale of our equipment to end users and do not provide for product rotation or pricing allowances , as are typically found in agreements with stocking resellers . we have long-term relationships with most of these resellers and systems integrators and substantial experience with similar sales of similar products . we do have instances of accepting product returns from resellers and system integrators . however , such returns typically occur in instances where the system integrator has designed a product into a project for the end user , but the integrator requests permission to return the component as it does not meet the specific project 's functional requirements . such returns are made solely at the discretion of the company , as our agreements with resellers and system integrators do not provide for return rights . we have extensive experience monitoring product returns from our resellers , and , accordingly , we have concluded that the amount of future returns can be reasonably estimated in accordance with applicable accounting guidance . if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . valuation of inventories harmonic states inventories at the lower of cost , using the weighted average method ( which approximates the first-in , first-out basis ) , or market . we write down the cost of excess or obsolete inventory to net realizable value based on future demand forecasts and historical consumption . if there were to be a sudden and significant decrease in demand for our products , or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to record additional charges for excess and obsolete inventory and our gross margin could be adversely affected . inventory management is of critical importance in order to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements . impairment of goodwill or long-lived assets the company test for impairment of goodwill on an annual basis in the fourth quarter of its fiscal year at the company level , which is the sole reporting unit , and at any other time at which events occur or circumstances indicate that the carrying amount of goodwill may exceed its estimated fair value . when assessing the goodwill for impairment , the company considers its market capitalization adjusted for a control premium and , if necessary , the company 's discounted cash flow model , which involves significant assumptions and estimates , including the company 's future financial performance , the company 's weighted average cost of capital and the company 's interpretation of currently enacted tax laws .
| results of operations net revenue net revenue — consolidated harmonic 's consolidated net revenue , by product line , for each of the three years ended december 31 , 2013 , 2012 and 2011 , are presented in the table below . also presented is the related dollar and percentage change in consolidated net revenue , by product line , as compared with the prior year . replace_table_token_4_th our video processing revenue in 2013 , compared to 2012 , remained relatively flat . the increased sales of our encoder and decoder products , principally in the broadcast and media market in the u.s. and the europe , middle east and africa region ( “ emea ” ) , was offset by decreased sales in the cable market . the 2.7 % decrease in production and playout revenue in 2013 , compared to 2012 , was primarily due to lower sales of our playout servers in the asia pacific region , offset partially by increased production and playout revenue in the u.s. in 2013. in 2012 , we benefited from higher revenues in emerging markets in the asia pacific region . the 20.2 % decrease in our cable edge revenue in 2013 , compared to 2012 , was primarily attributable to the softness in the u.s. cable pay-tv service provider market in the first half of 2013 , as we believe that some of the providers were looking ahead to the availability of new technologies , including ccap-enabled products . cable edge revenue for the second half of 2013 increased 28 % over the first half of 2013 as customer 's buying patterns returned . we expect cable edge revenue to increase in 2014 as our ccap-enabled products are available for the full year .
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she also serves on the board of directors for kendal at ithaca , a not-for-profit continuing care retirement community ( since april 2014 ) ; tompkins county community foundation ( since january 2015 ) ; and let 's get ready , an organization which provides low-income high school students with support services to help them gain admission to and graduate from college ( since september 2016 ) . dr. murphy received a ph.d. in educational administration from cornell university . dr. murphy has broad senior management level experience in a large , complex organization . in particular , her experience in employee compensation matters and the development and implementation of diversity policies is helpful to the company . 46 stevenson e. ward iii has served as director since 2001. mr. ward served as vice president and chief financial officer of triton thalassic technologies , inc. from 2000 until his retirement in 2014. triton 's technology controls and inactivates pathogens in the healthcare and industrial industries . from 1998 through 2000 , mr. ward served as senior vice president-administration of sanofi-synthelabo , inc. , a major multinational pharmaceutical company . he served as executive vice president ( 1996-1998 ) , responsible for legal , tax , treasury , employee benefits and other functions , and chief financial officer ( 1994-1996 ) of sanofi , inc. , the north american holding company for sanofi . he also served as vice president-finance and administration , pharmaceutical group , sterling winthrop , inc. ( 1992-1994 ) . prior to joining sterling , he was employed by general electric company in management positions in purchasing , corporate audit and finance . mr. ward 's qualifications for service on the board include his extensive experience in senior executive level positions in finance , corporate audit and administration at two fortune 100 multinational corporations . he also holds a masters in business administration ( mba ) degree . code of conduct the company has adopted a code of conduct that is applicable to its employees , including the chief executive officer , chief financial officer and controller . the code of conduct is available in the investor relations section on the company 's website at www.acmeunited.com if the company makes any substantive amendments to the code of conduct which apply to its chief executive officer , chief financial officer or controller , or grants any waiver , including any implicit waiver , from a provision of the code of conduct to the company 's executive officers , the company will disclose the nature of the amendment or waiver on its website . information regarding compliance with section 16 ( a ) beneficial ownership reporting requirements and certain corporate governance matters is incorporated herein by reference to the sections entitled ( i ) “ compliance with section 16 ( a ) of the securities exchange act of 1934 ” , ( ii ) “ nominations for directors ” , and ( iii ) “ audit committee ” contained in the company 's proxy statement to be filed with the securities and exchange commission in connection with its 2017 annual meeting of shareholders . item 11. executive compensation information with respect to executive compensation is incorporated herein by reference to the section entitled “ executive compensation ” contained in the company 's proxy statement to be filed with the sec in connection with the company 's 2017 annual meeting of shareholders . item 12. security ownership of certain beneficial owners and management information regarding security ownership of certain beneficial owners , directors and executive officers is incorporated herein by reference to the information in the section entitled “ security ownership of directors and officers ” contained in the company 's proxy statement to be filed with the sec in connection with its 2017 annual meeting of shareholders . item 13. certain relationships and related transactions , and director independence information regarding certain relationships and related transactions is incorporated herein by reference to the information in the section entitled “ certain relationships and related transactions ” contained in the company 's proxy statement to be filed with the sec in connection with its 2017 annual meeting of shareholders . information regarding director independence is incorporated herein by reference to the section entitled “ independence determinations ” contained in the company 's proxy statement to be filed with the securities and exchange commission in connection with the company 's 2017 annual meeting of shareholders . item 14. principal accounting fees and services information regarding principal accountant fees and services is incorporated herein by reference to the section entitled “ fees to auditors ” contained in the company 's proxy statement to be filed with the sec in connection with its 2017 annual meeting of shareholders . 47 part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) financial statements . · consolidated balance sheets · consolidated statements of operations · consolidated statements of changes in stockholders ' equity · consolidated statements of cash flows · notes to consolidated financial statements · report of independent registered public accounting firm ( a ) ( 2 ) financial statement schedules · schedules other than those listed above have been omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or notes thereto . ( a ) ( 3 ) the exhibits listed under item 15 ( b story_separator_special_tag forward-looking information the company may from time to time make written or oral “ forward-looking statements ” including statements contained in this report and in other communications by the company , which are made in good faith pursuant to the “ safe harbor ” provisions of the privatesecurities litigation reform act of 1995. such statements are based on our beliefs as well as assumptions made by and information currently available to us . story_separator_special_tag income taxes . deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized . intangible assets and goodwill . intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract , if any , or useful life , as applicable . intangible assets held by the company with finite useful lives include patents and trademarks . the weighted average amortization period for intangible assets at december 31 , 2016 was 8 years . the company periodically reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . at december 31 , 2016 and 2015 , the company assessed the recoverability of its long-lived assets and goodwill and believed that there were no events or circumstances present that would that would require a test of recoverability on those assets . as a result , there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives . the net book value of the company 's intangible assets was $ 13,988,186 as of december 31 , 2016 , compared to $ 11,950,991 as of december 31 , 2015 , and the net book value of the company 's goodwill was approximately $ 3,948,000 at december 31 , 2016 and $ 1,406,000 at december 31 , 2015. pension obligation . the pension benefit obligation is based on various assumptions used by third-party actuaries in calculating this amount . these assumptions include discount rates , expected return on plan assets , mortality rates and other factors . revisions in assumptions and actual results that differ from the assumptions affect future expenses , cash funding requirements and obligations . our funding policy is to fund the plan in accordance with applicable requirements of the internal revenue code and regulations . these assumptions are reviewed annually and updated as required . the company has a frozen defined benefit pension plan . two assumptions , the discount rate and the expected return on plan assets , are important elements of expense and liability measurement . we determine the discount rate used to measure plan liabilities as of the december 31 measurement date . the discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year . in estimating this rate , we look at rates of return on fixed-income investments of similar duration to the liabilities in the plan that receive high , investment grade ratings by recognized ratings agencies . using these methodologies , we determined a discount rate of 3.40 % to be appropriate as of december 31 , 2016 , which is a decrease of 0.1 percentage point from the rate used as of december 31 , 2015. the expected long-term rate of return on assets considers the company 's historical results and projected returns for similar allocations among asset classes . in accordance with generally accepted accounting principles , actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , affect expense and obligation in future periods . for the u.s. pension plan , our assumption for the expected return on plan assets was 6.0 % for 2016. for more information concerning these costs and obligations , see the discussion in note 6 – pension and profit sharing , in the notes to the company 's consolidated financial statements in this report . 17 accounting for stock-based compensation . stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period . the company uses the black-scholes option - pricing model to determine fair value of the awards , which involves certain subjective assumptions . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( “ expected term ” ) , the estimated volatility of the company 's common stock price over the expected term ( “ volatility ” ) and the number of options for which vesting requirements will not be completed ( “ forfeitures ” ) . changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation , and the related amount recognized on the consolidated statements of operations . refer to note 11 - stock option plans - in the notes to consolidated financial statements in this report for a more detailed discussion . story_separator_special_tag 2016. liquidity and capital resources during 2016 , working capital increased by approximately $ 5.0 million compared to december 31 , 2015. inventory increased by approximately $ 1.7 million , or 5 % , which corresponds to the increase in sales . the company expects that changes in inventory levels will continue to be consistent with changes in sales , including the seasonal impact on the company 's revenue stream . inventory turnover , calculated using a twelve month average inventory balance , increased to 2.1 from 2.0 at december 31 , 2015. the reserve for slow moving and obsolete inventory was $ 677,253 at december 31 , 2016 compared to $ 698,592 at december 31 , 2015. we do not anticipate significant increases in the allowance for slow moving and obsolete inventory in the ordinary course of business during 2017. receivablesincreased by approximately $ 400,000. the average number of days sales outstanding in accounts receivable was 64 days in 2016 compared to 64 days in 2015. accounts payable and other current liabilities increased by approximately $ .9 million .
| results of operations 2016 compared with 2015 on april 7 , 2014 , the company sold its fremont , nc distribution facility for $ 850,000 in cash . the facility originally served as a manufacturing site for the company 's scissors and rulers . in conjunction with the sale of the property , the company recorded a liability of $ 300,000 in the second quarter of 2014 , related to environmental remediation of the property . the accrual included the total estimated costs of remedial activities and post-remediation operating and maintenance costs . the balance remaining in the accrual at december 31 , 2016 was approximately $ 57,000. additional information concerning the sale of the property is set forth in note 16 – sale of property , in the notes to condensed consolidated financial statements in this report . on february 1 , 2016 , the company purchased certain assets of vogel capital , inc. , d/b/a diamond machining technology ( dmt ) , located in marlborough , ma . dmt products are leaders in sharpening tools for knives , scissors , chisels and other cutting tools . the dmt products use finely dispersed diamonds on the surfaces of sharpeners . the company purchased inventory , accounts receivable , equipment , patents , trademarks and other intellectual property for $ 6.97 million using funds borrowed under its revolving credit facility with hsbc . additional information concerning the acquisition of dmt assets is set forth in note 17 – business combinations , in the notes to condensed consolidated financial statements in this report .
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we determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting . accordingly , we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense . we consider many factors when assessing the likelihood of future realization of our deferred tax assets , including our recent earnings experience by jurisdiction , expectations of future taxable income , and the carryforward periods available to us for tax reporting purposes , as well as other relevant factors . we may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not story_separator_special_tag overview expedia , inc. is an online travel company , empowering business and leisure travelers with the tools and information they need to efficiently research , plan , book and experience travel . we have created a global travel marketplace used by a broad range of leisure and corporate travelers , offline retail travel agents and travel service providers . we make available , on a stand-alone and package basis , travel products and services provided by numerous airlines , lodging properties , car rental companies , destination service providers , cruise lines and other travel product and service companies . we also offer travel and non-travel advertisers access to a potential source 38 of incremental traffic and transactions through our various media and advertising offerings on both the tripadvisor media network and on our transaction-based websites . for additional information about our portfolio of brands , see the disclosure set forth in part i , item 1 , business , under the caption management overview. all percentages within this section are calculated on actual , unrounded numbers . trends the travel industry , including offline agencies , online agencies and suppliers of travel products and services , has been characterized by intense competition , as well as rapid and significant change . in addition , beginning in late 2008 , global economic and financial market conditions worsened markedly , creating uncertainty for travelers and suppliers . this macroeconomic downturn has pressured discretionary spending on travel and advertising , with initial weakness in the united states and the united kingdom markets increasing and spreading to all geographies . although recent macroeconomic trends have been generally stable to slightly improving , unemployment remains at historically high levels and consumer spending remains pressured . as such , our near-term visibility remains limited . in late april 2009 , the world health organization acknowledged an outbreak of swine influenza ( h1n1 ) , which was categorized as a pandemic in june 2009 , with reported cases in mexico and eight other countries . in response , travel advisories were issued by several countries against non-essential travel , primarily to mexico . expedia observed an increase in cancellation activity from both customers traveling to higher risk destinations and customers in apac regions , which have a heightened sensitivity to virus risk . however , the pandemic does not seem to have intensified , and any related cancellation activity has abated . airline sector the airline sector in particular has historically experienced significant turmoil . u.s. airlines responded to chronic overcapacity , financial losses and extreme volatility in oil prices by aggressively reducing their cost structures and seating capacities . reduced seating capacities are generally negative for expedia as there is less air supply available on our websites , and in turn less opportunity to facilitate hotel rooms , car rental and other services on behalf of air travelers . most carriers aggressively reduced capacities in 2008 and 2009 , and at this time , plans for re-visiting capacity expansion in 2010 appear to be relatively limited . in 2008 , many carriers raised their per seat yields by increasing fares , assessing fuel surcharges and increasing the use of a la carte pricing for such items as baggage , food and beverage and preferred seating . to a large degree , the use of ancillary fees to supplement revenues have remained , and in some cases been expanded . however , as overall travel demand waned at the end of 2008 and into 2009 , carriers began lowering ticket prices in order to attract more leisure travelers . expedia generally favors a low fare environment , as low fares tend to encourage leisure travel , leave more of the travel budget for hotel spend and because our air revenues are tied principally to ticket volumes , not prices . hence , the 2009 fare environment was a favorable one for expedia , as airfares on tickets sold by expedia decreased 15 % in 2009. more recently , however , given the stabilization in the macro economy and aggressive capacity reductions , carriers have been cutting fares less aggressively . in the fourth quarter of 2009 , fares were down just 4 % , and our expectations are for fares to begin growing again in 2010. in addition to capacity and pricing actions , carriers have responded to industry conditions by aggressively reducing costs in every aspect of their operations , including distribution costs . prior to 2008 , airlines lowered ( and in some cases , eliminated ) travel agent commissions and overrides , and increased direct distribution through their proprietary websites . carriers also reduced payments to gds intermediaries , which have historically passed on a portion of these payments to large travel agents , including expedia . in 2009 , expedia.com and other major online travel agencies began offering air tickets to consumers without an associated online booking fee , matching the airline supplier sites , which also do not charge online booking fees . expedia has broadened this fee elimination to many of its international websites , as well as removed most 39 change/cancel fees in excess of those charged by travel suppliers . story_separator_special_tag strategy we play a fundamental role in facilitating travel , whether for leisure , unmanaged business or managed business travelers . we are committed to providing travelers , travel suppliers and advertisers the world over with the best set of resources to serve their travel needs by leveraging expedia 's critical assets our brand portfolio , technology and content innovation , global reach and breadth of product offering . in addition , we intelligently utilize our growing base of knowledge about destinations , activities , suppliers and travelers and our central position in the travel value chain to more effectively merchandise our travel offerings . a discussion of the critical assets that we leverage in achieving our business strategy follows : portfolio of travel brands . we seek to appeal to the broadest possible range of travelers , suppliers and advertisers through our collection of industry-leading brands . we target several different demographics , from the value-conscious traveler through our hotwire brand to luxury travelers seeking a high-touch , customized vacation package through our classic vacations brand . we believe our flagship expedia brand appeals to the broadest range of travelers , with our extensive product offering ranging from single item bookings of discounted product to dynamic bundling of higher-end travel packages . our hotels.com site and its international versions target travelers with premium hotel content such as 360 degree tours and hotel reviews . in the united states , hotels.com generally appeals to travelers with shorter booking windows who prefer to drive to their destinations , and who make a significant portion of their travel bookings over the telephone . through egencia , we make travel products and services available on a managed basis to corporate travelers in north america , europe and the asia pacific region . further , our tripadvisor media network allows us to reach a broad range of travelers with travel opinions and user-generated content . we believe our appeal to suppliers and advertisers is further enhanced by our geographic breadth and range of business models , allowing them to offer their products and services to the industry 's broadest range of travelers using our various agency , merchant and advertising business models . we intend to continue supporting and investing in our brand portfolio , geographic footprint and business models for the benefit of our travelers , suppliers and advertisers . technology and content innovation . expedia has an established tradition of technology innovation , from expedia.com 's inception as a division of microsoft to our introduction of more recent innovations such as expedia 's introduction of its expedia easy manage program , offering smaller properties in secondary and 41 tertiary markets in europe and asia pacific through an agency model hotel program , media solutions introduction of rich media display ads called storepoint expandables , tripadvisor 's launch of its family vacation critic , which offers reviews of kid-friendly and parent-tested hotels , resorts , attractions and destinations to help parents select the best family vacation , and flipkey 's launch of self-service listings for vacation property owners to merchandise their offerings . we intend to continue innovating on behalf of our travelers , suppliers and advertisers with particular focus on improving the traveler experience , supplier integration and presentation , platform improvements , search engine marketing and search engine optimization . global reach . our expedia , hotels.com and tripadvisor media network brands operate both in north america and internationally . we also offer chinese travelers an array of products and services through our majority ownership in elong and through our tripadvisor brands daodao.com and kuxun.cn , and we offer hotels to european-based travelers through our wholly-owned subsidiary venere , which we acquired in the third quarter of 2008. in 2009 , approximately 34 % of our worldwide gross bookings and 37 % of worldwide revenue were international . egencia , our corporate travel business , operates in north america , europe , the middle east , africa , and the asia pacific region using direct points of sale as well as strategic partnerships . we believe the corporate travel sector represents a significant opportunity for expedia , and we believe we offer a compelling technology solution to businesses seeking to optimize travel costs and improve their employees ' travel experiences . we intend to continue investing in and expanding the geographic footprint and technology infrastructure of egencia . in expanding our global reach , we leverage significant investments in technology , operations , brand building , supplier relationships and other initiatives that we have made since the launch of expedia.com in 1996. we intend to continue leveraging this investment when launching additional points of sale in new countries , introducing new website features , adding supplier products and services including new business model offerings , as well as proprietary and user-generated content for travelers . our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers . as an example , our traveler review feature whereby our travelers have created millions of qualified reviews of hotel properties is able to accumulate a larger base of reviews due to the higher base of online traffic that frequents our various websites . in addition , our increasing scale enhances our websites ' appeal to travel and non-travel advertisers . we intend to continue investing in and growing our international points of sale . we anticipate launching points of sale in additional countries where we find large travel markets and rapid growth of online commerce . future launches may occur under any of our brands , or through acquisition of third party brands , as in the case of elong , venere , kuxun and egencia . breadth of product offering . we offer a comprehensive array of innovative travel products and services to our travelers . we plan to continue improving and growing these offerings , as well as expand them to our worldwide points of sale over time .
| results of operations revenue replace_table_token_4_th in 2009 , the increase in revenue was primarily due to increases within our leisure segment in hotel , car and advertising and media revenue and an increase within our tripadvisor media segment in advertising and media revenue . these increases were partially offset by a decrease in air revenue . worldwide hotel revenue increased 2 % in 2009 compared to 2008 primarily due to a 23 % increase in room nights stayed , including rooms delivered as a component of packages and room nights booked through venere ( which we acquired in september 2008 ) , partially offset by a 17 % decline in revenue per room night . revenue per room night declined largely due to a 15 % decrease in adrs , including a reduction in traveler fees . excluding room nights stayed through venere , room nights grew 20 % for the year . worldwide air revenue decreased 13 % in 2009 compared to 2008 due to a 24 % decrease in revenue per air ticket , partially offset by a 15 % increase in ticket volumes . expedia.com eliminated consumer booking fees on online air tickets in march 2009 , with certain other points of sale following at various dates into the third quarter of 2009 , which primarily drove the decline in revenue per ticket . this elimination of fees on expedia.com and other points of sale , combined with lower average ticket prices , contributed to the increase in our air ticketing volumes . worldwide revenue other than hotel and air discussed above , which includes advertising and media , car rental , destination services and agency cruise , increased by 5 % in 2009 compared to 2008 primarily due to an increase in our advertising and media revenue and car rental revenue . in 2008 , the increase in revenue was primarily due to increases in worldwide hotel revenue and advertising and media revenue .
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our actual results may differ materially from those contained in or implied by the forward-looking statements . you should read the following discussion together with the sections entitled `` risk factors , '' `` selected historical financial data , '' `` liquidity and capital resources '' and the consolidated financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. except as otherwise indicated or unless the context otherwise requires , all references to `` black knight , '' the `` company , '' `` we , '' `` us '' or `` our '' are to black knight , inc. , a delaware corporation , and its subsidiaries ( `` bki '' ) . overview we are an award-winning software , data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries , as well as the capital and secondary markets . businesses leverage our robust , integrated solutions across the entire homeownership life cycle to help retain existing clients , gain new clients , mitigate risk and operate more effectively . our clients rely on our proven , comprehensive , scalable products and our unwavering commitment to delivering exceptional client support to achieve their strategic goals and better serve their customers . we have market-leading vertical software solutions combined with comprehensive real estate data and extensive analytic capabilities . our solutions are utilized by u.s. mortgage loan originators and servicers , as well as other financial institutions , investors and real estate professionals , to support mortgage lending and servicing operations , analyze portfolios and properties , operate more efficiently , meet regulatory compliance requirements and mitigate risk . we believe the breadth and depth of our comprehensive end-to-end , integrated solutions and the insight we provide to our clients differentiate us from other software providers and position us particularly well for evolving opportunities . we have served the mortgage loan and real estate industries for over 55 years and utilize this experience to design and develop solutions that fit our clients ' ever-evolving needs . our proprietary software solutions and data and analytics capabilities are designed to reduce manual processes , support compliance and quality , mitigate risk and deliver significant cost savings to our clients . our scale allows us to continually and cost-effectively invest in our business in order to meet industry requirements and maintain our position as a provider of industry-standard platforms for mortgage loan market participants . the table below summarizes the number of active first and second lien mortgage loans on our mortgage loan servicing software solution and the related market data , reflecting our leadership in the mortgage loan servicing software solutions market ( in millions ) : replace_table_token_4_th _ ( 1 ) according to the black knight mortgage monitor reports as of december 31 , 2020 and 2019 for u.s. first lien mortgage loans . ( 2 ) according to the january 2021 and december 2019 equifax national consumer credit trends reports as of january 4 , 2021 and september 30 , 2019 , respectively , for u.s. second lien mortgage loans . we offer our solutions to a wide range of clients across the mortgage and consumer loan , real estate and capital markets verticals . the quality and breadth of our solutions contribute to the long-standing nature of our relationships with our clients , the majority of whom enter into long-term contracts across multiple products that are embedded in their mission critical workflow and decision processes , particularly in the software solutions segment . given the contractual nature of our revenues and stickiness of our client relationships , our revenues are highly visible and recurring in nature . due to our integrated suite of solutions and our scale , we are able to drive significant operating leverage , which we believe enables our clients to operate more efficiently while allowing us to generate strong margins and cash flows . our markets the u.s. mortgage loan market is large , and the loan lifecycle is complex and consists of several stages . the mortgage loan lifecycle includes origination , servicing and default . mortgage loans are originated to finance home purchases or refinance existing mortgage loans . once a mortgage loan is originated , it is serviced on a periodic basis by mortgage servicers , which 25 may not be the lenders that originated the mortgage loan . furthermore , if a mortgage loan goes into default , it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables . underlying the three major stages of the mortgage loan lifecycle are the software , data and analytics support behind each process , which have become increasingly critical to industry participants . as the industry has grown in complexity , participants have responded by outsourcing to large-scale specialty providers , automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan lifecycle . recent developments 2020 acquisitions on march 3 , 2020 , we completed the acquisition of collateral analytics , llc ( `` collateral analytics '' ) , a provider of real estate products and tools to support appraisers , appraisal management companies , lenders , investors and government agencies . the acquisition is integrated into our data and analytics segment and enhances our real estate solutions and automated valuation model offerings . on august 27 , 2020 , we completed the acquisition of docverify , a solution that provides proof of the integrity of digital documents , enabling organizations across a wide range of industries to streamline processes , safeguard sensitive information and reduce costs . docverify is reported within our software solutions segment and helps accelerate our goal of digitizing the entirety of the real estate and mortgage continuum as docverify 's trusted and proven digital document verification capabilities are integrated with expedite ® close , our digital closing platform . story_separator_special_tag on march 27 , 2020 the coronavirus aid , relief and economic security act ( the `` cares act '' ) was signed into law in an effort to provide economic assistance to workers , families and businesses and codified the actions of hud and the fhfa . subsequent to the cares act , the federal housing administration ( `` fha '' ) extended the moratorium on mortgage loan foreclosures and evictions through at least june 30 , 2021. in addition , many states have implemented additional guidance that extends their moratorium on mortgage loan foreclosures and evictions , and additional extensions of these moratoriums may be implemented in the future . there are no comparable events that provide guidance as to the effect the covid-19 pandemic may have , and , as a result , the ultimate effect of the pandemic is uncertain and subject to change . we do not yet know the full extent of the effects on the economy , the markets we serve , our business or our operations . 27 black knight response and the effect on our business we continue to execute on our business continuity plans to address the challenges related to the ongoing covid-19 pandemic . since march 2020 , substantially all of our employees have been working from home . we are following the requirements and protocols published by the u.s. centers for disease control , the who and country , state and local governments . our most important priorities are the health and safety of our employees and helping the communities where we work and live . we continue to assess when and how we will begin to lift the actions put in place as part of our business continuity plans , including working from home and travel restrictions , while we continue to offer our clients the high level of service they have come to expect from us . we believe our transition to working from home has been successful and has not significantly affected our results of operations , financial condition , cash flows or control environment as of and for the year ended december 31 , 2020. the extraordinary effects of the broad-based response to the covid-19 pandemic have delayed the timing of certain revenues . specifically , the current mortgage loan foreclosure moratorium and forbearance plans offered as part of the cares act are reducing the number of foreclosures being processed on our bankruptcy sm /foreclosure sm and invoicing sm software solutions for which revenue is recognized as transactions occur . for the year ended december 31 , 2020 , approximately $ 37 million in revenues were delayed beyond 2020. many of our clients continue to work from home while experiencing origination volume increases as well as an elevated number of customer service calls . as a result , we initially saw delays to some of our implementation timelines , but continue to make progress while many of our clients and team members continue to work remotely . our teams are focused on supporting our clients in this shifting landscape and stand ready to deliver our solutions . our clients have realized there will be significant changes in how their customers want to , or are able to , interact with them throughout the pandemic and beyond . in reaction to these changes , our clients are prioritizing automated technology solutions that enable them to remotely engage with their customers and provide streamlined ways of performing the core functions of their businesses , all while maintaining regulatory compliance in an environment that is rapidly changing . we believe our solutions are well-positioned to help our clients address these needs . we partner with many of the industry 's leading lenders and servicers and believe it is our duty to serve in a leadership role as we manage through this crisis and beyond . from the start of the covid-19 crisis , we have worked to provide leadership on behalf of our clients and to provide them with actionable intelligence , including our monthly mortgage monitor report and our mcdash flash forbearance tracker . we have also published in-depth white papers , held town hall meetings with our clients and have had frequent meetings with senior executives at our clients , government agencies and industry associations . we believe the in-depth data and insights we offer are essential for both mortgage market participants and government entities as we work together to address the economic ramifications of the crisis . our investment and innovation in digital mortgage loan solutions have made it possible for a majority of the mortgage application , underwriting and closing processes to happen online and remotely . our industry-leading servicing system and a mortgage loan contributory data set represents a majority of the u.s. market and is modeled to represent the entire u.s. market . our robust analytics and seamless integration ties them all together and allows for real-time visibility into the majority of active mortgage loans and a holistic view of the homeownership lifecycle . the depth of our integrated software , data and analytics enables clients to see what the effects of the pandemic mean for their business and industry . our clients use these robust solutions for modeling , forecasting and reserve setting , which is critical , especially in this current environment . market trends market trends that have spurred lenders and servicers to seek software , data and analytics solutions are as follows : integral role of technology in the u.s. mortgage loan industry . over the past few years , banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements as well as using technology to enhance the consumer experience during the mortgage loan origination , closing and servicing processes . since the start of the pandemic , our clients have become increasingly aware that digital solutions are integral to their ability to stay connected with their customer base in times when face-to-face interactions are not possible .
| results of operations key performance metrics revenues , ebitda and ebitda margin for the software solutions and data and analytics segments are presented in conformity with asc topic 280 , segment reporting . these measures are reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance . for these reasons , these measures are excluded from the definition of non-gaap financial measures under the securities and exchange commission 's ( `` sec '' ) regulation g and item 10 ( e ) of regulation s-k. consolidated results of operations the following tables present certain financial data for the periods indicated ( dollars in millions ) : replace_table_token_6_th year ended december 31 , 2020 compared to year ended december 31 , 2019 segment financial results revenues the following table sets forth revenues by segment for the periods presented ( in millions ) : replace_table_token_7_th _ ( 1 ) revenues for corporate and other represent deferred revenue purchase accounting adjustments recorded in accordance with gaap . 33 software solutions revenues were $ 1,040.2 million in 2020 compared to $ 1,012.3 million in 2019 , an increase of $ 27.9 million , or 3 % . our servicing software solutions revenues decreased 5 % , or $ 37.8 million , as increased revenues from new and existing clients on msp ® were more than offset by the effect of client deconversions and approximately $ 37 million of lower revenues related to the effect of lower foreclosure related volumes due to the foreclosure moratorium as part of the cares act . our origination software solutions revenues increased 33 % , or $ 65.7 million , primarily driven by revenues of $ 37.6 million from our acquisition of optimal blue , increased revenues from new clients and higher origination volumes , partially offset by higher license and termination fees in the prior year .
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as a result , company franchisees have temporarily closed some retail locations , reduced or modified store operating hours , adopted a “ to-go ” only operating model , or a combination these actions . these actions have reduced consumer traffic , all resulting in a negative impact to company revenues . while the disruption to our business from the covid-19 pandemic is currently expected to be temporary , there is a great deal of uncertainty around the severity and duration of the disruption , and also the longer-term effects on our business and economic growth and consumer demand in the u.s. and worldwide . the effects of covid-19 may materially adversely affect our business , results of operations , liquidity and ability to service our existing debt , particularly if these effects continue in place for a significant amount of time . as additional information becomes available regarding the potential impact and the duration of the negative financial effects of the current pandemic , the company may determine that an impairment adjustment to the recorded value of trademarks , goodwill and other intangible assets may be necessary . executive overview business overview fat brands inc. , formed in march 2017 as a wholly owned subsidiary of fog cutter capital group , inc. ( “ fccg ” ) , is a leading multi-brand restaurant franchising company that develops , markets , and acquires predominantly fast casual restaurant concepts around the world . on october 20 , 2017 , we completed an initial public offering and issued additional shares of common stock representing 20 percent of our ownership ( the “ offering ” ) . as of december 29 , 2019 , fccg continues to control a significant voting majority of the company . as a franchisor , we generally do not own or operate restaurant locations , but rather generate revenue by charging franchisees an initial franchise fee as well as ongoing royalties . this asset light franchisor model provides the opportunity for strong profit margins and an attractive free cash flow profile while minimizing restaurant operating company risk , such as long-term real estate commitments or capital investments . our scalable management platform enables us to add new stores and restaurant concepts to our portfolio with minimal incremental corporate overhead cost , while taking advantage of significant corporate overhead synergies . the acquisition of additional brands and restaurant concepts as well as expansion of our existing brands are key elements of our growth strategy . as of december 29 , 2019 , the company owns eight restaurant brands : fatburger , buffalo 's cafe , buffalo 's express , hurricane grill & wings , ponderosa and bonanza steakhouses , elevation burger and yalla mediterranean , that have over 370 locations open . operating segments with minor exceptions , our operations are comprised exclusively of franchising a growing portfolio of restaurant brands . our growth strategy is centered on expanding the footprint of existing brands and acquiring new brands through a centralized management organization which provides substantially all executive leadership , marketing , training and accounting services . while there are variations in the brands , the nature of our business is fairly consistent across our portfolio . consequently , our management assesses the progress of our operations as a whole , rather than by brand or location , which has become more significant as the number of brands has increased . our chief operating decision maker ( “ codm ” ) is our chief executive officer . our codm reviews financial performance and allocates resources at an overall level on a recurring basis . therefore , management has determined that the company has one operating and reportable segment . story_separator_special_tag its acquisition in 2018. other expense , net – other expense , net for the fiscal year ended december 29 , 2019 totaled $ 7,211,000 and consisted primarily of net interest expense of $ 6,530,000. other expense for the fiscal year ended december 30 , 2018 totaled $ 6,309,000 and consisted primarily of net interest expense of $ 4,770,000. an increase in total average debt outstanding and the costs related to refinancing resulted in the higher interest expense . provision for income taxes – we recorded a provision for income taxes of $ 501,000 for the fiscal year ended december 29 , 2019 and an income tax benefit of $ 275,000 for the fiscal year ended december 30 , 2018. these tax results were based on a net loss before taxes of $ 508,000 for 2019 compared to net loss before taxes of $ 2,073,000 for 2018. non-deductible expenses , such as accrued and paid dividends on preferred stock , contributed to the higher tax expense for 2019 as a percentage of pre-tax loss . liquidity and capital resources liquidity is a measurement of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund business operations , acquisitions , and expansion of franchised restaurant locations and for other general business purposes . in addition to our cash on hand , our primary sources of funds for liquidity during the fiscal year ended december 29 , 2019 consisted of cash provided by our operations . we are involved in a world-wide expansion of franchise locations , which will require significant liquidity , primarily from our franchisees . if real estate locations of sufficient quality can not be located and either leased or purchased , the timing of restaurant openings may be delayed . additionally , if we or our franchisees can not obtain capital sufficient to fund this expansion , the timing of restaurant openings may be delayed . we also plan to acquire additional restaurant concepts . these acquisitions typically require capital investments in excess of our normal cash on hand . we would expect that future acquisitions will necessitate financing with additional debt or equity transactions . if we are unable to obtain acceptable financing , our ability to acquire additional restaurant concepts may be negatively impacted . story_separator_special_tag ● on july 16 , 2018 , the company issued 161,117 shares of common stock to fccg at a price of $ 5.96 per share in satisfaction of $ 960,000 dividend payable . ● on october 31 , 2018 , the company issued 180,635 shares of common stock to fccg at a price of $ 6.18 per share in satisfaction of the $ 1,116,091 dividend payable . the declaration and payment of future dividends , as well as the amount thereof , are subject to the discretion of our board of directors . the amount and size of any future dividends will depend upon our future results of operations , financial condition , capital levels , cash requirements and other factors . there can be no assurance that we will declare and pay dividends in future periods . loan and security agreement on january 29 , 2019 , the company as borrower , and its subsidiaries and affiliates as guarantors , entered into a loan and security agreement ( the “ loan and security agreement ” ) with the lion fund , l.p. and the lion fund ii , l.p. ( “ lion ” ) . pursuant to the loan and security agreement , we borrowed $ 20.0 million from lion , and utilized the proceeds to repay the existing $ 16.0 million term loan from fb lending , llc plus accrued interest and fees , and to provide additional general working capital to the company . the obligation under the loan and security agreement was to mature on june 30 , 2020. interest on the term loan accrued at an annual fixed rate of 20.0 % and was payable quarterly . we were allowed to prepay all or a portion of the outstanding principal and accrued unpaid interest under the loan and security agreement at any time upon prior notice to lion without penalty , other than a make-whole provision providing for a minimum of six months ' interest . in connection with the loan and security agreement , we issued to lion a warrant to purchase up to 1,167,404 shares of the company 's common stock at $ 0.01 per share ( the “ lion warrant ” ) , exercisable only if the amounts outstanding under the loan and security agreement were not repaid in full by june 30 , 2020. as security for its obligations under the loan agreement , we granted a lien on substantially all our assets to lion . in addition , certain of our subsidiaries and affiliates entered into a guaranty ( the “ guaranty ” ) in favor of lion , pursuant to which they guaranteed our obligations under the loan and security agreement and granted as security for their guaranty obligations a lien on substantially all of their assets . 38 the loan and security agreement contained customary affirmative and negative covenants , including covenants that limit or restricted our ability to , among other things , incur other indebtedness , grant liens , merge or consolidate , dispose of assets , pay dividends or make distributions , in each case subject to customary exceptions . the loan and security agreement also included customary events of default that included , among other things , non-payment , inaccuracy of representations and warranties , covenant breaches , events that result in a material adverse effect ( as defined in the loan and security agreement ) , cross default to other material indebtedness , bankruptcy , insolvency and material judgments . the occurrence and continuance of an event of default could have resulted in the acceleration of our obligations under the loan and security agreement and an increase in the interest rate by 5.0 % per annum . on june 19 , 2019 , we amended our existing loan facility with lion . we entered into a first amendment to the loan and security agreement ( the “ first amendment ” ) , which amended the loan and security agreement originally dated january 29 , 2019. pursuant to the first amendment , we increased our borrowings by $ 3,500,000 in order to fund the elevation buyer note in connection with the acquisition of elevation , acquire other assets and pay fees and expenses of the transactions . the first amendment also added the acquired elevation-related entities as guarantors and loan parties . we agreed to pay lion an extension fee of $ 500,000 in the form of an increase in the principal amount loaned under the loan and security agreement , and on july 24 , 2019 entered into a second amendment to the loan agreement ( the “ second amendment ” ) to reflect this increase . under the second amendment , the parties also agreed to amend the loan and security agreement to provide for a late fee of $ 400,000 payable if we failed to make any quarterly interest payments by the fifth business day after the end of each fiscal quarter beginning in the third quarter of 2019. on march 9 , 2020 , we repaid the loan and security agreement in full and the lion warrant was cancelled . capital expenditures as of december 29 , 2019 , we do not have any material commitments for capital expenditures . critical accounting policies and estimates franchise fees : the franchise arrangement is documented in the form of a franchise agreement . the franchise arrangement requires us to perform various activities to support the brand that do not directly transfer goods and services to the franchisee , but instead represent a single performance obligation , which is the transfer of the franchise license . the services provided by us are highly interrelated with the franchise license and are considered a single performance obligation . franchise fee revenue from the sale of individual franchises is recognized over the term of the individual franchise agreement . unamortized non-refundable deposits collected in relation to the sale of franchises are recorded as deferred franchise fees . the franchise fee may be adjusted at management 's discretion or in a situation involving store transfers .
| results of operations we operate on a 52-week or 53-week fiscal year ending on the last sunday of the calendar year . in a 52-week fiscal year , each quarter contains 13 weeks of operations . in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations , which may cause our revenue , expenses and other results of operations to be higher due to an additional week of operations . the 2019 and 2018 fiscal years were each 52-week years . 34 results of operations of fat brands inc. the following table summarize key components of our consolidated results of operations for the fiscal years ended december 29 , 2019 and december 30 , 2018 . certain account balances from the prior period have been reclassified to conform to current period presentation . ( in thousands ) for the fiscal years ended replace_table_token_4_th net loss - net loss for the fiscal year ended december 29 , 2019 totaled $ 1,018,000 consisting of revenues of $ 22,505,000 less costs and expenses of $ 15,802,000 , other expense of $ 7,211,000 and provision for income tax of $ 510,000. net loss for the fiscal year ended december 30 , 2018 totaled $ 1,798,000 consisting of revenues of $ 18,367,000 less costs and expenses of $ 14,131,000 , other expense of $ 6,309,000 and income tax benefit of $ 275,000. revenues - revenues consist of royalties , franchise fees , advertising fees and management fees and other income .
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in addition to historical consolidated financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions as described under the “ note regarding forward-looking statements , ” that appears earlier in this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors , including those discussed under item 1a : “ risk factors , ” and elsewhere in this annual report on form 10-k. unit of power when referring to our manufacturing capacity , total sales and components sales , the unit of electricity in watts for megawatts ( “ mw ” ) and gigawatts ( “ gw ” ) is direct current ( “ dc ” ) unless otherwise noted . when referring to our solar power systems , the unit of electricity in watts for mw and gw is alternating current ( “ ac ” ) unless otherwise noted . overview we are a premium global provider of solar energy solutions . we manufacture and sell photovoltaic ( “ pv ” ) solar modules with an advanced thin-film semiconductor technology , and we design , construct , and sell pv solar power systems that use the solar modules we manufacture . we are the world 's largest thin-film pv solar module manufacturer and one of the world 's largest pv solar module manufacturers . in addressing overall global demand for pv solar electricity , we have developed a differentiated , fully integrated systems business that can provide a competitively priced turn-key utility-scale pv system solution for system owners and competitively priced electricity to utility end-users . our fully integrated systems business , which uses the solar modules we manufacture , has enabled us to increase module throughput , drive cost reduction across the value chain , identify and break constraints to sustainable markets , and deliver compelling solutions to our customers and end-users . with our fully integrated systems business , we believe we are in a position to expand our business in economically sustainable markets ( in which support programs are minimal ) , which are developing in areas with abundant solar resources and sizable electricity demand . we are committed to continually lowering the cost of solar electricity , and in the long term , we plan to compete on an economic basis with conventional fossil-fuel-based peaking power generation . 36 in furtherance of our goal of delivering affordable solar electricity , we are continually focused on reducing pv solar system costs in four primary areas : module manufacturing , balance of systems ( “ bos ” ) costs ( consisting of the costs of the components of a solar power system other than the solar modules , such as inverters , mounting hardware , trackers , grid interconnection equipment , wiring and other devices , and installation labor costs ) , project development costs , and the cost of capital . first , with respect to our module manufacturing costs , our advanced technology has allowed us to reduce our average module manufacturing costs to among the lowest in the world for modules produced on a commercial scale , based on publicly available information . in 2012 , our total average manufacturing costs were $ 0.73 per watt , which is competitive on a comparable basis with those of traditional crystalline silicon solar module manufacturers , based on publicly available information . by continuing to improve conversion efficiency , production line throughput , and lower material costs , we believe that we can further reduce our manufacturing costs per watt and maintain cost competitiveness with traditional crystalline silicon solar module manufacturers . second , with respect to our bos cost reduction roadmap , we have aggressive programs which target key improvements in components and system design , which when combined with continued improvements in conversion efficiency , volume procurement around standardized hardware platforms , use of innovative installation techniques and know how , and accelerated installation times , are expected to result in substantial reductions to our bos costs enabling a lower system levelized cost of energy . third , with respect to our project development costs , we seek optimal site locations in an effort to minimize transmission and permitting costs , and to accelerate lead times to electricity generation . finally , with respect to the cost of capital , by continuing to demonstrate the financial viability and operational performance of our utility-scale pv solar power plants and increasing our pv solar power system operating experience , we believe we can continue to lower the cost of capital associated with our pv solar power systems , thereby further enhancing the economic viability of our projects and lowering the cost of electricity generated by pv solar power systems that incorporate our modules and technology . we believe that combining our reliable , low-cost module manufacturing capability with our systems business enables us to more rapidly reduce the price of solar electricity , accelerate the adoption of our technology in utility-scale pv solar power systems , and identify and remove constraints to the successful migration to sustainable solar markets around the world . our vertically integrated capabilities enable us to maximize value and mitigate risk for our customers and thereby deliver meaningful pv energy solutions to varied energy problems worldwide . we offer leadership across the entire solar value chain , resulting in more reliable and cost effective pv energy solutions for our customers , and furthering our mission to create enduring value by enabling a world powered by clean , affordable solar electricity . we operate our business in two segments . our components segment involves the design , manufacture , and sale of solar modules which convert sunlight into electricity . third-party customers of our components segment include project developers , system integrators , and operators of renewable energy projects . story_separator_special_tag in september 2012 , we announced execution of power purchase agreements with pacific gas and electric company ( “ pg & e ” ) for 72 mw ac of solar electricity to be generated at two pv power plants that first solar is developing in central california : the 32 mw ac lost hills project in kern county and the 40 mw ac cuyama project in santa barbara county . in september 2012 , we also announced the entry into agreements to construct four solar power plants totaling up to 22 mw ac in new mexico for pnm resources , inc. in january 2013 , we announced that we started constructing the 139 mw ac campo verde solar project , located near el centro in imperial county , california . we also announced in january 2013 our acquisition of the 50 mw ac macho springs solar project in luna county , new mexico , which will be the state 's largest solar power project when completed . in 2012 , industry average module pricing continued to decline as competitors reduced prices to sell-through inventories worldwide . lower industry module pricing , while currently challenging for solar manufacturers ( particularly manufacturers with high cost structures ) , is expected to continue to contribute to global market diversification and volume elasticity . over time , declining average selling prices are consistent with the erosion of one of the primary historical constraints to widespread solar market penetration , its affordability . in the near term , however , in light of industry-wide manufacturing capacity that exceeds demand , it is uncertain whether growing worldwide demand can absorb industry-wide module supply without further inventory build-up and or price reductions , which could adversely affect our results of operations . if competitors reduce module pricing to levels below their manufacturing costs , or are able to operate at minimal or negative operating margins for sustained periods of time , our results of operations could be further adversely affected . we continue to mitigate this uncertainty in part by executing on and building our utility-scale systems pipeline as a buffer against demand fluctuations , accelerating our module efficiency improvements and cost reduction roadmaps to maintain and increase our competitiveness , profitability and capital efficiency , adjusting our production plans and capacity utilization to match our expected demand , and continuing the development of worldwide geographic markets , including those in india , australia , the middle east , latin america , and china . in the components business , we continue to face intense competition from manufacturers of crystalline silicon solar modules and other types of solar modules and pv systems . solar module manufacturers compete with one another in several product performance attributes , including reliability and selling price per watt , and , with respect to solar power systems , return on equity ( “ roe ” ) and levelized cost of electricity ( “ lcoe ” ) , meaning the net present value of total life cycle costs of the solar power project divided by the quantity of energy which is expected to be produced over the system 's life . we are among the lowest cost pv module manufacturers in the solar industry , based on publicly available information . this cost competitiveness is reflected in the price at which we sell our modules and fully integrated systems and enables our systems to compete favorably in respect of their roe or lcoe . our cost competitiveness is based in large part on our proprietary technology ( which enables conversion efficiency improvements and enables us to produce a module in less than 2.5 hours using a continuous and highly automated industrial manufacturing process , as opposed to a batch process ) , our scale , and our operational excellence . in addition , our modules 38 use approximately 1-2 % of the amount of semiconductor material ( i.e. , silicon ) that is used to manufacture traditional crystalline silicon solar modules . the cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules , and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels . polysilicon costs have declined over the past several years , contributing to a decline in our manufacturing cost competitiveness over crystalline silicon module manufacturers . given the lower conversion efficiency of our modules compared to many types of crystalline silicon modules , there may be higher bos costs associated with systems using our modules . thus , to compete effectively on the basis of lcoe , our modules need to maintain a certain cost advantage per watt compared to crystalline silicon-based modules with higher conversion efficiencies . we continue to reduce bos costs associated with systems using our modules . we believe we can continue to reduce bos costs by improving conversion efficiency , leveraging volume procurement around standardized hardware platforms , using innovative installation techniques and know how , and accelerating installation times . bos costs can represent a significant portion of the costs associated with the construction of a typical utility-scale pv solar power system . while our modules are currently competing in these product performance attributes , there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all . any declines in the competitiveness of our products could result in additional margin compression , further declines in the average selling prices of our solar modules , erosion in our market share for modules , decreases in the rate of net sales growth , and or declines in overall net sales . we have taken , and continue to take , various actions to mitigate the potential impact resulting from competitive pressures , including adjusting our pricing policies as necessary , accelerating progress along our module and bos cost reduction roadmaps , and focusing our research and development on increasing the conversion efficiency of our solar modules .
| results of operations the following table sets forth our consolidated statements of operations as a percentage of net sales for the years ended december 31 , 2012 , december 31 , 2011 , and december 31 , 2010 : 51 replace_table_token_8_th segment overview we operate our business in two segments . our components segment involves the design , manufacture , and sale of solar modules which convert sunlight into electricity . third-party customers of our components segment include project developers , system integrators , and operators of renewable energy projects . our second segment is our fully integrated systems business ( “ systems segment ” ) , through which we provide complete turn-key pv solar power systems , or solar solutions that draw upon our capabilities , which include ( i ) project development , ( ii ) engineering , procurement , and construction ( “ epc ” ) services , ( iii ) operating and maintenance ( “ o & m ” ) services , and ( iv ) project finance expertise . we may provide our full epc services or any combination of individual products and services within our epc capabilities depending upon the customer and market opportunity . all of our systems segment products and services are for pv solar power systems which use our solar modules , and such products and services are sold directly to investor owned utilities , independent power developers and producers , commercial and industrial companies , and other system owners . in our operating segment financial disclosures , we include an allocation of sales value for all solar modules manufactured by our components segment and installed in projects sold or built by our systems segment in the net sales of our components segment . in the gross profit of our operating segment disclosures , we include the corresponding cost of sales value for the solar modules installed in projects sold or built by our systems segment in the components segment . the cost of solar modules is comprised of the manufactured cost incurred by our components segment .
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all credit card and debit card story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see item 1a . risk factors. overview we are a direct marketer of a wide range of information technology , or it , solutions . we help our customers design , enable , manage , and service their it environments . we provide it products , including computer systems , software and peripheral equipment , networking communications , and other products and accessories that we purchase from manufacturers , distributors , and other suppliers . we also offer services involving design , configuration , and implementation of it solutions . these services are performed by our personnel and by third-party providers . we operate through three sales segments , which serve primarily : ( a ) small- to medium-sized businesses , or smbs , through our pc connection sales subsidiary , ( b ) large enterprise customers , in our large account segment , through our moredirect subsidiary , and ( c ) federal , state , and local government and educational institutions , in our public sector segment , through our govconnection subsidiary . we generate sales primarily through outbound telemarketing and field sales contacts by account managers focused on the business , education , and government markets , our websites , and inbound calls from customers responding to our catalogs and other advertising media . we seek to recruit , retain , and increase the productivity of our sales personnel through training , mentoring , financial incentives based on performance , and updating and streamlining our information systems to make our operations more efficient . as a value added reseller in the it supply chain , we do not manufacture it hardware or software . we are dependent on our suppliersmanufacturers and distributors that historically have sold only to resellers rather than directly to end users . however , certain manufacturers have on multiple occasions attempted to sell directly to our customers , and in some cases , have restricted our ability to sell their products directly to certain customers , thereby attempting to eliminate our role . we believe that the success of these direct sales efforts by suppliers will depend on their ability to meet our customers ' ongoing demands and provide objective , unbiased solutions to meet their needs . we believe more of our customers are seeking comprehensive it solutions , rather than simply the acquisition of specific it products . our advantage is our ability to be product-neutral and provide a broader combination of products , services , and advice tailored to customer needs . by providing customers with customized solutions from a variety of manufacturers , we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers . through the formation of our proconnection services group we are able to provide customers complete it solutions , from identifying their needs , to designing , developing , and managing the integration of products and services to implement their it projects . such service offerings carry higher margins than traditional product sales . additionally , the technical certifications of our service engineers permit us to offer higher-end , more complex products that generally carry higher gross margins . we expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross margins in this competitive environment . the primary challenges we continue to face in effectively managing our business are ( 1 ) increasing our revenues while at the same time improving our gross margin in all three segments , ( 2 ) recruiting , retaining , and improving the productivity of our sales personnel , and ( 3 ) effectively controlling our selling , general , and administrative , or sg & a , expenses while making major investments in our it systems and solution selling personnel . to support future growth , we are expanding our it solution business , which requires the addition of highly-skilled service engineers . although we expect to realize the ultimate benefit of higher-margin service revenues under this multi-year initiative , we believe that our cost of services will increase significantly as we add service engineers . if our service revenues do not grow enough to offset the cost of these headcount additions , our operating results may decline . 22 market conditions and technology advances significantly affect the demand for our products and services . virtual delivery of software products and advanced internet technology providing customers enhanced functionality have substantially increased customer expectations , requiring us to invest more heavily in our own it development to meet these new demands . this investment includes significant planned expenditures to update our websites , as buying trends change and electronic commerce continues to grow . our investments in it infrastructure are designed to enable us to operate more efficiently . in the third quarter of 2013 , we completed the first phase of a customer mdm software project , and placed into service $ 12.0 million of related software and integration costs . accordingly , depreciation expense will increase by an annual amount of approximately $ 2.0 million in 2014. the customer mdm software provides us with a more comprehensive view of our customers and serves as a foundation for future it investments . while we have not yet finalized our decisions regarding to what extent additional software will be acquired beyond the customer mdm software , we expect to increase our capital investments in our it infrastructure in the next three to five years , which will also likely increase sg & a expenses as the assets are placed into service and depreciated . story_separator_special_tag valign= '' top '' > gross profit for the smb segment increased due to higher net sales and an increase in gross margin . story_separator_special_tag selling , general and administrative expenses in 2012 increased in dollars and as a percentage of net sales compared to the prior year , as described below . sg & a expenses attributable to our operating segments , including headquarters/other group expenses allocated to segments , and remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_14_th sg & a expenses for the smb segment decreased in dollars but were unchanged as a percentage of net sales . advertising expense and credit card fees decreased in dollars due to our reduced focus on consumer and soho customers , and the two decreases offset incremental variable compensation associated with the increase in gross profits . in addition , sg & a expense also decreased due to lower usage of centralized headquarters services . sg & a expenses for the large account segment increased in dollars and as a percentage of net sales primarily due to investments in sales support and incremental variable compensation associated with higher gross profit . sg & a expenses for the public sector segment was unchanged in dollars but decreased as a percentage of net sales . personnel expense decreased due to reduced staffing levels but was offset by increased usage of centralized headquarters services . unallocated sg & a expenses for the headquarters/other group increased due to an increase in unallocated personnel and other costs related to senior management . the headquarters/other group provides services to the three operating segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown above represent the remaining unallocated costs . 28 income from operations increased by $ 7.0 million to $ 54.6 million in 2012 , from $ 47.6 million in 2011. income from operations as a percentage of net sales increased to 2.5 % for 2012 from 2.3 % in 2011. the increase in operating income resulted from an increase in sales and gross margin . income taxes . our effective tax rate was 39.3 % for both 2012 and 2011. net income increased by $ 4.3 million to $ 33.1 million in 2012 from $ 28.8 million in 2011 , principally due to the increase in operating income . liquidity and capital resources liquidity overview our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit . we have used those funds to meet our capital requirements , which consist primarily of working capital for operational needs , capital expenditures for computer equipment and software used in our business , repurchases of common stock for treasury , dividend payments , and as opportunities arise , possible acquisitions of new businesses . we believe that funds generated from operations , together with available credit under our bank line of credit , will be sufficient to finance our working capital , capital expenditure , and other requirements for at least the next twelve calendar months . we expect our capital needs for the next twelve months to consist primarily of capital expenditures of $ 8.0 to $ 10.0 million and payments on leases and other contractual obligations of approximately $ 3.7 million . we have undertaken a comprehensive review and assessment of our entire business software needs , including commercially available software that meets , or can be configured to meet , those needs better than our existing software . in 2013 , we capitalized $ 2.2 million of internally developed software costs related to our customer mdm software project . in the third quarter of 2013 , we completed the first phase of our customer mdm software project , and placed into service $ 12.0 million of related software and integration costs . while we have not finalized our decisions regarding to what extent new software will be acquired and implemented beyond the customer mdm software , the incremental capital costs of such a project , if fully implemented , would likely exceed $ 20.0 million over the next three to five years . we expect to meet our cash requirements for 2014 through a combination of cash on hand , cash generated from operations , and borrowings on our bank line of credit , as follows : cash on hand . at december 31 , 2013 , we had $ 42.5 million in cash . cash generated from operations . we expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate a positive cash flow . credit facilities . as of december 31 , 2013 , no borrowings were outstanding against our $ 50.0 million bank line of credit , which is available until february 24 , 2017. accordingly , our entire line of credit was available for borrowing at december 31 , 2013. this line of credit can be increased , at our option , to $ 80.0 million for approved acquisitions or other uses authorized by the bank . borrowings are , however , limited by certain minimum collateral and earnings requirements , as described more fully below . our ability to continue funding our planned growth , both internally and externally , is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing , or from other sources of financing , as may be required . while we do not anticipate needing any additional sources of financing to fund our operations at this time , if demand for it products declines , our cash flows from operations may be substantially affected . see also related risks listed below under item 1a .
| results of operations the following table sets forth information derived from our statements of income expressed as a percentage of net sales for the periods indicated : replace_table_token_6_th net sales increased in 2013 by $ 62.7 million , or 2.9 % , compared to 2012 , due to increased sales in our smb and large account segments . gross margin ( gross profit expressed as a percentage of net sales ) increased due to our continued focus on increasing sales of higher-margin solution products and services . sg & a expenses increased in dollars due to investments in solutions sales support and incremental variable compensation associated with higher gross profits , but was unchanged as a percentage of net sales . operating income as a percentage of net sales increased year over year due to the increase in net sales and gross margin . 23 sales distribution the following table sets forth our percentage of net sales by business segment and product mix : replace_table_token_7_th gross profit margins the following table summarizes our overall gross profit margins , as a percentage of net sales , for the last three years : replace_table_token_8_th on a consolidated basis , gross margin in 2013 increased year over year due to improved invoice selling margins ( 8 basis points ) . invoice selling margins improved due to our focus on increasing sales of higher-margin solution services and products , such as networking and software . cost of sales and certain other costs cost of sales includes the invoice cost of the product , direct employee and third party cost of services , direct costs of packaging , inbound and outbound freight , and provisions for inventory obsolescence , adjusted for discounts , rebates , and other vendor allowances . direct operating expenses relating to our purchasing function and receiving , inspection , warehousing , packing and shipping , and other expenses of our distribution center are included in our sg & a expenses .
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you can identify these forward-looking statements by the use of words such as “ outlook , ” “ believes , ” “ expects , ” “ potential , ” “ may , ” “ should , ” “ seeks , ” “ predicts , ” “ intends , ” “ plans , ” “ estimates , ” “ anticipates ” or the negative versions of these words or other comparable words . such forward-looking statements are subject to various risks and uncertainties . accordingly , there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these forward-looking statements . we believe that these factors include , but are not limited to , the risks described in item 1a . risk factors of this annual report on form 10-k. these factors are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this annual report on form 10-k. we undertake no obligation to publicly update or review any forward-looking statement , whether as a result of new information , future developments or otherwise . cohen & steers , inc. ( cns ) , a delaware corporation formed in 2004 , and its subsidiaries are collectively referred to as the company , we , us or our . executive overview general we are a global investment manager specializing in liquid real assets , including real estate securities , listed infrastructure , commodities and natural resource equities , as well as preferred securities and other income solutions . founded in 1986 , we are headquartered in new york city , with offices in london , hong kong , tokyo and seattle . our primary investment strategies include u.s. real estate securities , global/international real estate securities , global listed infrastructure , master limited partnerships ( mlps ) , commodities , real assets multi-strategy , preferred securities , large cap value and global natural resource equities . our strategies seek to achieve a variety of investment objectives for different risk profiles and are actively managed by specialist teams of investment professionals who employ fundamental-driven research and portfolio management processes . we offer our strategies through a variety of investment vehicles , including u.s. registered funds and other commingled vehicles and separate accounts , including subadvised portfolios for financial institutions and individuals around the world . our products and services are marketed through multiple distribution channels . we distribute our u.s. registered funds principally through financial intermediaries , including broker-dealers , registered investment advisers , banks and fund supermarkets . our funds domiciled in europe are marketed to individual and institutional investors through financial intermediaries , as well as privately to institutional investors . our institutional clients include corporate and public defined benefit and defined contribution pension plans , endowment funds and foundations , insurance companies and other financial institutions that access our investment management services directly , through consultants or through other intermediaries . our revenue is derived from fees received from our clients , including fees for managing or sub-advising client accounts ; investment advisory , administration , distribution and service fees received from company-sponsored open-end and closed-end funds ; and fees for portfolio consulting and other services . our fees are paid in arrears , based on contractually specified percentages of the value of the assets we manage and , in certain cases , investment performance . our revenue fluctuates with changes in the total value of our assets under management , which may occur as a result of investment performance , market conditions , foreign currency fluctuations , or investor subscriptions or redemptions , and is recognized over the period that the assets are managed . 2016 financial highlights revenue increased 6 % from the year ended december 31 , 2015 to $ 349.9 million for the year ended december 31 , 2016 . the increase in revenue was primarily attributable to higher average assets under management in open-end funds and institutional accounts . operating income increased 6 % from the year ended december 31 , 2015 to $ 135.5 million for the year ended december 31 , 2016 . operating margin decreased to 38.7 % for the year ended december 31 , 2016 , compared with 38.8 % for the year ended december 31 , 2015 . our effective tax rate was 35.3 % for the year ended december 31 , 2016 , compared with 42.9 % for the year ended december 31 , 2015 . 14 assets under management increased by $ 4.6 billion , or 9 % , in 2016 from $ 52.6 billion as of december 31 , 2015 to $ 57.2 billion as of december 31 , 2016 . the increase was driven by net inflows and market appreciation , partially offset by distributions . average assets under management increased by 7 % during 2016 from $ 52.7 billion during 2015 to $ 56.4 billion during 2016. our overall annual organic growth rate was 12.7 % for 2016. the organic growth rate represents the ratio of annual net flows to the beginning assets under management . recent business developments in november 2016 , dr. reena aggarwal joined the company 's board of directors and became a member of the company 's audit committee , compensation committee , and nominating and corporate governance committee . dr. aggarwal currently serves as vice provost for faculty at georgetown university and as a professor of finance and the director of the georgetown center for financial markets and policy at georgetown 's mcdonough school of business . dr. aggarwal also serves on the board of fbr & co. and indexiq . during the fourth quarter of 2016 , our recently launched real assets multi-strategy collective investment trust ( cit ) had net inflows of $ 425 million from a public pension fund . story_separator_special_tag the increase in institutional assets under management during 2016 was due to net inflows of $ 4.0 billion and market appreciation of $ 1.6 billion , partially offset by distributions of $ 3.0 billion . net inflows in 2016 included $ 2.4 billion into u.s. real estate , $ 775 million into real assets multi-strategy ( included in `` other '' in the table above ) and $ 428 million into preferred securities . market appreciation in 2016 included $ 924 million from u.s. real estate , $ 306 million from global/international real estate and $ 167 million from global listed infrastructure . distributions in 2016 included $ 3.0 billion from u.s. real estate . the decrease in assets under management during 2015 was due to distributions of $ 2.2 billion , partially offset by net inflows of $ 1.3 billion and market appreciation of $ 863 million . net inflows in 2015 included $ 1.3 billion from u.s. real estate . market appreciation in 2015 included $ 815 million from u.s. real estate . average assets under management for institutional accounts were $ 28.1 billion for the year ended december 31 , 2016 , an increase of 9 % from $ 25.9 billion for the year ended december 31 , 2015 and an increase of 13 % from $ 24.9 billion for the year ended december 31 , 2014 . assets under management in japan subadvised accounts , which represented 48 % of institutional assets under management , were $ 13.7 billion at december 31 , 2016 , compared with $ 13.1 billion at december 31 , 2015 and $ 13.4 billion at december 31 , 2014 . the increase in japan subadvised assets under management during 2016 was due to net inflows of $ 2.8 billion and market appreciation of $ 818 million , partially offset by distributions of $ 3.0 billion , all of which were primarily from u.s. real estate . the decrease in assets under management during 2015 was due to distributions of $ 2.2 billion , partially offset by net inflows of $ 1.3 billion and market appreciation of $ 709 million , all of which were primarily from u.s. real estate . average assets under management for japan subadvised accounts were $ 13.6 billion for the year ended december 31 , 2016 , an increase of 5 % from $ 13.0 billion for the year ended december 31 , 2015 , and an increase of 9 % from $ 12.5 billion for the year ended december 31 , 2014 . assets under management in institutional subadvised accounts excluding japan , which represented 21 % of institutional assets under management , were $ 5.9 billion at december 31 , 2016 , compared with $ 5.4 billion at december 31 , 2015 and $ 5.5 billion at december 31 , 2014 . the increase in assets under management during 2016 was due to net inflows of $ 111 million and market appreciation of $ 353 million . net inflows in 2016 included $ 201 million from global/international real estate , and $ 106 million from global listed infrastructure , partially offset by net outflows of $ 140 million from u.s. real estate . market appreciation in 2016 included $ 91 million from global/international real estate , $ 77 million from global listed infrastructure , $ 69 million from large cap value and $ 63 million from commodities ( both of which are included in `` other '' in the table above ) . the decrease in assets under management during 2015 was due to market depreciation of $ 73 million , partially offset by net inflows of $ 21 million . average assets under management for institutional subadvised accounts excluding japan were $ 6.0 billion for the year ended december 31 , 2016 , an increase of 8 % from $ 5.5 billion for each of the years ended december 31 , 2015 and december 31 , 2014 . assets under management in institutional advised accounts , which represented 32 % of institutional assets under management , were $ 9.1 billion at december 31 , 2016 , compared with $ 7.6 billion at december 31 , 2015 and $ 7.3 billion at december 31 , 2014 . the increase in assets under management during 2016 was due to net inflows of $ 1.0 billion and market appreciation of $ 456 million . net inflows in 2016 included $ 775 million into real assets multi-strategy ( included in `` other '' in the table above ) and $ 321 million into global listed infrastructure . market appreciation included $ 265 million from global/international real estate and $ 79 million from global listed infrastructure . the increase in assets under management during 2015 was primarily due to market appreciation of $ 227 million . average assets under management for institutional advised accounts were $ 8.5 billion for the year ended december 31 , 2016 , an increase of 16 % from $ 7.4 billion for the year ended december 31 , 2015 , and an increase of 24 % from $ 6.9 billion for the year ended december 31 , 2014 . 20 open-end funds assets under management in open-end funds , which represented 34 % of total assets under management , were $ 19.6 billion at december 31 , 2016 , compared with $ 17.5 billion at december 31 , 2015 and $ 17.1 billion at december 31 , 2014 . the increase in assets under management during 2016 was due to net inflows of $ 2.8 billion and market appreciation of $ 917 million , partially offset by distributions of $ 1.6 billion . net inflows in 2016 included $ 1.8 billion into preferred securities and $ 1.3 billion into u.s. real estate , partially offset by net outflows of $ 383 million from global/international real estate . market appreciation in 2016 included $ 594 million from u.s. real estate and $ 216 million from preferred securities . distributions included $ 1.2 billion from u.s. real estate .
| results of operations replace_table_token_10_th _ ( 1 ) the as adjusted financial measures represent non-gaap financial measures . please refer to the “ non-gaap reconciliations ” on pages 26-27 for a reconciliation to the most directly comparable u.s. gaap financial measures . 22 u.s. gaap 2016 compared with 2015 revenue revenue increased 6 % to $ 349.9 million for the year ended december 31 , 2016 from $ 328.7 million for the year ended december 31 , 2015 . this increase was primarily attributable to higher investment advisory and administration fees of $ 15.9 million , primarily resulting from higher average assets under management in institutional accounts and open-end funds . for the year ended december 31 , 2016 : total investment advisory revenue from institutional accounts increased 9 % to $ 93.2 million from $ 85.5 million for the year ended december 31 , 2015 . total investment advisory revenue compared with average assets under management in institutional accounts implied an annual effective fee rate of 33 bps for both the years ended december 31 , 2016 and 2015. total investment advisory and administration revenue from open-end funds increased 10 % to $ 149.9 million from $ 136.9 million for the year ended december 31 , 2015 . total investment advisory and administration revenue compared with average assets under management in open-end funds implied an annual effective fee rate of 78 bps and 79 bps for the years ended december 31 , 2016 and 2015 , respectively . total investment advisory and administration revenue from closed-end funds decreased 6 % to $ 76.6 million from $ 81.4 million for the year ended december 31 , 2015 . total investment advisory and administration revenue compared with average assets under management in closed-end funds implied an annual effective fee rate of 84 bps and 85 bps for the years ended december 31 , 2016 and 2015 , respectively .
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38 adherex technologies inc. index to financial statements page report of independent registered public accounting firm f-2 consolidated balance sheets f-4 consolidated statements of operations f-5 consolidated statements of cash flows f-6 consolidated statements of stockholders ' deficiency f-7 notes to consolidated financial statements f-11 f- 1 report of independent registered public accounting firm report of independent registered public accounting firm to the board of directors and stockholders of adherex technologies inc. we have audited the accompanying consolidated balance sheets of adherex technologies inc. and subsidiaries ( a development stage company ) ( the `` company `` ) as of december 31 , 2013 and 2012 , and the related consolidated statements of operations , stockholders ' deficiency , and cash flows for the years then ended , and cumulatively for the period from september 3 , 1996 ( date of inception ) to december 31 , 2013. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the financial statements based on our audits . the company 's financial statements for the period september 3 , 1996 ( date of inception ) to december 31 , 2008 were audited by other auditors whose report , dated march 30 , 2009 , expressed an unqualified opinion on those statements . the financial statements for the period september 3 , 1996 ( date of inception ) to december 31 , 2008 reflect a net loss of $ 97,979,000 . the other auditors ' report has been furnished to us , and our opinion , insofar as it relates to the amounts included for such prior period , is based solely on the report of such other auditors . we conducted our audits in accordance with canadian generally accepted auditing standards and the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits and the report of other auditors provide a reasonable basis for our opinion . in our opinion , based on our audits and the report of other auditors , such financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2013 and 2012 , and the results of its operations and its cash flows for the years then ended , and for the period from september 3 , 1996 ( date of inception ) to december 31 , 2013 , in conformity with accounting principles generally accepted in the united states of america . as discussed in note 1 to the consolidated financial statements , the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern . the company is a development stage biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer , as discussed in note 1 to the consolidated financial statements . during the year ended december 31 , 2013 , the company incurred a loss from operations of $ 1,931,000 . at december 31 , 2013 , it had an accumulated deficit of $ 108,698 and had experienced negative cash flows from operating activities since inception in the amount of $ 87,247,000 . in addition , it had a deficiency in working capital at december 31 , 2013 and the company 's operating losses since inception raise substantial doubt about its ability to continue as a going concern . management 's plans concerning these matters are also discussed in note 1 to the financial statements . the consolidated financial statements do not include any adjustments that might result from the outcome of story_separator_special_tag cautionary statement the discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles within the united states , or u.s. gaap , and applicable u.s. securities and exchange commission , or sec , regulations for financial information . the preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets , liabilities , income and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable . overview in december 2008 we received notice from the american stock exchange that we were not in compliance with section 1003 ( a ) ( ii ) of its company guide , because our stockholders ' equity was below $ 6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years . story_separator_special_tag if we can not obtain adequate funding in the future , we might be required to further delay , scale back or eliminate certain research and development studies , consider business combinations or even shut down some , or all , of our operations . 21 our operating expenses will depend on many factors , including the progress of our drug development efforts and the implementation of further cost reduction measures . our research and development expenses , which include expenses associated with our clinical trials , drug manufacturing to support clinical programs , salaries for research and development personnel , stock-based compensation , consulting fees , sponsored research costs , toxicology studies , license fees , milestone payments , and other fees and costs related to the development of product candidates , will depend on the availability of financial resources , the results of our clinical trials and any directives from regulatory agencies , which are difficult to predict . our general and administration expenses include expenses associated with the compensation of employees , stock-based compensation , professional fees , consulting fees , insurance and other administrative matters associated in support of our drug development programs . on november 22 , 2013 , we announced that we had completed a $ 1.6 million equity financing . further development of sts or eniluracil will require additional capital . story_separator_special_tag used historical data to estimate forfeiture experience . in valuing options granted in the year ended december 31 , 2013 and fiscal year ended december 31 , 2012 we used the following weighted average assumptions : replace_table_token_10_th common stock and warrants common stock is recorded as the net proceeds received on issuance after deducting all share issuance costs and the value of investor warrants . warrants are recorded at fair value and are deducted from the proceeds of common stock and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments effective january 1 , 2009 , the company adopted asc topic 815-40 , `` derivatives and hedging '' ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments . asc 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions : ( a ) indexed to the company 's own stock ; and ( b ) classified in shareholders ' equity in the company 's statement of financial position . the company 's outstanding warrants denominated in canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in canadian dollars and the company 's functional currency is united states dollars . therefore , these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability . all other outstanding convertible instruments are considered to be indexed to the company 's stock , because their exercise price is denominated in the same currency as the company 's functional currency , and are included in stockholders ' deficiency . the company 's derivative instruments include warrants to purchase 18,035 shares , the exercise prices for which are denominated in a currency other than the company 's functional currency , as follows : · warrants to purchase 13,337 shares at cad $ 1.44 per whole share that expire on april 30 , 2015 ; and · warrants to purchase 4,698 shares exercisable at cad $ 1.44 per whole share that expire on march 29 , 2016 . 25 these warrants have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date . any change in value between reporting periods will be recorded as unrealized gain/ ( loss ) . these warrants will continue to be reported as a liability until such time as they are exercised or expire . the fair value of these warrants is estimated using the black-scholes option-pricing model . as of december 31 , 2013 , the fair value of the warrants expiring april 30 , 2015 and march 29 , 2016 was determined to be $ 2,015 and $ 794 , respectively ( december 31 , 2012 – warrants expiring april 30 , 2015 , fair value of $ 4,698 , march 29 , 2016 , fair value of $ 1,847 ) , and the gain on these warrants for the twelve months ended december 31 , 2013 was $ 2,683 and $ 1,052 , respectively ( december 31 , 2012 - warrants expiring april 30 , 2015 , loss of $ 1,026 ; march 29,2016 , loss of $ 507 ) . there is no cash flow impact for these derivatives until the warrants are exercised . if these warrants are exercised , the company will receive the proceeds from the exercise at the current exchange rate at the time of exercise . outstanding share information replace_table_token_11_th our outstanding share data at december 31 , 2013 follows ( in thousands ) : december 31 , 2013 common shares 29,158 warrants 22,035 stock options 5,725 total 56,918 recent accounting pronouncements in february 2013 , the fasb issued asu 2013-02 to improve the reporting of reclassifications out of accumulated other comprehensive income . the asu provides amendments to the comprehensive income subtopic of the fasb asc , such that companies must report the effect of significant reclassifications out of accumulated comprehensive income on the respective line items in net income . for other amounts that are not required to be reclassified in their entirety to net income , an entity may cross reference to the relevant note disclosure
| results of operations fiscal 2013 versus fiscal 2012 replace_table_token_4_th · research and development expenses were lower in fiscal 2013 , as compared to fiscal 2012 primarily due to a reduction in the costs associated with the phase iii study of sts as compared to the eniluracil phase ii trial . in fiscal 2013 , the company ceased actively developing eniluracil . · general and administrative expenses decreased primarily as a result of reductions in payroll . · other income increased $ 5.3 million as a result of change in the fair value of derivatives . · interest income decreased in fiscal 2013 , as compared to 2012 due to a lower average cash balance for the comparable periods . quarterly information the following table presents selected consolidated financial data for each of the last eight quarters through december 31 , 2013 , as prepared under u.s. gaap ( dollars in thousands , except per share information ) . share information has been restated to reflect the share consolidation in 2012 : replace_table_token_5_th 22 replace_table_token_6_th the company reported a net loss from operations of $ 0.4 million which excludes a $ 1.5 million non-cash gain on derivatives for the fourth quarter ended december 31 , 2013 , compared to a net loss from operations of $ 1.1 million excluding the non-cash loss of $ 5.4 million in the same period 2012. the decrease in the net loss from operations excluding the non-cash impact of derivatives is primarily due to a decrease in research and development expenses associated with the company 's phase ii eniluracil trial . research and development expenses totaled $ 0.09 million for the fourth quarter ended december 31 , 2013 , as compared to a $ 0.6 million in the same period in 2012. there was a significant decrease in research and development expenses relating to the conclusion of enrollment and ongoing clinical support of the phase ii eniluracil trial .
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our report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the securities and exchange commission that permit us to provide only management 's report in this annual report . 56 ( 3 ) changes in internal control over financial reporting . during the quarter ended december 31 , 2012 , there were no changes in our internal control over financial reporting that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . ( 4 ) inherent limitations on effectiveness of controls . our management , including our chief executive officer and our chief financial officer , do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud . a control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . story_separator_special_tag operations you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those set forth under risk factors and elsewhere in this annual report on form 10-k and those discussed in other documents we file with the sec . in light of these risks , uncertainties , and assumptions , readers are cautioned not to place undue reliance on such forward-looking statements . these 31 forward-looking statements represent beliefs and assumptions only as of the date of this annual report on form 10-k. except as required by applicable law , we do not intend to update or revise forward-looking statements contained in this annual report on form 10-k to reflect future events or circumstances . overview we are a biotechnology company focused on the discovery and development of lipidomic-based therapeutics . lipidomics is an emerging field of medical science whereby bioactive signaling lipids are targeted to treat important human diseases . we have three product candidates , isonep , asonep , and lpathomab . isonep is a monoclonal antibody against sphingosine-1-phosphate ( s1p ) formulated for treating retinal diseases . in a phase i clinical trial isonep demonstrated promising results in treating patients afflicted with wet amd , and it is currently being tested in a phase 2a clinical trial for that indication . studies conducted in models of human ocular disease indicate that isonep may also be useful in treating other ocular diseases including diabetic retinopathy and glaucoma . asonep ( another formulation of the same s1p-targeted antibody ) is being tested in a phase 2a clinical trial as a treatment for renal cell carcinoma , and we believe that it may hold promise for the treatment of various forms of cancer and other diseases . lpathomab is an antibody against lysophosphatidic acid ( lpa ) , a key bioactive lipid that has been long recognized as a valid disease target . lpathomab is in pre-clinical testing in various animal models of disease relating to the central nervous system and to fibrosis . our ability to generate novel antibodies against bioactive lipids is based on our immuney2 technology , a series of proprietary processes we have developed . we are currently applying the immune y2 process to other lipid-signaling agents that are validated targets for disease treatment , thereby potentially creating a further pipeline of monoclonal antibody-based drug candidates . in december 2010 , we entered into an agreement with pfizer inc. ( the pfizer agreement ) , which provides pfizer with an exclusive option for a worldwide license to develop and commercialize isonep . under the original terms of the pfizer agreement , pfizer and the company planned to conduct two studies , including a phase 1b study in wet amd patients with pigment epithelial detachment ( ped ) , a complication of wet amd ( the pedigree trial '' ) , and a larger phase 2a study in wet amd patients generally ( the nexus trial '' ) . the company began enrolling patients in the pedigree and nexus trials in september 2011 and october 2011 , respectively . the food and drug administration ( fda ) placed the pedigree and nexus trials on clinical hold in january 2012 following a determination by the fda that the fill-and-finish contractor that had filled the isonep clinical trial vials was not in compliance with the fda 's current good manufacturing practice ( cgmp '' ) standards during the time period it provided those services to the company . thereafter , we manufactured new isonep drug substance with an alternate fill-and-finish contractor and resumed dosing patients in the nexus trial in september 2012. as a result of the clinical hold and the requirement to manufacture new drug substance , the projected costs to complete the isonep trials increased significantly and pfizer requested the company to consider potential alternatives to reduce the increased costs of the isonep trials . on december 5 , 2012 , lpath and pfizer amended the pfizer agreement to among other things , reflect the parties ' agreement to discontinue the pedigree trial and to focus on the nexus trial . the parties also modified the protocol for the nexus trial to include certain wet amd patients with ped in the nexus trial . in addition , the company can elect to conduct the pedigree trial at any time at its cost . the parties will continue to pursue and share the cost of the isonep trials , including any costs associated with discontinuing the pedigree trial . as of december 31 , 2012 , pfizer had paid the company $ 20.0 million pursuant to the terms of the pfizer agreement , including an upfront payment of $ 14 million . story_separator_special_tag from our inception through december 31 , 2012 , we have also generated $ 8.2 million in revenue from research grants awarded primarily by the national institutes of health , and $ 0.3 million in royalty revenue from a licensing agreement with a company that produces novel research assays . we expect to continue to receive small amounts of revenue from research grants and our existing source of royalty revenue . however , the nih has notified all grant recipients that due to the current congressional budget sequestration , the nih may not be able to issue continuation awards , or it may be required to negotiate a reduction in the scope of our existing awards to meet the constraints imposed . additionally , plans for new grants or cooperative agreements may be re-scoped , delayed , or canceled depending on the nature of the work and the availability of resources . as a result , we can not assure you that we will receive the remaining $ 1.7 million in funding under our existing nih grants , and we may not be successful in securing additional grants from the nih in the future . research and development expenses our research and development expenses consist primarily of salaries and related employee benefits ; research supplies and materials ; external costs associated with our drug discovery research ; and external drug development costs , including preclinical testing and regulatory expenses , manufacturing of material for clinical trials , and the costs of conducting clinical trials . our historical research and development expenses are principally related to the drug discovery and clinical development efforts in creating and developing our lead product candidates , isonep , asonep , and lpathomab . we charge all research and development expenses to operations as incurred . we expect our research and development expenses to increase significantly in the future as our product candidates move through pre-clinical testing and into clinical trials . due to the risks inherent in the drug discovery and clinical trial process and given the early stage of our product development programs , we are unable to estimate with any certainty the costs we will incur in the continued development of 33 our product candidates for potential commercialization . clinical development timelines , the probabilities of success , and development costs vary widely . while we are currently focused on advancing each of our product development programs , we anticipate that we will periodically make determinations as to the scientific and clinical success of each product candidate , as well as ongoing assessments as to each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates will be subject to future partnering , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . as a result , we can not be certain when and to what extent we will receive cash inflows from the commercialization of our product candidates . general and administrative expenses our general and administrative expenses principally comprise salaries and benefits and professional fees related to our business development , intellectual property , finance , human resources , legal , and internal systems support functions . in addition , general and administrative expenses include insurance and an allocated portion of facilities and information technology costs . we anticipate increases in general and administrative expenses as we add personnel , increase our business development activities , become subject to the full sarbanes-oxley compliance obligations applicable to larger publicly-held companies , and continue to develop and prepare for the commercialization of our product candidates . application of critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . research and development our sponsored research and development costs related to future products and redesign of present products are expensed as incurred . patent expenses legal and filing costs directly associated with obtaining patents are capitalized . upon issuance of a patent , amortization is computed using the straight-line method over the estimated remaining useful life of the patent . revenue recognition research and development revenue under collaborative agreements . we have and may in the future enter into collaborations where we receive non-refundable upfront payments . generally , these payments are made to secure licenses or option rights to our drug candidates . non-refundable payments are recognized as revenue when we have a contractual right to receive such payment , the contract price is fixed or determinable , the collection of the resulting receivable is reasonably assured , and we have no further performance obligations under the agreement . multiple-element arrangements , such as license and development arrangements , are analyzed to determine whether the deliverables , which often include a license together with performance obligations such as research and development responsibilities and steering committee services , can be separated or whether they must be accounted for as a single unit of accounting . we recognize up-front license payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance obligations , typically including research and or steering committee services , can be determined . if the fair value of the undelivered performance obligations can be determined , such obligations would then be accounted for separately as performed .
| results of operations comparison of years ended december 31 , 2012 and 2011 grant and royalty revenue . grant and royalty revenue for 2012 decreased to $ 1.0 million from $ 1.6 million in 2011. the decrease of $ 0.6 million is principally due to the suspension of the isonep clinical trials , which resulted in reduced reimbursable costs for outside services in 2012 compared to 2011. research and development revenue under collaborative agreements . as described in note 2 to the consolidated financial statements , in december 2010 we entered into an agreement with pfizer , inc. , which agreement was amended in 2012 , that provides financial support for our isonep and asonep development programs . we recognized revenues as follows : replace_table_token_3_th the reduction in revenue in 2012 is attributable principally to the suspension of the isonep clinical trials from january to september 2012. reduced expenditures during this time caused a reduction in amortization of deferred revenues . in 2011 , revenue recognized pursuant to the merck agreement included $ 0.7 million received from merck to discharge certain payment obligations that survived termination of the agreement . 36 research and development expenses . research and development expenses for 2012 totaled $ 8.2 million compared to $ 9.7 million for 2011 , a decrease of $ 1.5 million . development costs in 2011 were ramping up as we began phase 1b and phase2a clinical trials of isonep in september 2011. in january 2012 , we temporarily suspended dosing patients in our pedigree and nexus trials . the 2012 costs to manufacture the additional drug substance required to resume the trials , and complete the fill/finish process totaled $ 1.1 million . these additional costs were more than offset by reduced clinical trial expenditures during the temporary suspension of our clinical trials in 2012. general and administrative expenses .
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final capping costs represent the costs related to installation of clay liners , drainage and compacted soil layers story_separator_special_tag the following discussion should be read in conjunction with the “ selected financial data ” included in item 6 of this annual report on form 10-k , our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. industry overview the solid waste industry is local and highly competitive in nature , requiring substantial labor and capital resources . the participants compete for collection accounts primarily on the basis of price and , to a lesser extent , the quality of service , and compete for landfill business on the basis of tipping fees , geographic location and quality of operations . the solid waste industry has been consolidating and continues to consolidate as a result of a number of factors , including the increasing costs and complexity associated with waste management operations and regulatory compliance . many small independent operators and municipalities lack the capital resources , management , operating skills and technical expertise necessary to operate effectively in such an environment . the consolidation trend has caused solid waste companies to operate larger landfills that have complementary collection routes that can use company-owned disposal capacity . controlling the point of transfer from haulers to landfills has become increasingly important as landfills continue to close and disposal capacity moves farther from the collection markets it serves . generally , the most profitable operators within the solid waste industry are those companies that are vertically integrated or enter into long-term collection contracts . a vertically integrated operator will benefit from : ( 1 ) the internalization of waste , which is bringing waste to a company-owned landfill ; ( 2 ) the ability to charge third-party haulers tipping fees either at landfills or at transfer stations ; and ( 3 ) the efficiencies gained by being able to aggregate and process waste at a transfer station prior to landfilling . the e & p waste services industry is regional in nature and is also highly fragmented , with acquisition opportunities available in several active natural resource basins . competition for e & p waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets , and other solid waste companies . in addition , customers in many markets have the option of using internal disposal methods or outsourcing to another third-party disposal company . the principal competitive factors in this business include : gaining customer approval of treatment and disposal facilities ; location of facilities in relation to customer activity ; reputation ; reliability of services ; track record of environmental compliance ; ability to accept multiple waste types at a single facility ; and price . the demand for our e & p waste services depends on the continued demand for , and production of , oil and natural gas . crude oil and natural gas prices historically have been volatile . if the prices of crude oil and natural gas substantially decline , it could lead to declines in the level of production activity and demand for our e & p waste services , which could result in the recognition of impairment charges on our intangible assets and property and equipment associated with our e & p operations . executive overview we are an integrated solid waste services company that provides non-hazardous waste collection , transfer , disposal and recycling services in mostly exclusive and secondary markets in the u.s. and canada . through our r360 environmental solutions subsidiary , we are also a leading provider of non-hazardous e & p waste treatment , recovery and disposal services in several of the most active natural resource producing areas in the u.s. we also provide intermodal services for the rail haul movement of cargo and solid waste containers in the pacific northwest through a network of intermodal facilities . we generally seek to avoid highly competitive , large urban markets and instead target markets where we can attain high market share either through exclusive contracts , vertical integration or asset positioning . in markets where waste collection services are provided under exclusive arrangements , or where waste disposal is municipally owned or funded or available at multiple municipal sources , we believe that controlling the waste stream by providing collection services under exclusive arrangements is often more important to our growth and profitability than owning or operating landfills . we also target niche markets , like e & p waste treatment and disposal services . 43 2019 financial performance the functional currency of the company , as the parent corporate entity , and its operating subsidiaries in the united states is the u.s. dollar . the functional currency of the company 's canadian operations is the canadian dollar . the reporting currency of the company is the u.s. dollar . the company 's consolidated canadian dollar financial position is translated to u.s. dollars by applying the foreign currency exchange rate in effect at the consolidated balance sheet date . the company 's consolidated canadian dollar results of operations and cash flows are translated to u.s. dollars by applying the average foreign currency exchange rate in effect during the reporting period . the resulting translation adjustments are included in other comprehensive income or loss . gains and losses from foreign currency transactions are included in earnings for the period . operating results revenues in 2019 increased 9.5 % to $ 5.389 billion from $ 4.923 billion in 2018 , due partly to acquisitions closed during , or subsequent to , the prior year , net of divestitures , which accounted for $ 292.0 million in incremental revenues in 2019 , with the remainder due primarily to internal growth in solid waste and higher e & p waste activity . solid waste internal growth was 4.3 % , due to price increases and fuel , materials and environmental surcharges , which were partially offset by lower volumes and recycled commodity values . story_separator_special_tag if we experience insurance claims or costs above or below our historically evaluated levels , our estimates could be materially affected . the frequency and amount of claims or incidents could vary significantly over time , which could materially affect our self-insurance liabilities . additionally , the actual costs to settle the self-insurance liabilities could materially differ from the original estimates and cause us to incur additional costs in future periods associated with prior year claims . income taxes . deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse . if our judgment and estimates concerning assumptions made in calculating our expected future income tax rates are incorrect , our deferred income tax assets and liabilities would change . based on our deferred income tax liability balance at december 31 , 2019 , each 0.1 percentage point change to our expected future income tax rates would change our deferred income tax liability balance and income tax expense by approximately $ 3.1 million . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act , or the tax act . the tax act made broad and complex changes to the u.s. tax code that affected 2017 , including , but not limited to , ( 1 ) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and ( 2 ) bonus depreciation that will allow for full expensing of qualified property . the tax act also established new tax laws that affected years beginning after december 31 , 2017 , including , but not limited to , ( 1 ) a reduction of the u.s. federal corporate income tax rate from 35 percent to 21 percent ; ( 2 ) elimination of the corporate alternative minimum tax ; ( 3 ) the creation of the base erosion anti-abuse tax , which acts similar to a new minimum tax ; ( 4 ) a general elimination of u.s. federal income taxes on dividends from foreign subsidiaries ; ( 5 ) a new provision designed to tax global intangible low-taxed income , which allows for the possibility of using foreign tax credits , or ftcs , and a deduction of up to 50 percent to offset the income tax liability ( subject to some limitations ) ; ( 6 ) a 45 new limitation on deductible interest expense ; ( 7 ) limitations on the deductibility of certain executive compensation ; ( 8 ) bonus depreciation that allows for full expensing of qualified property ; and ( 9 ) limitations on net operating losses . on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 , or sab 118 , which provides guidance on accounting for the tax effects of the tax act . sab 118 provides a measurement period that should not extend beyond one year from the tax act enactment date for companies to complete the accounting under asc 740. in accordance with sab 118 , a company must reflect the income tax effects of those aspects of the tax act for which the accounting under asc 740 is complete . to the extent that a company 's accounting for certain income tax effects of the tax act is incomplete but it is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . if a company can not determine a provisional estimate to be included in the financial statements , it should continue to apply asc 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the tax act . in connection with our analysis of the tax act , we recorded a discrete net income tax benefit of $ 269.8 million in the year ended december 31 , 2017. this net income tax benefit was primarily the result of the reduction to the corporate income tax rate . additionally , the tax act 's one-time deemed repatriation transition tax , or the transition tax , on certain unrepatriated earnings of non-u.s. subsidiaries is a tax on previously untaxed accumulated and current earnings and profits of certain of our non-u.s. subsidiaries . to determine the amount of the transition tax , we had to determine , in addition to other factors , the amount of post-1986 earnings and profits of the relevant subsidiaries , as well as the amount of non-u.s. income taxes paid on such earnings . we were able to make a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $ 1.0 million for the year ended december 31 , 2017. the transition tax , which has been determined to be complete , resulted in a total transition tax obligation of $ 0.7 million , with a corresponding adjustment of $ 0.3 million to income tax expense for the year ended december 31 , 2018. further , as it relates to our policy regarding the accounting for the tax impacts of global intangible low-taxed income , we have elected to record the tax impacts as period costs . additionally , in conjunction with the tax act , we recorded a provisional deferred income tax expense of $ 62.4 million for the year ended december 31 , 2017 associated with a portion of our u.s. earnings no longer permanently reinvested . during the year ended december 31 , 2018 , we recorded a deferred income tax expense of $ 6.4 million associated with refinements to the prior year estimate as a measurement period adjustment pursuant to sab 118. this resulted in total deferred income tax expense of $ 68.8 million which has been determined to be complete . accounting for landfills .
| results of operations the following table sets forth items in our consolidated statements of net income in thousands of u.s. dollars and as a percentage of revenues for the periods indicated : replace_table_token_9_th years ended december 31 , 2019 and 2018 revenues . total revenues increased $ 465.8 million , or 9.5 % , to $ 5.389 billion for the year ended december 31 , 2019 , from $ 4.923 billion for the year ended december 31 , 2018. during the year ended december 31 , 2019 , incremental revenue from acquisitions closed during , or subsequent to , the year ended december 31 , 2018 , increased revenues by approximately $ 312.7 million . operations that were divested in 2018 decreased revenues by approximately $ 20.7 million for the year ended december 31 , 2019 . 51 during the year ended december 31 , 2019 , the net increase in prices charged to our customers at our existing operations was $ 237.0 million , consisting of $ 230.5 million of core price increases and $ 6.5 million from surcharges . during the year ended december 31 , 2019 , volume decreases in our existing business decreased solid waste revenues by $ 8.9 million due primarily to declines in transfer station volumes in our eastern segment resulting from the termination of our new york city department of sanitation marine terminal operations contract with a third party , declines in residential collection in certain markets at our eastern segment due to competition from lower-priced haulers , declines in residential collection in our southern and canada segments due to the non-renewal of certain contracts acquired in the progressive waste acquisition and declines in landfill municipal solid waste volumes in our southern and central segments exceeding increased collection and landfill volumes in our western segment .
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our adoption of asu 2018-02 as of january 1 , 2019 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included in part ii , item 8 of this form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . overview we are committed to providing innovative , quality solutions to help people achieve a fit and healthy lifestyle . our principal business activities include designing , developing , sourcing and marketing high-quality cardio and strength fitness products , related accessories and digital platform for consumer use , primarily in the u.s. , canada , europe and asia . our products are sold under some of the most-recognized brand names in the fitness industry : nautilus ® , bowflex ® , octane fitness ® and schwinn ® . we market our products through two distinct distribution channels , direct and retail , which we consider to be separate business segments . our direct business offers products directly to consumers through television advertising , our websites , social media channels , and catalogs . our retail business offers our products through a network of independent retail companies and specialty retailers with stores and websites located in the u.s. and internationally . we also derive a portion of our revenue from the licensing of our brands and intellectual property . our results for 2019 were primarily impacted by lower sales , however , we believe the appropriate improvements are being implemented into our overall business to address this trend . the primary actions taken include extensive , in-depth consumer insights research , which has identified an effective new positioning for the bowflex ® brand , and which is now underway through a new advertising campaign and updates to our websites , television commercials , social media , and other digital platforms . additionally , we expect to launch targeted new products across all our channels over the next twelve months . in parallel , we plan to continue our digital transformation with the inclusion of updated digital experience platforms on key new products , moving toward our goal of having the majority of our products equipped with subscription-based digital experience offerings . net sales for 2019 were $ 309.3 million , reflecting a 22.0 % decrease as compared to net sales of $ 396.8 million for 2018 . net sales of our direct segment decreased by $ 65.3 million , or 35.3 % , in 2019 , compared to 2018 , primarily driven by lower bowflex max trainer ® product sales and the impact of the planned reduction in advertising spending . 16 net sales of our retail segment decreased by $ 21.5 million , or 10.3 % , for 2019 , compared to 2018 , primarily reflecting the decline in bowflex max trainer ® product sales and decreases in commercial products . royalty income for 2019 decreased by $ 0.7 million compared to 2018 , which included payment of royalties related to a new agreement in the prior year . gross profit for 2019 was $ 110.6 million , or 35.8 % of net sales , a decrease of $ 71.1 million , or 39.1 % , as compared to gross profit of $ 181.7 million , or 45.8 % of net sales , for 2018 . the decrease in gross profit dollars was primarily due to lower sales coupled with lower gross margin percentages in both the direct and retail segments . gross margin decreased 10.0 % points in 2019 , compared to 2018 , due to unfavorable sales mix and overhead absorption . operating expenses for 2019 were $ 211.1 million , an increase of $ 50.1 million , or 31.1 % , as compared to operating expenses of $ 161.0 million for 2018 . the increase in operating expenses was primarily related to a goodwill and intangible impairment charge of $ 72.0 million , partially offset by lower media spending and stock-based compensation expense . operating loss for 2019 was $ 100.5 million , a decrease of $ 121.3 million , or 584.1 % , as compared to operating income of $ 20.8 million for 2018 . the decrease in operating income for 2019 , compared to 2018 , was primarily driven by a goodwill and intangible impairment charge and lower gross margins associated with our lower sales during the year , partially offset by reductions in media spending and other operating expenses . loss from continuing operations was $ 92.3 million for 2019 , or $ 3.11 per diluted share , compared to income from continuing operations of $ 15.1 million , or $ 0.50 per diluted share , for 2018 . the effective tax rates for 2019 and 2018 were 9.4 % and 28.1 % , respectively . the 18.7 % year-over-year percentage tax rate differential was due primarily to the goodwill impairment charge and valuation allowance recorded in 2019 , for which no tax benefit was recognized and which reduced the effective tax rate for the year . net loss for 2019 was $ 92.8 million , compared to net income of $ 14.7 million for 2018 . net loss per diluted share was $ 3.13 for 2019 , compared to net income per diluted share of $ 0.48 for 2018 . factors affecting our performance our results of operations may vary significantly from period-to-period . our revenues typically fluctuate due to the seasonality of our industry , customer buying patterns , product innovation , the nature and level of competition for health and fitness products , our ability to procure products to meet customer demand , the level of spending on , and effectiveness of , our media and advertising programs and our ability to attract new customers and maintain existing sales relationships . in addition , our revenues are highly susceptible to economic factors , including , among other things , the overall condition of the economy and the availability of consumer credit in both the u.s. story_separator_special_tag 18 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > royalty income 3,050 3,736 ( 686 ) ( 18.4 ) % $ 309,285 $ 396,753 $ ( 87,468 ) ( 22.0 ) % ( 1 ) cardio products include : max trainer® , treadclimber® , zero runner® , lateral x® , treadmills , exercise bikes , ellipticals and subscription services . ( 2 ) strength products include : home gyms , selectorized dumbbells , kettlebell weights and accessories . net sales and cost of sales direct the 35.3 % decrease in year-over-year direct net sales for 2019 compared to 2018 was primarily due to decreased consumer demand for our cardio products sales , which was largely related to bowflex max trainer ® products and a reduction in advertising spending . improvements are being implemented that we believe should be effective in addressing this trend . the primary actions taken include extensive , in-depth consumer insights research , which has identified an effective new positing for the bowflex brand , and which is now underway through a new advertising campaign and updates to our website , television , social media and other 20 digital platforms . also , based on customer insights we will continue our investments in personalized connected-fitness and will be made available on more bowflex , nautilus and schwinn equipment over time . the rates of combined consumer credit approvals by our primary and secondary u.s. third-party financing providers were 54.1 % in 2019 compared to 55.3 % in 2018 . the decrease in approvals reflects lower credit quality applications . the decrease in direct cost of sales in 2019 compared to 2018 was due to the decrease in net sales . the 10.5 % decrease in the gross margin of our direct business for 2019 compared to 2018 was primarily due to shift in product mix and unfavorable overhead absorption related to lower net sales . retail retail net sales decreased by 10.3 % in 2019 compared to 2018 . the decrease was primarily due to the decline in bowflex max trainer ® product sales and decreases in commercial products . the decrease in retail cost of sales in 2019 compared to 2018 was due to the decreases in retail net sales mentioned above . the decrease in retail gross margin in 2019 compared to 2018 was due to unfavorable sales mix and overhead absorption . selling and marketing selling and marketing expenses include payroll , employee benefits , and other headcount-related expenses associated with sales and marketing personnel , and the costs of media advertising , promotions , trade shows , seminars , and other programs . replace_table_token_4_th the decrease in selling and marketing expenses in 2019 compared to 2018 was primarily due to lower media spending of $ 20.1 million partially offset by a major new multi-media advertising and communication campaign behind the bowflex brand and new products . the slight increase in sales and marketing as a percentage of net sales in 2019 compared to 2018 was primarily due to less efficient performance of media . media advertising expense of our direct business is the largest component of selling and marketing and was as follows : dollars in thousands year ended december 31 , change 2019 2018 $ % media advertising $ 44,916 $ 65,017 $ ( 20,101 ) ( 30.9 ) % the return metrics we achieved on media performance declined in 2019 , and as a result we decreased media spend to focus on improved profitability . 21 general and administrative general and administrative expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with finance , legal , facilities , certain human resources and other administrative personnel , and other administrative fees . replace_table_token_5_th the increase in general and administrative in 2019 compared to 2018 was primarily due to increased legal expenses . the increase in general and administrative as a percentage of net sales in 2019 compared to 2018 was primarily due to the increase in legal expenses and the lower total net sales . research and development research and development expenses include payroll , employee benefits , other headcount-related expenses and information technology associated with product development . replace_table_token_6_th the decrease in research and development expenses in 2019 compared to 2018 , was primarily due to higher investments in digital platforms that were capitalized . goodwill and intangible impairment charge in accordance asc 350 — intangibles — goodwill and other , we perform a goodwill and indefinite-lived asset impairment evaluation during the fourth quarter of each year . however , as a result of the decline in our market value relative to the market and our industry , identified as a triggering event , we performed an interim evaluation and a market capitalization reconciliation during the second quarter of 2019 , which resulted in a non-cash goodwill and indefinite-lived intangible assets impairment charge of $ 72.0 million . asc 350 requires us to make significant assumptions and estimates about the extent and timing of future cash flows , discount rates , growth rates and terminal value . the cash flows are estimated over a significant future period of time , which makes those estimates and assumptions subject to an even higher degree of uncertainty . we also use market valuation models and other financial ratios , which require us to make certain assumptions and estimates regarding the applicability of those models to our assets and businesses . in accordance asc 360 — property , plant , and equipment and other long-lived assets , we performed a test for recoverability of our assets as the goodwill and indefinite-lived intangible asset impairment created a triggering event . the long-lived assets were recoverable and no impairment was required . for additional information related to our goodwill and intangible impairment charge , see notes 5 , 11 and 12. interest expense interest expense of $ 1.0 million and $ 1.1 million in 2019 and 2018 , respectively , was primarily related to the outstanding balance on our line of credit and term loan .
| results of operations the discussion that follows regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . a discussion regarding our financial condition and results of operations for fiscal 2018 compared to fiscal 2017 can be found under item 7 in our annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed with the sec on february 27 , 2019 , which is available free of charge on the sec 's website at www.sec.gov and our investors website at http : //www.nautilusinc.com/investors/sec-filings/ . results of operations information was as follows ( in thousands ) : replace_table_token_2_th 19 results of operations information by segment was as follows ( in thousands ) : replace_table_token_3_th the following tables compare the net sales of our major product lines within each business segment ( in thousands ) : year ended december 31 , 2019 2018 change % change direct net sales : cardio products ( 1 ) $ 97,824 $ 160,132 $ ( 62,308 ) ( 38.9 ) % strength products ( 2 ) 21,827 24,793 ( 2,966 ) ( 12.0 ) % 119,651 184,925 ( 65,274 ) ( 35.3 ) % retail net sales : cardio products ( 1 ) 141,331 165,911 ( 24,580 ) ( 14.8 ) % strength products ( 2 ) 45,253 42,181 3,072 7.3 % 186,584 208,092 ( 21,508 ) ( 10.3 ) % < span
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see also special cautionary notice regarding forward-looking statements at the beginning of item 1. business. critical accounting policies and estimates we have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . note 1 to the consolidated financial statements for the fiscal year ended april 30 , 2016 , describes the significant accounting policies that we have used in preparing our financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/collectability , bad debts , capitalized software costs , goodwill , intangible asset measurement and impairment , stock-based compensation , income taxes and contingencies . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results could differ materially from these estimates under different assumptions or conditions . we believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements . revenue recognition . we recognize revenue predominantly in accordance with the software revenue recognition topic of the financial accounting standards board 's ( fasb ) accounting standards codification . we recognize license revenues in connection with license agreements for standard proprietary software upon delivery of the software , provided we deem collection to be probable , the fee is fixed or determinable , there is evidence of an arrangement , and vsoe exists with respect to any undelivered elements of the arrangement . we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , saas , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their established vsoe . saas revenues are recognized ratably over the subscription term because the company is unable to establish vsoe and separate the various elements . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments . if the financial condition of these customers were to deteriorate , resulting in an impairment of their ability to make payments , we may require additional allowances or we may defer revenue until we determine that collectability is probable . we specifically analyze accounts receivable and historical bad debts , customer creditworthiness , current economic trends and changes in customer payment terms when we evaluate the adequacy of the allowance for doubtful accounts . 44 index to financial statements valuation of long-lived and intangible assets . we review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with the intangibles-goodwill and other topic of the fasb accounting standards codification . for fiscal 2016 , we opted to perform a qualitative assessment to test a reporting unit 's goodwill for impairment . based on our qualitative assessment , if we determine that the fair value of a reporting unit is more likely than not ( i.e. , a likelihood of more than 50 percent ) to be less than its carrying amount , the two step impairment test will be performed . in the first step , we compare the fair value of each reporting unit to its carrying value . story_separator_special_tag changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenue-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed in general and administrative expenses in the periods in which the costs are incurred . the results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date . story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > index to financial statements adoption was not permitted . asu no . 2015-14 extends the effective date to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of reporting periods beginning after december 16 , 2016 , including interim reporting periods within that reporting period . the company is evaluating the effect that these standards will have on its consolidated financial statements and related disclosures . in november 2015 , the fasb issued asu no . 2015-17 , balance sheet classification of deferred taxes , to simplify the presentation of the deferred income taxes . the asu requires that all deferred tax assets and liabilities , along with any related valuation allowance , be classified as noncurrent on the balance sheet . the guidance does not change the existing requirement that only permits offsetting within a tax-paying component of an entity . this guidance is effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , but may be adopted earlier , and applied either prospectively or retrospectively . the company adopted this guidance in the fourth quarter of fiscal 2016 , reporting on a prospective basis for the annual period ended april 30 , 2016. periods prior to may 1 , 2015 have not been adjusted . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) , to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements . the asu is effective for annual periods beginning after december 15 , 2018 , including interim periods within those fiscal years . early adoption of the update is permitted . the company is evaluating the impact of the adoption of this update on our consolidated financial statements and related disclosures . in march 2016 , the fasb issued asu no . 2016-09 , compensationstock compensation : improvements to employee share-based payment accounting , to improve the accounting for employee share-based payments . under the new guidance , companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital . instead , all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement , and additional paid-in capital pools will be eliminated . the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity . it also makes several changes to the accounting for forfeitures and employee tax withholding on share-based compensation . this guidance is effective for annual periods beginning after december 16 , 2016 , and interim periods within those annual periods , but may be adopted earlier . the company adopted this guidance in the fourth quarter of fiscal 2016 for the annual period ended april 30 , 2016. periods prior to may 1 , 2015 have not been adjusted . market conditions by operating segment we operate and manage our business in three segments based on software and services provided in three key product markets : ( 1 ) scm , which provides collaborative supply chain solutions to streamline and optimize the production , distribution and management of products between trading partners ; ( 2 ) erp , which automates customers ' internal financing , human resources , and manufacturing functions ; and ( 3 ) it consulting , which consists of it staffing and consulting services . the scm segment represents the business of logility , as well as its subsidiary , dmi . our scm segment experienced a 16 % increase in revenues during fiscal 2016 when compared to fiscal 2015 , due primarily to a 28 % increase in services and other revenues , a 27 % increase in license fees and a 4 % increase in maintenance revenue .
| results of operations the following table sets forth certain revenue and expense items as a percentage of total revenues for the three years ended april 30 , 2016 , 2015 , and 2014 and the percentage increases and decreases in those items for the years ended april 30 , 2016 and 2015 : replace_table_token_5_th nmnot meaningful 46 index to financial statements economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. and global credit markets . in recent years , the weakness in the overall global economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . in april 2016 , the international monetary fund ( imf ) provided an update to the world economic outlook ( weo ) for the 2016 and 2017 world economic growth forecast . the update noted that , global recovery continues , but at an ever slowing and increasingly fragile pace . the months since the last world economic outlook have seen a renewed episode of global asset market volatility , some loss of growth momentum in the advanced economies , and continuing headwinds for emerging market economies and lower-income countries . the baseline projection for global growth in 2016 is a modest 3.2 percent , broadly in line with last year , and a 0.2 percentage point downward revision relative to the january 2016 world economic outlook ( weo ) update . the recovery is projected to strengthen in 2017 and beyond , driven primarily by emerging market and developing economies , as conditions in stressed economies start gradually to normalize .
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the following table provides realized gains ( losses ) on the disposal of property and equipment during the periods presented ( in thousands ) : replace_table_token_53_th note 7 – long-term debt long-term debt consists of the following as of the dates presented ( in thousands ) : replace_table_token_54_th surplus note on november 9 , 2006 , upcic entered into a $ 25.0 million surplus note with the state board of administration of florida ( the “ sba ” ) under florida 's insurance capital build-up incentive program ( the “ icbui ” ) . the surplus note has a twenty-year term and accrues interest , adjusted quarterly based on the 10 -year constant maturity treasury index . the carrying amount of the surplus note is included in the statutory capital and surplus of upcic of approximately $ 11.4 million as of december 31 , 2018 . the effective interest rate paid on the surplus note was 2.89 % , 2.47 % and 1.88 % for the years ended december 31 , 2018 , 2017 and 2016 , respectively . any payment of principal or interest by upcic on the surplus note must be approved by the florida commissioner of the oir . quarterly principal payments of $ 368 thousand are due through 2026 . aggregate principal payments of approximately $ 1.5 million were made during each of the years ended december 31 , 2018 , 2017 and 2016 . upcic is in compliance with each of the loan 's covenants as implemented by story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with our consolidated financial statements and accompanying notes in part ii , item 8 below . the discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances . actual results may differ materially from these expectations . see “ cautionary note regarding forward-looking statements. ” overview we develop , market , and underwrite insurance products for consumers predominantly in the personal residential homeowners lines of business and perform substantially all other insurance-related services for our primary insurance entities , including risk management , claims management and distribution . our primary insurance entities , universal property & casualty insurance company ( upcic ) and american platinum property and casualty insurance company ( appcic ) , offer insurance products through both our appointed independent agent network and our online distribution channels across 17 states ( primarily in florida ) , with licenses to write insurance in an additional three states . the insurance entities seek to produce an underwriting profit over the long term ( defined as earned premium less losses , loss adjustment expense , policy acquisition costs and other operating costs ) ; maintain a conservative balance sheet to prepare for years in which the insurance entities are not able to achieve an underwriting profit ; and generate investment income from invested assets . revenues we generate revenue primarily from the collection of insurance premiums . other sources of revenue include : commissions paid by our reinsurers to our reinsurance intermediary subsidiary barc on reinsurance it places for the insurance entities ; policy fees collected from policyholders by our managing general agent subsidiary , era ( formerly universal risk advisors , inc. ) ; and financing fees charged to policyholders who choose to defer premium payments . in addition , our subsidiary , aac ( formerly known as universal adjusting corporation ) , receives fees from the insurance entities for claims-handling services . the insurance entities are reimbursed for these fees on claims that are subject to recovery under the insurance entities ' respective reinsurance programs . these fees , after expenses , are recorded in the consolidated financial statements as an adjustment to lae . we also generate income by investing our assets . the nature of our business tends to be seasonal during the year , reflecting consumer behaviors in connection with the florida residential real estate market and the hurricane season . the amount of direct premiums written tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter . trends and geographical distribution as a result of our business strategy , rate changes and marketing and underwriting initiatives , we have seen increases in policy count , in-force premium and total insured value in all states for the past three years . direct premiums written for states outside of florida increased 34.6 % representing a $ 45.7 million increase during 2018. direct premium for florida increased 9.7 % representing a $ 89.3 million increase during 2018. the following table provides direct premiums written for florida and other states for the years ended december 31 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_4_th 26 the geographical distribution of our policies in-force , in-force premium and total insured value for florida by county were as follows as of december 31 , 2018 ( dollars in thousands , rounded to the nearest thousand ) : replace_table_token_5_th * significant counties defined as greater than 2.5 % of total in-force premium as of december 31 , 2018 . 27 the geographical distribution of our policies in-force , in-force premium and total insured value across all states were as follows , as of december 31 , 2018 , 2017 and 2016 ( dollars in thousands , rounded to the nearest thousand ) : replace_table_token_6_th replace_table_token_7_th 28 replace_table_token_8_th also see “ results of operations ” below and “ item 1a—risk factors—risks relating to our business—because we conduct the substantial majority of our business in florida , our financial results depend on the regulatory , economic and weather conditions in florida ” for discussion on geographical diversification . reinsurance developing and implementing our reinsurance strategy to adequately protect us in the event of one or more catastrophes while maintaining efficient reinsurance costs has been a key focus for our leadership team . story_separator_special_tag specifically , we have purchased reinsurance coverage for the first and third catastrophic events , and each such coverage allows for one reinstatement upon the payment of reinstatement premiums , which would cover the second and fourth catastrophic events . this coverage has been obtained from four contracts as follows : 59 % of $ 76 million in excess of $ 35 million provides coverage for the 2018-2019 period ; 20 % of $ 55 million in excess of $ 35 million provides coverage on a multi-year basis through may 31 , 2021 ; 21 % of $ 55 million in excess of $ 35 million provides coverage for the 2018-2019 period ; and 100 % of $ 76 million in excess of $ 35 million and in excess of $ 152 million otherwise recoverable ( from the first and second events ) provides the third and fourth event coverage for the 2018-2019 period . for the first three contracts above , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . all of these contracts extend coverage to all states . second layer above the first layer , for losses exceeding $ 90 million and $ 111 million , we have purchased a second layer of coverage for losses up to $ 445 million—in other words , for the next $ 355 or $ 334 million of losses . this coverage has been obtained from three contracts as follows : 30 58 % of $ 355 million in excess of $ 90 million provides coverage on a multi-year basis through may 31 , 2020 ; 19.5 % of $ 334 million in excess of $ 111 million provides coverage on a multi-year basis through may 31 , 2021 ; and 22.5 % of $ 334 million in excess of $ 111 million provides coverage for the 2018-2019 period . in these layers , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . all of these contracts extend coverage to all states . third layer above the first and second layers , we have purchased a third layer of coverage for losses up to $ 529 million—in other words , for the next $ 84 million of losses . this coverage was obtained from two contracts as follows : 65 % of $ 84 million in excess of $ 445 million provides coverage on a multi-year basis through may 31 , 2021 ; and 35 % of $ 84 million in excess of $ 445 million provides coverage for the 2018-2019 period . in these layers , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . both of these contracts extend coverage to all states . fourth layer above the first , second and third layers , we have purchased a fourth layer of coverage for losses up to $ 635 million—in other words , for the next $ 106 million of losses . this coverage was obtained from two contracts as follows : 65 % of $ 106 million in excess of $ 529 million provides coverage for the 2018-2019 period ; and 35 % of $ 106 million in excess of $ 529 million provides coverage for the 2018-2019 period . in these layers , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . both of these contracts extend coverage to all states . fifth layer above the first , second , third and fourth layers , we have purchased a fifth layer of coverage for losses up to $ 680 million—in other words , for the next $ 45 million of losses . this coverage was obtained from two contracts as follows : 65 % of $ 45 million in excess of $ 635 million provides coverage on a multi-year basis through may 31 , 2021 ; and 35 % of $ 45 million in excess of $ 635 million provides coverage for the 2018-2019 period . in these layers , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . both of these contracts extend coverage to all states . sixth and seventh layers in the sixth and seventh layers , we have purchased reinsurance for $ 218 million of coverage in excess of $ 680 million in losses incurred by us ( net of the fhcf layer ) and $ 140 million of coverage in excess of $ 898 million ( net of the fhcf layer ) , respectively , for a total of $ 1.0 billion of coverage ( net of the fhcf layer ) by third-party reinsurers . in these layers , to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due , we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages . both of these contracts extend coverage to all states . upcic structures its reinsurance coverage into layers and utilizes a cascading feature such that the second , third , fourth , fifth , sixth and seventh reinsurance layers all attach at $ 111 million .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 2018 highlights ( comparisons are to 2017 unless otherwise specified ) direct premiums written overall grew by $ 135.0 million , or 12.80 % , to $ 1,190.9 million . the company achieved over $ 1 billion in-force premium for the state of florida during 2018. in florida , direct premiums written grew by $ 89.3 million , or 9.7 % , and in our other states , direct premiums written grew by $ 45.7 million , or 34.6 % . premiums earned , net grew by $ 79.6 million , or 11.60 % , to $ 768.4 million . total revenues increased by $ 71.9 million , or 9.60 % , to $ 823.8 million . although hurricanes michael and florence caused substantial losses , our vertically integrated structure and comprehensive reinsurance program substantially limited the overall financial impact from these damaging storms . net loss ratio was 53.9 % as compared to 50.9 % , driven by prior year reserve strengthening recorded in the fourth quarter of 2018. expense ratio improved to 33.4 % from 33.5 % . net income increased by $ 10.1 million , or 9.5 % , to $ 117.1 million . diluted eps increased by $ 0.28 to $ 3.27 per common share . increased our normal dividend 14 % in the third quarter from $ 0.14 to $ 0.16 per share . declared and paid dividends per common share of $ 0.73 , including a $ 0.13 special dividend in december 2018 . 40 repurchased approximately 689,000 shares in 2018 at an aggregate cost of $ 25.3 million . offered universal direct sm in all 17 states in which the company writes policies as of december 31 , 2018 . upcic commenced writing homeowners policies in new hampshire . upcic implemented an overall 3.4 % rate increase in florida .
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we believe our financial condition and results of operations are , primarily , a function of our performance in four key areas : leasing of industrial properties , acquisition and development of additional industrial properties , disposition of industrial properties and access to external capital . we generate revenue primarily from rental income and tenant recoveries from operating leases of our industrial properties . such revenue is offset by certain property specific operating expenses , such as real estate taxes , repairs and maintenance , property management , utilities and insurance expenses , along with certain other costs and expenses , such as depreciation and amortization costs and general and administrative and interest expenses . our revenue growth is dependent , in part , on our ability to : ( i ) increase rental income , through increasing either or both occupancy rates and rental rates at our properties ; ( ii ) maximize tenant recoveries ; and ( iii ) minimize operating and certain other expenses . revenues generated from rental income and tenant recoveries are a significant source of funds , in addition to income generated from gains on the sale of our properties ( as discussed below ) , for our liquidity . the leasing of property , in general , and occupancy rates , rental rates , operating expenses and certain non-operating expenses , in particular , are impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the leasing of property also entails various risks , including the risk of tenant default . if we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions , our revenue would decline . further , if a significant number of our tenants were unable to pay rent ( including tenant recoveries ) or if we were unable to rent our properties on favorable terms , our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units would be adversely affected . our revenue growth is also dependent , in part , on our ability to acquire existing , and develop new industrial properties on favorable terms . we seek to identify opportunities to acquire existing industrial properties on favorable terms , and , when conditions permit , also seek to acquire and develop new industrial properties on favorable terms . existing properties , as they are acquired , and acquired and developed properties , as they are leased , generate revenue from rental income , tenant recoveries and fees , income from which , as discussed above , is a source of funds for our distributions to our stockholders and unitholders . the acquisition and development of properties is impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the acquisition and development of properties also entails various risks , including the risk that our investments may not perform as expected . for example , acquired existing and acquired and developed new properties may not sustain and or achieve anticipated occupancy and rental rate levels . with respect to acquired and developed new properties , we may not be able to complete construction on schedule or within budget , resulting in increased debt service expense and construction costs and delays in leasing the properties . also , we face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors , including publicly-traded reits and private investors . further , as discussed below , we may not be able to finance the acquisition and development opportunities we identify . if we were unable to acquire and develop sufficient additional properties on favorable terms , or if such investments did not perform as expected , our revenue growth would be limited and our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units would be adversely affected . 27 we also generate income from the sale of our properties ( including existing buildings , buildings which we have developed or re-developed on a merchant basis and land ) . the gain or loss on , and fees from , the sale of such properties are included in our income and can be a significant source of funds , in addition to revenues generated from rental income and tenant recoveries . proceeds from sales are used to repay outstanding debt and , market conditions permitting , may be used to fund the acquisition of existing industrial properties , and the acquisition and development of new industrial properties . the sale of properties is impacted , variously , by property specific , market specific , general economic and other conditions , many of which are beyond our control . the sale of properties also entails various risks , including competition from other sellers and the availability of attractive financing for potential buyers of our properties . further , our ability to sell properties is limited by safe harbor rules applying to reits under the code which relate to the number of properties that may be disposed of in a year , their tax bases and the cost of improvements made to the properties , along with other tests which enable a reit to avoid punitive taxation on the sale of assets . story_separator_special_tag interest expense decreased $ 0.5 million , or 1.0 % , primarily due to a decrease in the weighted average interest rate for the year ended december 31 , 2019 ( 4.01 % ) as compared to the year ended december 31 , 2018 ( 4.24 % ) , partially offset by an increase in the weighted average debt balance outstanding for the year ended december 31 , 2019 ( $ 1,397.6 million ) as compared to the year ended december 31 , 2018 ( $ 1,334.8 million ) and a decrease in capitalized interest of $ 0.1 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. amortization of debt issuance costs decreased $ 0.2 million , or 5.5 % , primarily due to the payoffs of certain mortgage loans , partially offset by the amortization of debt issuance costs related to the issuance of the 2029 ii private placement notes in july 2019. equity in income of joint venture of $ 16.2 million includes our pro-rata share of gain related to the sale of real estate from the joint venture and $ 4.9 million of accrued incentive fees . for the year ended december 31 , 2019 , the income tax provision of $ 3.4 million was primarily related to our pro-rata share of gain from the sale of real estate from the joint venture as well as accrued incentive fees we earned from the joint venture . for the year ended december 31 , 2018 , the income tax benefit was not significant . 31 comparison of year ended december 31 , 2018 to year ended december 31 , 2017 a discussion of changes in our results of operations between 2018 and 2017 has been omitted from this form 10-k and can be found in `` item 7 - management 's discussion and analysis of financial condition and results of operations - comparison of year ended december 31 , 2018 to year ended december 31 , 2017 '' of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. critical accounting policies we believe the following critical accounting policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements . refer to note 2 to the consolidated financial statements for further detail on our critical accounting policies , which are as follows : acquisitions of real estate assets : we allocate the purchase price of acquired real estate , including real estate acquired as a portfolio , based upon the fair value of the assets acquired and liabilities assumed , which generally consists of land , buildings , tenant improvements , leasing commissions and intangible assets including in-place leases , above market and below market leases and below market ground lease obligations . the purchase price is allocated to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant . the determination of fair value includes the use of significant assumptions such as land comparables , discount rates , terminal capitalization rates and market rent assumptions . above-market and below-market lease and below market ground lease obligation values are recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease and ( ii ) our estimate of fair market lease rents for each corresponding in-place lease . the purchase price is further allocated to in-place lease values based on our evaluation of the specific characteristics of each tenant 's lease and an estimate of the lease revenue received during a reasonable lease-up period as if the property was vacant on the date of acquisition . impairment of real estate assets : we review our tangible and intangible real estate assets held for use for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable . the judgments regarding the existence of indicators of impairment are based on the operating performance , market conditions , as well as our ability to hold and our intent with regard to each property . the judgments regarding whether the carrying amounts of these assets may not be recoverable are based on estimates of future undiscounted cash flows from properties which include estimates of future operating performance and market conditions . if any real estate investment is considered permanently impaired , a loss is recorded to reduce the carrying value of the property to its estimated fair value . the impairment assessment and fair value measurement requires the use of estimates and assumptions related to the timing and amounts of cash flow projections , discount rates and terminal capitalization rates . liquidity and capital resources at december 31 , 2019 , our cash and cash equivalents and restricted cash were approximately $ 21.1 million and $ 131.6 million , respectively . restricted cash is comprised of gross proceeds from the sales of certain industrial properties . these sale proceeds will be disbursed as we exchange industrial properties under section 1031 of the code . we also had $ 565.4 million available for additional borrowings under our unsecured credit facility as of december 31 , 2019. we have considered our short-term ( through december 31 , 2020 ) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs . we have $ 15.3 million in mortgage loans payable outstanding at december 31 , 2019 maturing prior to december 31 , 2020. historically , we have utilized various sources of capital to satisfy similar payment obligations , including borrowings under our unsecured credit facility and issuances of debt and equity securities , and we expect to satisfy these payment obligations on or prior to the maturity dates using one or more of these sources of capital .
| results of operations comparison of year ended december 31 , 2019 to year ended december 31 , 2018 our net income was $ 243.9 million and $ 167.3 million for the years ended december 31 , 2019 and 2018 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2019 and 2018. same store properties are properties owned prior to january 1 , 2018 and held as an in-service property through december 31 , 2019 and developments and redevelopments that were placed in service prior to january 1 , 2018. properties which are at least 75 % occupied at acquisition are placed in service , unless we anticipate the tenants to move out within the first two years of ownership . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . acquired properties with occupancy greater than 75 % at acquisition , but with tenants that we anticipate will move out within two years of ownership , will be placed in service upon the earlier of reaching 90 % occupancy or twelve months after move out . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2017 and held as an operating property through december 31 , 2019. sold properties are properties that were sold subsequent to december 31 , 2017 .
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item 13. certain relationships and related transactions , and director independence the information required by this item will be set forth in the proxy statement for our 2020 annual meeting and is incorporated into this report by reference . item 14. principal accountant fees and services the information required by this item will be set forth in the proxy statement for our 2020 annual meeting and is incorporated into this report by reference . 41 part iv item 15. exhibits and financial statement schedules the following documents are filed as part of this report 1. financial statements the company 's financial statements included in part ii of this annual report on form 10-k are incorporated by reference into this item 15 . 2. financial statement schedules other schedules and exhibits are omitted because the required information either is not applicable or is shown in the financial statements or the notes thereto . 3. exhibits required to be filed by item 601 of regulation s-k the exhibit index beginning on page 64 of this annual report on form 10-k is incorporated by reference to this item 15. item 16. form 10-k summary none . 42 exhibit index exhibit no . description 2.1 agreement and plan of merger , dated as of december 12 , 2011 , by and between sensus healthcare , llc and sensus healthcare , llc – incorporated by reference to exhibit 2.1 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 2.2 plan of conversion of sensus healthcare , llc – incorporated by reference to exhibit 2.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 3.1 amended and restated certificate of incorporation of sensus healthcare , inc. – incorporated by reference to exhibit 3.1 to the company 's amendment no . 2 to registration statement on form s-1 ( filed 3/25/16 ) ( no . 333-209451 ) . 3.2 bylaws of sensus healthcare , inc. – incorporated by reference to exhibit 3.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 4.1 form of representatives ' warrant to purchase units– incorporated by reference to exhibit 4.7 of the company 's amendment no . 4 to registration statement on form s-1 ( filed 5/19/16 ) ( no . 333-209451 ) . 4.2 form of indenture – incorporated by reference to exhibit 4.2 of the company 's registration statement on form s-3 ( filed 11/6/17 ) ( no . 333-221371 ) . 4.3 form of warrant agreement , by and between sensus healthcare , inc. and american stock transfer & trust company , llc , as warrant agent , including warrant certificate – incorporated by reference to amendment no . 3 to the company 's registration statement on form s-1/a ( filed 5/13/16 ) ( no . 333-209451 ) . 4.4 * description of company 's common stock 10.1 amended and restated loan and security agreement by and between sensus healthcare , llc and silicon valley bank , dated as of march 12 , 2013 – incorporated by reference to exhibit 10.2 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 10.2 default waiver and first amendment to amended and restated loan and security agreement by and between sensus healthcare , llc and silicon valley bank , dated may 12 , 2015 – incorporated by reference to exhibit 10.3 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 10.3 second amendment and restated loan and security agreement by and between sensus healthcare , inc. and silicon valley bank , dated september 21 , 2016 – incorporated by reference to exhibit 10.1 of the company 's quarterly report on form 10-q ( filed 11/7/16 ) ( no . 001-37714 ) . 10.4 office lease agreement , dated as of july 26 , 2010 , by and between rexall sundown , inc. and sensus healthcare , llc – incorporated by reference to exhibit 10.6 of the company 's registration statement on form s-1 ( filed 2/10/16 ) ( no . 333-209451 ) . 10.5 amendment to lease , dated as of january 27 , 2014 , by and between rexall sundown , inc. and sensus healthcare , llc– incorporated by reference to exhibit 10.7 of the company 's registration statement on form s-1 ( story_separator_special_tag you should read the following management 's discussion and analysis ( “ md & a ” ) in conjunction with the information set forth within the financial statements and related notes included in this annual report on form 10-k. the following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition , and how our performance during 2019 compares with the prior year . throughout this section , sensus healthcare , inc. is referred to as “ company , ” “ we , ” “ us , ” or “ our. ” 33 caution concerning forward-looking statements this annual report on form 10-k , including this md & a section , contains “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , statements about our beliefs , plans , objectives , goals , expectations , estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors , many of which are beyond our control . story_separator_special_tag research and development research and development costs relate to products under development by us and quality and regulatory costs and are expensed as incurred . other income ( expense ) other income ( expense ) primarily consists of interest earned on cash balances and investments less interest payments made pursuant to our secured credit facility with silicon valley bank . our interest expense will fluctuate in future periods to the extent we incur additional , or pay down , indebtedness . income taxes until december 31 , 2015 , we were organized as a limited liability corporation taxed as a pass-through entity and accordingly , we did not recognize a federal or state income tax provision . beginning in 2016 , as a result of our conversion to a delaware corporation , we began recording a provision for income tax ( benefit ) expense , which consists of income taxes in jurisdictions in which we conduct business . we are taxed at the rates applicable within each jurisdiction in which we operate or generate revenue . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities 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 . 35 on december 22 , 2017 , the united states enacted new federal tax reform legislation , resulting in significant changes from the prior tax law . the new tax law reduced the federal corporate income tax rate to 21 % from 35 % , effective january 1 , 2018. our federal income tax expense for periods beginning in 2018 was based on the new rate . the new tax law also permits immediate deduction of 100 % of the costs of qualified property that have been incurred and the property placed in service during the period from september 27 , 2017 to december 31 , 2022. this provision will begin to phase out by 20 % per year beginning january 1 , 2023 and will be completely phased out as of january 1 , 2027. our subsidiary in israel is taxed on its taxable income . the current corporate tax rate in israel is 23 % . inflation inflation has not had a material impact on net sales , revenues or income from operations for our two most recent years as a result of historically low levels of inflation . story_separator_special_tag expansion of our research and development activities . we regularly evaluate our cash requirements for current operations , commitments , capital requirements and business development transactions , and we may elect to raise additional funds for these purposes in the future . 37 cash flows the following table provides a summary of our cash flows for the periods indicated : replace_table_token_3_th cash flows from operating activities net cash used in operating activities was $ 2,106,642 for the year ended december 31 , 2019 , consisting of a net loss of $ 1,700,003 and an increase in net operating assets of $ 2,212,112 , partially offset by non-cash charges of $ 1,805,474. the increase in net operating assets was primarily due to the increase in sales and other longer payment terms on certain sales , resulting in an increase in accounts receivable , an increase in inventory and an increase in deferred revenue offset by a decrease in account payable and accrued expenses . non-cash charges consisted primarily of stock compensation expense , bad debt and depreciation and amortization . net cash used in operating activities was $ 8,563,731 for the year ended december 31 , 2018 , consisting of a net loss of $ 2,022,761 and an increase in net operating assets of $ 8,290,376 , offset by non-cash charges of $ 1,749,406. cash flows from investing activities net cash used in investing activities was $ 4,897,810 due the purchase of debt securities held-to-maturity of $ 7,797,217 and $ 400,593 for acquisition of property and equipment offset by matured investments of $ 3,300,000 during the year ended december 31 , 2019. net cash provided in investing activities totaled $ 2,642,389 for the year ended december 31 , 2018 , which consisted of net investments of $ 1,787,555 less $ 854,834 for acquisition of property and equipment . cash flows from financing activities net cash provided by financing activities was $ 2,620,484 during the year ended december 31 , 2019 , mostly from the exercise of investor warrants of $ 2,739,238 offset by withholding tax on stock compensation of $ 118,754. net cash provided by financing activities was $ 13,604,908 during the year ended december 31 , 2018 , mostly from the gross proceeds of $ 17,249,995 from the offering of common stock and $ 90,867 from exercise of warrants , partially offset by $ 2,214,970 repayment of our revolving credit facility , offering costs of $ 1,402,336 and $ 118,648 in withholding tax on stock compensation . indebtedness please see note 4 to the financial statements . contractual obligations and commitments please see note 6 to the financial statements . off-balance sheet arrangements we did not have during the periods presented , and do not currently have , any off-balance sheet arrangements . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in
| results of operations replace_table_token_2_th year ended december 31 , 2019 compared to the year ended december 31 , 2018 total revenue . total revenue was $ 27,263,248 for the year ended december 31 , 2019 compared to $ 26,427,190 for the year ended december 31 , 2018 , an increase of $ 836,058 , or 3.2 % . the growth in revenue was attributable to an increase in sales of the higher-priced srt-100 vision and sculptura products as well as an increase of the average selling price of these devices in 2019. total cost of sales . cost of sales was $ 9,706,104 for the year ended december 31 , 2019 compared to $ 9,516,302 for the year ended december 31 , 2018 , an increase of $ 189,802 , or 2.0 % . the increase in cost was due to mix of systems sold during the year ended december 31 , 2019 compared to the corresponding period in 2018. gross profit . gross profit was $ 17,557,144 for the year ended december 31 , 2019 compared to $ 16,910,888 for the year ended december 31 , 2018 , an increase of $ 646,256 or 3.8 % , for the reasons discussed above . our overall gross profit margin was 64.4 % in the year ended december 31 , 2019 compared to 64.0 % in the corresponding period in 2018. selling and marketing . selling and marketing expense was $ 9,103,136 for the year ended december 31 , 2019 compared to $ 8,531,622 for the year ended december 31 , 2018 , an increase of $ 571,514 or 6.7 % . the increase was primarily attributable to increased headcount and an increase in commission expense offset by a reduction in marketing activities during 2019 . 36 general and administrative .
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for additional information regarding our cautionary disclosures , see the “ cautionary note regarding forward-looking statements ” at the beginning of this report . overview howard bancorp , inc. is the holding company for howard bank . howard bank was formed in 2004. howard bank 's business has consisted primarily of originating both commercial and real estate loans secured by property in our market area . we are headquartered in baltimore , maryland . we consider our primary market area to be the greater baltimore metropolitan area . we engage in a general commercial banking business , making various types of loans and accepting deposits . we market our financial services primarily to small- and medium-sized businesses and their owners , professionals and executives , and high-net-worth individuals . our loans are primarily funded by core deposits of customers in our market . recent business developments we completed the exit of our mortgage banking activities in early 2020. on december 18 , 2019 , we entered into an agreement to release certain management members of our mortgage division from their employment contracts and allow those individuals to create a limited liability company ( “ llc ” ) for the purpose of hiring our remaining mortgage employees . we also agreed to transfer ownership of the domain name “ vamortgage.com ” to the newly created llc . in consideration of the release of the employment agreements , the transfer of our mortgage employees , and the sale of the domain name , the llc paid us $ 750 thousand . under the agreement , we agreed to cease originating residential first lien mortgage loans and exit all our mortgage banking activities in 2020. accordingly , all of our residential first lien mortgage pipeline loans were processed by the end of the first quarter of 2020 and our remaining mortgage loans held for sale were sold in the second quarter of 2020. in order to manage future loan run-off within our residential mortgage loan portfolio , we began ( and plan to continue ) buying first lien residential mortgage loans , on a servicing released basis , from third-party originators . the exit of our mortgage banking activities is discussed in note 2 to the consolidated financial statements . covid-19 pandemic our business , financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans , the value of collateral underlying our secured loans , and demand for loans and other products and services we offer , which are highly dependent on the business environment in our primary market and in the united states as a whole . the covid-19 pandemic continues to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world . federal and state governments have taken , and may continue to take , unprecedented actions to contain the spread of the disease , including quarantines , travel bans , shelter-in-place orders , closures of businesses and schools , fiscal stimulus , and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic . although in various locations certain activity restrictions have been relaxed and businesses and schools have reopened with some level of success , in many states and localities the number of individuals diagnosed with covid-19 has increased significantly , which may cause a freezing or , in certain cases , a reversal of previously announced relaxation of activity restrictions and may prompt the need for additional aid and other forms of relief . 40 the impact of the covid-19 pandemic is fluid and continues to evolve . the unprecedented and rapid spread of covid-19 and its associated impacts on trade ( including supply chains and export levels ) , travel , employee productivity , unemployment , consumer spending , and other economic activities has resulted in less economic activity , lower equity market valuations and significant volatility and disruption in financial markets . in addition , due to the covid-19 pandemic , market interest rates have declined significantly , with the 10-year treasury bond falling below 1.00 % on march 3 , 2020 for the first time , then declining further to a low of 0.52 % in early august . since that time , intermediate and long-term bond yields have risen , with a sharper rise in 2021 ; the yield on the 10-year treasury bond is now nearing where it was before the start of the pandemic in february 2020. on march 3 , 2020 , the federal open market committee reduced the targeted federal funds interest rate range by 50 basis points to 1.00 % to 1.25 % . this range was further reduced to 0 % to 0.25 % percent on march 16 , 2020 and remained at that level throughout the remainder of 2020. these reductions in interest rates and the other effects of the covid-19 pandemic have had , and are expected to continue to have , possibly materially , an adverse effect on our business , financial condition , and results of operations . the ultimate extent of the impact of the covid-19 pandemic on our business , financial condition and results of operations is currently uncertain and will depend on various developments and other factors , including the effect of governmental , regulatory and private sector initiatives , the effect of the recent rollout of vaccinations for the virus , whether such vaccinations will be effective against any resurgence of the virus , including any new strain , and the ability for customers and businesses to return to their pre-pandemic routine . our covid-19 operational response in response to the pandemic , we have taken a number of steps to protect our employees , customers and communities . story_separator_special_tag we have also temporarily ceased making collection calls , are temporarily waiving a higher proportion of late fees assessed for consumer loans , and have paused new foreclosure and repossession actions . we will continue to re-evaluate these temporary actions based on the ongoing covid-19 pandemic . these programs may negatively impact our revenue and other results of operations in the near term and , if not effective in mitigating the effect of covid-19 on our customers , may adversely affect our business and results of operations more substantially over a longer period of time . current and future governmental actions may require these and other types of customer-related responses . the cares act also permits financial institutions to suspend requirements under gaap for certain loan modifications to borrowers affected by covid-19 that would otherwise be characterized as tdrs , as discussed in the “ nonperforming and problem assets ” section of this md & a . impact on our results of operation and financial condition we continue to monitor the impact of the covid-19 pandemic on our results of operation and financial condition . while the pandemic did not have a significant impact on our financial condition as of december 31 , 2020 , in the form of significant incurred losses or any communications from our borrowers that significant losses were imminent , we nevertheless determined it prudent to increase our allowance for loan and lease losses ( the “ allowance ” ) by $ 8.8 million in 2020 , related to changes in qualitative factors , primarily as a result of the abrupt slowdown in commercial economic activity related to covid-19 , as well as the dramatic rise in the unemployment rate in our market area . our allowance may also be materially impacted in future periods by the covid-19 pandemic . in addition , due to the pandemic and the related economic fallout , including most specifically , declining stock prices at both the company and peer banks , the federal reserve 's significant reduction in interest rates , and other business and market considerations , we performed an interim goodwill impairment analysis as of june 30 , 2020. based on this analysis , the estimated fair value of the company was less than book value , resulting in a $ 34.5 million impairment charge , recorded in noninterest expense , in the second quarter of 2020. this was a non-cash charge to earnings and had no impact on our regulatory capital ratios , cash flows , or liquidity position . 42 capital and liquidity as of december 31 , 2020 , all of our capital ratios were in excess of all regulatory requirements . while we believe that we have sufficient capital to withstand an extended economic recession brought about by the covid-19 pandemic , our reported and regulatory capital ratios could be adversely impacted by loan and lease losses . we anticipated potential stresses on liquidity management as a result of the covid-19 pandemic and our participation in the ppp . we built on-balance sheet liquidity during the first quarter of 2020 in anticipation of a possible increase in the utilization of existing lines of credit or decreases in customer deposits . since these events did n't materialize , in part due to the various actions initiated by the federal reserve to provide market liquidity , we reduced this on-balance sheet liquidity to pre-covid-19 levels during the second quarter of 2020 while continuing to build our contingent funding availability during 2020. the federal reserve created the paycheck protection program lending facility ( “ ppplf ” ) , a lending facility that allows us to obtain funding specifically for loans that we make under the ppp , and allows us to retain existing sources of liquidity for our traditional operations . while we had originally planned to use the ppplf as the funding source for all ppp loans , strong customer deposit growth and the availability of alternative short-term funding sources at a lower cost resulted in our limited usage of the ppplf and no borrowings outstanding at december 31 , 2020. use of non-gaap financial measures and related reconciliations this report contains references to financial measures that are not defined in gaap . such non-gaap financial measures include the presentation of our tangible book value per share , portfolio loans , and portfolio loan-related asset quality ratios . management believes that the presentation of these non-gaap financial measures ( a ) provides important supplemental information that contributes to a proper understanding of our operating performance and provides a meaningful comparison to our peers , ( b ) enables a more complete understanding of factors and trends affecting our business , and ( c ) allows investors to evaluate our performance in a manner similar to management , the financial services industry , bank stock analysts , and bank regulators . management uses non-gaap measures as follows : in the preparation of our operating budgets , monthly financial performance reporting , and in our presentation to investors of our performance . however , non-gaap financial measures have a number of limitations . limitations associated with non-gaap financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently . these disclosures should not be considered in isolation or as an alternative to our gaap results . a reconciliation of non-gaap financial measures to the most directly comparable gaap financial measures is presented below . certain information in this report is presented with respect to “ portfolio loans , ” a non-gaap financial measure defined as total loans and leases , but excluding ppp loans . portfolio loans is calculated by subtracting ppp loans ( net of unamortized deferred fees and origination costs ) from total loans and leases . we also provide certain asset quality ratios such as nonperforming loans and the allowance for loan and lease losses as a percentage of portfolio loans .
| comparison of results of operations general our results of operations depend mainly on our net interest income , which is the difference between the interest income we earn on our loan and investment portfolios , as well as accretion income on acquired loans , and the interest expense we pay on deposits and borrowings . our net interest income can be significantly influenced by a variety of factors , including overall loan demand , economic conditions , credit risk , the amount of nonearning assets including nonperforming loans and acquired credit impaired loans , the amounts of and rates at which assets and liabilities reprice , variances in prepayment of loans and securities , early withdrawal of deposits , exercise of call options on borrowings or securities , a general rise or decline in interest rates , changes in the slope of the yield-curve , and balance sheet growth or contraction . our results of operations are also affected by provisions for credit losses , noninterest income and noninterest expense . our noninterest expense consists primarily of compensation and employee benefits , as well as office occupancy , data processing , deposit insurance , and general administrative expenses . a discussion of our results of operations for the years ended december 31 , 2020 , 2019 and 2018 follows . average balance and yields the following tables set forth average balances , average yields and costs , and certain other information for the periods indicated . no tax-equivalent yield adjustments were made , as the effect thereof was not material . all average balances are daily average balances . non-accrual loans were included in the computation of average balances , and have been 54 reflected in the table as loans carrying a zero yield . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense .
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we may also receive additional success-based development and regulatory milestones aggregating up to $ 38 million , as well as potential sales milestones of up to 17.5 billion yen ( approximately $ 150 million based on the current exchange rate ) . we are also eligible for royalties on net sales , starting in the low double digits and increasing incrementally to the high teens depending on net sales levels . additionally , we would receive payments for product supplied to chugai . grant award in 2015 , we were awarded a grant from innovate uk in support of a phase 2a story_separator_special_tag you should read the following discussion and analysis in conjunction with item 8. financial statements and supplementary data included below in this annual report on form 10-k. overview we are an international biotechnology company that is focused primarily in the field of regenerative medicine . our multistem ® cell therapy is currently being evaluated in multiple clinical trials . our current clinical development programs are focused on treating inflammatory and immune disorders , neurological conditions , cardiovascular disease , and other conditions . we are also applying our pharmaceutical discovery capabilities to identify and develop small molecule compounds with potential applications in indications such as obesity , related metabolic conditions and certain neurological conditions . current programs by applying our proprietary multistem cell therapy product , we established therapeutic product development programs treating inflammatory and immune disorders , neurological conditions , cardiovascular disease , and other conditions . our programs in the clinical development stage include the following : ischemic stroke : in our ongoing phase 2 clinical study , we are evaluating the administration of multistem cell therapy to patients that have suffered an ischemic stroke . in contrast to treatment with the thrombolytic tpa , which must be administered within three to four hours after a stroke , we are treating patients one to two days after the stroke has occurred . in preclinical studies , administration of a single dose of multistem therapy , even one week after a stroke , resulted in significant and durable improvements . this double blind , placebo-controlled trial is being conducted at leading stroke centers across the united states and europe . enrollment was completed in december 2014. we anticipate announcing the interim safety and initial efficacy results in april 2015 , following the ninety-day patient evaluation and receipt of the unblinded clinical data . also , in february 2015 , we established a collaboration with chugai to develop and commercialize multistem for the treatment of ischemic stroke in japan . acute myocardial infarction : we evaluated the administration of multistem to patients that suffered an ami in a phase 1 clinical study . the results of this study demonstrated a favorable safety profile and encouraging signs of improvement in heart function among patients that exhibited severely compromised heart function prior to treatment . this data was published in a leading peer reviewed scientific journal , and one-year follow-up data suggested that the benefit observed was sustained over time . we were awarded a grant for up to $ 2.8 million to support the advancement of this clinical program , and we are completing preparations for the launch of this phase 2 clinical study , which we anticipate will commence in the second quarter of 2015. acute respiratory distress syndrome : we were awarded a grant for up to approximately £2.0 million to support an initial trial to treat patients suffering from ards . ards is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs . ards can be triggered by pneumonia , sepsis , or other trauma and represents a major cause of morbidity and mortality in the critical care setting . the medical need for a safe and effective treatment of ards is significant due to its high mortality rate , and the number of patients it affects annually . the grant supporting this phase 2a clinical trial was awarded by innovate uk to our uk subsidiary , athersys limited. , in conjunction with catapult . we are currently preparing for the trial , which we anticipate will commence in the second half of 2015. hematopoietic stem cell transplant / gvhd : we completed a phase 1 clinical study of the administration of multistem cells to patients suffering from leukemia or certain other blood-borne cancers in which patients undergo radiation therapy and then receive a hematopoietic stem cell transplant . such patients are at significant risk for serious complications , including graft-versus-host disease , or gvhd , an imbalance of immune system function caused by transplanted immune cells that attack various tissues and organs in the patient . data from the study demonstrated the safety of multistem cells in this indication and suggested that the therapy may have a beneficial effect in reducing the incidence and severity of gvhd , as well as providing other benefits . the multistem product has been designated as an orphan drug for the gvhd prophylaxis indication by both the fda and ema , which may provide market exclusivity and other substantial incentives and benefits . we have interacted with both the fda and ema to finalize the design of a single registration study . in february 2015 , the multistem product was granted fast track designation by the fda for prophylaxis therapy against gvhd following hematopoietic cell transplantation . currently , we are staging this program for future registration-directed development dependent on our other clinical programs and the achievement of certain business development and financial objectives . 34 inflammatory bowel disease : multistem therapy is being evaluated in a phase 2 clinical study involving administration of multistem to patients suffering from uc , the most common form of ibd . story_separator_special_tag our clinical and preclinical development costs primarily reflect costs associated with our multistem clinical trials and include contract research organization costs , clinical manufacturing costs , manufacturing process development costs and clinical consulting costs . the decrease in our clinical and preclinical costs in 2013 compared to 2012 relates primarily to fewer manufacturing campaigns and less contract research organization costs for our clinical studies , net of increased manufacturing process development costs . sponsored research costs decreased due to fewer academic research institution costs being required under our grant-funded programs . other than external expenses for our clinical and preclinical programs , we do not track our research expenses by project ; rather , we track such expenses by the type of cost incurred . general and administrative expenses . general and administrative expenses increased to $ 6.1 million in 2013 from $ 4.8 million in 2012. the $ 1.3 million increase in 2013 compared to 2012 was due primarily to an increase of $ 0.6 million in stock-based compensation , an increase in other general and administrative costs of $ 0.3 million related to outside services and recruiting costs , an increase in legal and professional fees of $ 0.3 million related primarily to sec filings , and an increase in personnel costs of $ 0.2 million . the increase in stock-based compensation in 2013 compared to 2012 related primarily to restricted stock units granted to our named executive officers in 2013 in exchange for the termination of an old incentive arrangement , which vest over a three-year period , and the issuance of stock options to our executives as part of the implementation of an annual equity incentive program . the increase in outside services related to an increase in investor relations costs and advisory fees , as well as our being designated an accelerated filer in 2013 , resulting in additional external costs associated with the required attestation of internal controls . the increase in legal and professional fees related primarily to required additional sec filings and related activities , and corporate advisory services . the increase in personnel costs related to the addition of personnel over the past twelve months , an annual merit increase in salaries , and increased performance bonus payments . depreciation . depreciation expense was $ 0.3 million in both 2013 and 2012. income ( expense ) from change in fair value of warrants . expense of $ 6.3 million and income of $ 2.4 million was recognized during the years ended 2013 and 2012 , respectively , for the change in the valuation of our warrant liabilities . 37 other income ( expense ) , net . in 2013 , we had net other income of $ 38,000 compared to net other expense of $ 1.1 million in 2012. included in other income ( expense ) , net , are interest income , foreign currency gains and losses , and any realized gains and losses on the sale of our assets . also , included in 2012 were the final cash and stock-based milestone payments to our former lenders in connection with our equity offerings amounting to $ 1.3 million , net of a gain of $ 183,000 related to an equity-method investment that was liquidated in 2012. liquidity and capital resources our sources of liquidity include our cash balances and any available-for-sale securities . at december 31 , 2014 , we had $ 26.1 million in cash and cash equivalents . we have primarily financed our operations through business collaborations , grant funding and equity financings . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . we incurred losses since inception of operations in 1995 and had an accumulated deficit of $ 287 million at december 31 , 2014. our losses have resulted principally from costs incurred in research and development , clinical and preclinical product development , acquisition and licensing costs , and general and administrative costs associated with our operations . we used the financing proceeds from equity and debt offerings and other sources of capital to develop our technologies , to discover and develop therapeutic product candidates , develop business collaborations and to acquire certain technologies and assets . during the years ended december 2014 , 2013 and 2012 , excluding issuances pursuant to our equity purchase arrangement with aspire capital described below , we completed registered direct , public and private equity offerings generating net proceeds of approximately $ 18.8 million , $ 18.4 million and $ 29.2 million , respectively . in january 2014 , we completed a registered direct offering generating net proceeds of approximately $ 18.8 million through the issuance of 5,000,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock with an exercise price of $ 4.50 per share that expire on july 15 , 2016. the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.30 shares of common stock at an offering price of $ 4.10 per fixed combination . in december 2013 , we completed a registered direct offering generating net proceeds of approximately $ 18.4 million through the issuance of 10,000,000 shares of common stock and warrants to purchase 3,500,000 shares of common stock with an exercise price of $ 2.50 per share and an expiration date of march 31 , 2015. the securities were sold in multiples of a fixed combination of one share of common stock and a warrant to purchase 0.35 shares of common stock at an offering price of $ 2.00 per fixed combination .
| results of operations since our inception , our revenues have consisted of license fees , contract revenues and milestone payments from our collaborators , and grant proceeds primarily from federal , state and foundation grants . we have derived no revenue from the commercial sale of therapeutic products to date , but we receive royalties on commercial sales by a licensee of products using our technologies . research and development expenses consist primarily of external clinical and preclinical study fees , manufacturing costs , salaries and related personnel costs , legal expenses resulting from intellectual property prosecution processes , facility costs , and laboratory supply and reagent costs . we expense research and development costs as they are incurred . we expect to continue to make significant investments in research and development to enhance our technologies , advance clinical trials of our product candidates , expand our regulatory affairs and product development capabilities , conduct preclinical studies of our product and manufacture our product candidates . general and administrative expenses consist primarily of salaries and related personnel costs , professional fees and other corporate expenses . we expect to continue to incur substantial losses through at least the next several years . year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues . revenues decreased to $ 1.6 million for the year ended december 31 , 2014 from $ 2.4 million in 2013 , reflecting a $ 0.3 million decrease in our pfizer contract revenues and a $ 0.4 million decrease in milestone payments from bristol-myers squibb , partially offset by an increase of $ 0.2 million in royalty payments from rti . absent any new collaborations , we expect our contract revenues to be comprised of revenues associated with our recent chugai collaboration , royalty payments from rti , potential commercial milestone payments from rti , and potential milestone payments and royalties from bristol-myers squibb .
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overview our history we were incorporated in 1993 under the name of infotouch corporation with the objective of establishing an interactive network of real estate `` kiosks '' for consumers to search for homes . in 1996 , we began to develop the technology to build and operate real estate related internet sites . in 1996 , we entered into a series of agreements with the nar and several investors and transferred technology and assets to a newly-formed subsidiary , which ultimately became realselect , inc. realselect , inc. in turn entered into a number of formation agreements with , and issued cash and common stock representing a 15 % ownership interest in realselect , inc. to , the nar in exchange for the rights to operate the realtor.com® web site and pursue commercial opportunities relating to the listing of real estate on the internet . substantially all of the nar 's ownership interest in realselect , inc. was exchanged for stock in a new parent company , homestore.com , inc. , in august 1999. our initial operating activities primarily consisted of recruiting personnel , developing our web site content and raising our initial capital and we began actively marketing our advertising products and services to real estate professionals in january 1997. we changed our name to homestore , inc. in may 2002 and to move , inc. in june 2006. our business we operate an online network of web sites for real estate search , finance , moving and home enthusiasts and provide a comprehensive resource for consumers seeking the online information and connections they need regarding real estate . our consumer web sites are realtor.com® , move.com and moving.com tm . we also provide lead management software and marketing services for real estate agents and brokers through our top producer® and tigerlead® businesses . through our listhub tm business , we are also an online real estate listing syndicator and provider of advanced performance reporting solutions for the purpose of helping to drive an effective online advertising program for brokers , real estate franchises , and individual agents . with realtor.com® as our flagship web site and brand , we are the leading real estate information marketplace connecting consumers with the information and the expertise they need to make informed home buying , selling , financing and renting decisions . move 's purpose is to help people love where they live . to that end we strive to create the leading marketplace for real estate information and services by connecting people at every stage of the real estate cycle with the content , tools and professional expertise they need to find a perfect home . through the collection of assets we have developed over nearly 20 years in this business , move is positioned to address the needs and wants of both consumers and real estate professionals throughout the process of home ownership . although the real estate marketplace has been unquestionably changed by the internet , and likely will continue to evolve through the growth of mobile devices and social networking , our business continues to be about empowering consumers with timely and reliable information and connecting them to the real estate professionals who have the expertise to help them better understand and succeed in that marketplace . 26 we provide consumers with a powerful combination of breadth , depth and accuracy of information about homes for sale , new construction , homes for rent , multi-family rental properties , senior living communities , home financing , home improvement and moving resources . through realtor.com® , consumers have access to over 94 million properties across the u.s. as well as properties for sale from another 32 countries worldwide . our for-sale listing content , comprising over 4 million properties as of december 31 , 2012 , and accessible in 11 different languages , represents the most comprehensive , accurate and up-to-date collection of its kind , online or offline . through realtor.com® and our mobile applications , we display approximately 98 % of all for-sale properties listed in the u.s. we source this content directly from our relationships with more than 800 mlss across the country , which represents nearly all mlss , with approximately 90 % of the listings updated every 15 minutes and the remaining listings updated daily . realtor.com® 's substantial content advantage has earned us trust with both consumers and real estate professionals . we attract a highly engaged consumer audience and have developed an exceptionally large number of relationships with real estate professionals across the country . more than 22 million users , viewing an average of over 390 million pages and spending an average of over 325 million minutes on the realtor.com® web site each month over the last twelve-month period , interact with over 400,000 real estate professionals on realtor.com® and our mobile applications . we delivered approximately 60 % more connections between our consumers and real estate professionals during the year ended december 31 , 2012 , as compared to the prior year . this illustrates the success of our continued commitment to not only deliver valuable information to consumers , but more importantly , to connect them with real estate professionals who can provide the local expertise consumers want when making home-related decisions . in addition to providing an industry-leading content mix , move facilitates connections and transactions between consumers and real estate professionals . although attracting and engaging a large consumer audience is an important part of our business , to succeed we must also focus on winning the hearts and minds of real estate professionals , who are both customers of our business and suppliers of much of our property content . we believe this starts with our commitment to respecting the listing and content rights of the real estate agents , brokers , mlss and others who work hard to help generate these important data resources . through realtor.com® and listhub tm , we aggregate , syndicate and display real estate listings across the web and on mobile applications . story_separator_special_tag for a number of years prior to 2006 , the u.s. residential real estate market experienced a period of hyper-sales rates and home price appreciation , fueled by the availability of low interest rates and flexible mortgage options for many consumers . during the latter half of 2006 and through 2008 , lending standards were tightened , equity markets declined substantially , liquidity in general was impacted , unemployment rates rose and consumer spending declined . the combination of these factors materially impacted the u.s. housing market in the form of fewer home sales , lower home prices and accelerating delinquencies and foreclosures , all of which created a cycle that further exacerbated the housing market downturn . the effects on the housing market have persisted for several years but key market indicators suggest that large parts of the housing market have bottomed out and have entered a recovery mode . during the fourth quarter of 2012 , the nation saw a 12.9 % reduction in the median age of inventory , as well as a year-over-year reduction in inventory of 7.5 % . national median list prices were up significantly in the first half of 2012 , but were effectively flat year-over-year for the fourth quarter of 2012 compared to the fourth quarter of 2011. mortgage delinquency rates declined in 2012 , meaning the percentage of people who have fallen behind on their mortgages declined . however , banks continue to have tighter credit standards for mortgage loans , which have made home purchases more difficult . unemployment rates declined in 2012 ; however , job and wage growth is still tepid . therefore , we believe that market conditions could continue to impact spending by real estate professionals in the near term . acquisitions in the fourth quarter of 2012 , we acquired certain assets and assumed certain liabilities of relocation.com , llc which operates an online marketplace that connects homebuyers and renters with moving and storage professionals and was a direct competitor to our moving.com tm business . the purchase price was $ 11.5 million in cash , $ 9.5 million of which was paid upon closing , with the remaining $ 2.0 million to be paid in two equal installments on the first and second anniversaries of the acquisition date . the transaction with relocation.com , llc has been accounted for as a business combination with the total purchase price being allocated to the assets acquired based on their respective fair values . the $ 11.5 million purchase price was allocated $ 3.2 million to definite-lived intangible assets , $ 3.2 million to indefinite-lived intangible assets , $ 0.1 million to net tangible assets with the remaining $ 5.0 million allocated to goodwill . the identifiable intangible assets are being amortized over estimated lives ranging from two to six years , with the exception of $ 3.2 million in indefinite-lived domain names . the financial results of the acquired business are included in our consolidated financial statements from the date of acquisition . pro forma information for this acquisition has not been presented because the effects were not material to our historical consolidated financial statements . in the third quarter of 2012 , we entered into an agreement with tiger lead solutions , llc whereby we acquired substantially all of the operating assets of the tigerlead® business for a purchase price of $ 22.0 million in cash , $ 3.0 million of which was paid into escrow for a one-to-two year period to secure potential liabilities of tiger lead solutions , llc . in addition , we entered into employment agreements with members of tigerlead 's senior management whereby we granted 273,420 restricted stock units with a grant date fair value of $ 2.2 million . these time-based restricted stock units will vest one year from the date of grant and would be forfeited in the event of termination by us for cause or voluntary resignation . tigerlead® provides an integrated set of internet marketing services and saas crm tools to residential real estate professionals to generate , cultivate , and manage leads . 29 the transaction with tiger lead solutions , llc has been accounted for as a business combination with the total purchase price being allocated to the assets acquired based on their respective fair values . the $ 22.0 million purchase price was allocated $ 11.9 million to definite-lived intangible assets , $ 0.9 million to indefinite-lived intangible assets , $ 0.1 million to net tangible assets with the remaining $ 9.1 million allocated to goodwill . the identifiable intangible assets are being amortized over estimated lives ranging from six to nine years , with the exception of $ 0.9 million in indefinite-lived trade name and trademarks . the financial results of the acquired business are included in our consolidated financial statements from the date of acquisition . pro forma information for this acquisition has not been presented because the effects were not material to our historical consolidated financial statements . in the third quarter of 2011 , we acquired the assets of peep.ly , llc ( `` social bios '' ) . the social bios assets include social media products that can compile and integrate a user 's social networking profiles from various social media properties to build a web site landing page that provides a profile of the user and allows the user to conduct a directory search for others whereby the user 's social profile is matched against the social profiles of others to determine social overlaps or commonalities . the acquisition did not have a material impact on our consolidated financial position , results of operation or cash flows . in the third quarter of 2010 , we acquired all of the outstanding shares of threewide corporation ( `` threewide '' ) for approximately $ 13.1 million in cash .
| results of operations we have continued to modify our business model over the past three years . our prospects should be considered in light of the risks , uncertainties , expenses and difficulties frequently encountered by companies in rapidly evolving markets such as the internet . to address these risks , we must , among other things , be able to continue to : execute our business model , including changes to that model ; respond to highly competitive developments ; attract , retain and motivate qualified personnel ; implement and successfully execute our marketing plans ; continue to upgrade our technologies ; develop new distribution channels ; and improve our operational and financial systems . we achieved positive net income for the years ended december 31 , 2012 and 2011 , but we may not be able to do so in the future . a more complete description of other risks relating to our business is set forth in part i , item 1a , `` risk factors '' of this form 10-k. 35 replace_table_token_9_th ( 1 ) the following chart summarizes the stock-based compensation and charges that have been included in the following captions for the periods presented .
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the mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through august 2017. as of august 31 , 2016 , outstanding commitments under the senior secured credit facilities consisted of $ story_separator_special_tag executive summary we operate in four reportable segments : manufacturing ; wheels & parts ; leasing & services ; and gbw joint venture . our segments are operationally integrated . the manufacturing segment , operating from facilities in the united states , mexico and poland , produces double-stack intermodal railcars , tank cars , conventional railcars , automotive railcar products and marine vessels . the wheels & parts segment performs wheel and axle servicing , as well as production of a variety of parts for the railroad industry in north america . the leasing & services segment owns approximately 8,900 railcars ( 6,600 railcars held as equipment on operating leases , 2,200 held as leased railcars for syndication and 100 held as finished goods inventory ) and provides management services for approximately 264,000 railcars for railroads , shippers , carriers , institutional investors and other leasing and transportation companies in north america . the gbw joint venture segment provides repair services at over 30 locations across north america , including more than 10 tank car repair and maintenance facilities certified by the association of american railroads ( aar ) . the results of these operations were included as part of earnings from unconsolidated affiliates as we account for our interest in gbw under the equity method of accounting . through unconsolidated joint ventures we also produce rail castings , tank heads and other components and have a direct and indirect 35 % ownership stake in a railcar manufacturer in brazil . subsequent to august 31 , 2016 , we reached agreements to restructure certain railcar contracts for favorable financial and other considerations resulting in a reduction of approximately 1,200 units . the adjustment is reflected as of august 31 , 2016. our total manufacturing backlog of railcar units as of august 31 , 2016 was approximately 27,500 units with an estimated value of $ 3.19 billion , of which 23,500 units are for direct sales , 3,700 units are intended for syndications to third parties with a lease attached and 300 units intended to be placed into our owned lease fleet . backlog as of august 31 , 2015 was approximately 41,300 units with an estimated value of $ 4.71 billion . multi-year supply agreements are a part of rail industry practice . a portion of the orders included in backlog reflects an assumed product mix . under terms of the orders , the exact mix will be determined in the future , which may impact the dollar amount of backlog . marine backlog as of august 31 , 2016 was $ 114 million compared to $ 52 million as of august 31 , 2015. our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations . certain orders in backlog are subject to customary documentation and completion of terms . customer orders contain terms and conditions customary in the industry . customers may attempt to cancel or modify orders in backlog . historically , little variation has been experienced between the quantity ordered and the quantity actually delivered , though the timing of deliveries has been modified from time to time . backlog as of august 31 , 2016 includes an aggregate of 3,800 covered hopper railcars for use in energy related sand transportation ; customers may seek to cancel , settle or modify a portion of these railcars . we can not guarantee that our reported railcar backlog will convert to revenue in any particular period , if at all . in september 2015 , we purchased a portfolio of 3,885 railcars from a related third party for approximately $ 148.0 million plus a $ 1.0 million fee with the intent to resell the railcars and underlying attached leases to third parties in the short-term . during the year ended august 31 , 2016 , we sold to third parties 3,406 of these railcars with the underlying leases attached for $ 167.2 million . we recognized revenue on 3,017 of these railcars for $ 159.4 million and deferred revenue recognition on 389 of these railcars for $ 7.8 million due to our continuing involvement . the gross proceeds from the sale of these railcars with leases attached were recorded as revenue and the cost of purchasing these railcars was recorded in cost of revenue within our leasing & services segment . the remaining 479 railcars are anticipated to be sold or disposed of in the next year . in august 2016 we announced that we closed on the acquisition of a 19.5 % ownership interest for $ 10 million in amsted-maxion fundição e equipamentos ferroviários s.a. ( amsted-maxion cruzeiro ) , a manufacturer of castings and components for railcars and other heavy equipment . amsted-maxion cruzeiro is also the co-owner with us of amsted-maxion equipamentos e serviços ferroviários s.a. ( greenbrier-maxion ) , a railcar manufacturer in brazil . we own 19.5 % of greenbrier-maxion while amsted-maxion cruzeiro owns 80.5 % . 34 the greenbrier companies 2016 annual report after our investment in amsted-maxion cruzeiro we now , directly and indirectly , own approximately 35 % of greenbrier-maxion . as part of this investment , we have an option , subject to certain conditions , to acquire an additional 10 % interest in amsted-maxion cruzeiro . our option expires on october 20 , 2017. in 2015 , as part of our initial investment in greenbrier-maxion , we secured an option to acquire an additional 40.5 % direct ownership interest in greenbrier-maxion . the option is exercisable until december 30 , 2017 and has been modified as part of the august 2016 transaction to allow us to purchase a direct ownership interest in greenbrier-maxion in an amount between 30.6 % and 40.5 % , with the option exercise price adjusted in proportion to the ownership interest obtained . story_separator_special_tag manufacturing operating profit was $ 415.1 million and 19.8 % of revenue for the year ended august 31 , 2016 , $ 396.9 million and 18.6 % of revenue for the year ended august 31 , 2015 and $ 202.6 million and 12.5 % of revenue for the year ended august 31 , 2014. the $ 18.2 million or 4.6 % increase in operating profit in 2016 compared to 2015 and $ 194.4 million or 96.0 % increase in operating profit in 2015 compared to 2014 were both primarily attributed to higher margins . wheels & parts segment replace_table_token_6_th * not meaningful wheels & parts revenue was $ 322.4 million , $ 371.2 million and $ 495.6 million for the years ended august 31 , 2016 , 2015 and 2014. the $ 48.8 million or 13.2 % decrease in revenue in 2016 compared to 2015 was primarily a result of lower wheel set , component and parts volumes due to a decrease in demand and a decrease in scrap metal volume and pricing . the $ 124.4 million or 25.1 % decrease in revenue in 2015 compared to 2014 was primarily due to 2015 excluding repair revenue as a result of contributing our repair business to gbw , while 2014 included $ 138.4 million of repair revenue . the decrease in revenue was also attributed to a decrease in scrap metal pricing . wheels & parts cost of revenue was $ 293.8 million , $ 334.7 million and $ 463.9 million for the years ended august 31 , 2016 , 2015 and 2014. cost of revenue decreased $ 40.9 million or 12.2 % in 2016 compared to 2015 primarily due to lower wheel set , component and parts costs associated with decreased volumes . cost of revenue decreased $ 129.3 million or 27.9 % in 2015 compared to 2014 primarily due to 2015 excluding repair cost of revenue as a result of contributing our repair business to gbw , while 2014 included repair cost of revenue . wheels & parts margin as a percentage of revenue was 8.9 % for 2016 , 9.8 % for 2015 and 6.4 % for 2014. the 0.9 % decrease in margin in 2016 compared to 2015 was due to lower wheel set and component volumes and a decrease in scrap metal pricing . these were partially offset by a more favorable parts product mix . the 3.4 % increase in margin as a percentage of revenue in 2015 compared to 2014 was primarily the result of 2015 excluding the results of our repair operations which in the recent past have had lower margins as a percentage of revenue than the rest of the segment . in addition , the increase in margin was due to a favorable change in wheel pricing and a more favorable parts product mix . these were partially offset by the adverse effect of a decline in scrap metal pricing on wheel margins during 2015. the greenbrier companies 2016 annual report 39 wheels & parts operating profit was $ 19.9 million and 6.2 % of revenue for the year ended august 31 , 2016 , $ 27.6 million and 7.4 % of revenue for the year ended august 31 , 2015 and $ 40.6 million and 8.2 % of revenue for the year ended august 31 , 2014. the $ 7.6 million or 27.6 % decrease in operating profit in 2016 compared to 2015 was primarily attributable to a decrease in margin due to a decrease in volumes partially offset by $ 2.3 million in insurance proceeds received in excess of net book value on assets destroyed in a fire at a wheels & parts facility in 2015. the $ 13.0 million or 32.1 % decrease in operating profit in 2015 compared to 2014 was primarily attributed to a $ 29.0 million pre-tax non-cash gain on contribution to joint venture in 2014. this was partially offset by repair selling and administrative expense being excluded in 2015 as a result of contributing our repair business to gbw and an increase in margin in the current year . leasing & services segment replace_table_token_7_th * not meaningful leasing & services revenue was $ 260.8 million , $ 98.0 million and $ 83.4 million for the years ended august 31 , 2016 , 2015 and 2014. the $ 162.8 million or 166.1 % increase in revenue in 2016 compared to 2015 was primarily the result of the sale of railcars for $ 159.4 million that we purchased from a related third party with the intent to resell them and a 14 % increase in management services revenue due to the addition of new management service agreements . this was partially offset by a lower average volume of newly built rent-producing railcars which are held short term and classified as leased railcars for syndication on our consolidated balance sheet . the $ 14.6 million or 17.5 % increase in revenue in 2015 compared to 2014 was primarily the result of a higher average volume of newly built rent-producing railcars . the increase in revenue was also attributed to a 29 % increase in management services revenue due to the addition of new management service agreements . leasing & services cost of revenue was $ 203.8 million , $ 41.8 million and $ 43.8 million for the years ended august 31 , 2016 , 2015 and 2014. cost of revenue increased $ 162.0 million or 387.2 % in 2016 compared to 2015 primarily due to costs associated with the sale of railcars that we purchased from a related third party . cost of revenue decreased $ 2.0 million or 4.5 % in 2015 compared to 2014 primarily due to lower transportation costs and a decrease in the cost of revenue associated with purchased railcars that were sold .
| consolidated results replace_table_token_3_th * not meaningful through our integrated business model , we provide a broad range of custom products and services in each of our segments which have various average selling prices and margins . the demand for and mix of products and services delivered changes from year to year which causes fluctuations in our results of operations . the 2.8 % increase in revenue for the year ended august 31 , 2016 as compared to the year ended august 31 , 2015 was primarily due to a 166.1 % increase in leasing & services revenue which was primarily the result of the sale of railcars that we purchased from a related third party . this was partially offset by a 1.9 % decrease in manufacturing revenue due to a 3.8 % decrease in the volume of railcar deliveries . however , the manufacturing product mix in the current period had a higher average selling price as compared to the prior comparable period . in addition , the increase in leasing & services revenue was partially offset by a 13.2 % decrease in wheels & parts revenue as a result of lower wheel set , component and parts volumes due to a decrease in demand and a decrease in scrap metal volume and pricing . the 2.9 % increase in cost of revenue for the year ended august 31 , 2016 as compared to the year ended august 31 , 2015 was due to a 387.2 % increase in leasing & services cost of revenue which was primarily the result of costs associated with the sale of railcars that we purchased from a related third party . this was partially offset by a 3.6 % decrease in manufacturing cost of revenue .
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these derivative liabilities will be marked-to-market each quarter with the change in fair value recorded in the income statement . the company uses the effective interest method to record interest expense from the accretion of the debt discount and accretes the unamortized discount upon conversion which totaled $ 182,238 for the year ended december 31 , 2013. the estimated debt accretion for subsequent years is $ 92,678 , $ 88,013 and $ 1,547 for years ending december 31 , 2014 , 2015 and 2016 story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( md & a ) should be read in conjunction with the other sections of this annual report on form 10-k , including the financial statements . overview we are a leading provider of wireless broadband access solutions for the energy industry . our primary business strategy is to develop and provide a long-term terrestrial wireless broadband solution for the exploration , drilling , and production sectors of the energy industry in rural and remote locations in north america that lack existing communications infrastructure . we intend to continue to build upon our market position in the areas in which we operate by offering an integrated and comprehensive package of services that will allow us to provide our oil and gas customers with wellsite it communications services required throughout their drilling locations . we intend to continue to supplement our wellsite communications business with our enterprise , commercial and residential bandwidth delivery to maximize the return from our investment in network infrastructure throughout the regions in which we operate . historically , our revenues have been generated primarily from internet and construction services . our internet revenues result from our offering of broadband and basic communications services to residential and enterprise customers . our construction revenues result from the construction of bank networks and other services associated with providing wireless products and services to the regional banking industry . during fiscal 2013 , approximately 34 % of our revenues were generated from internet services , 60 % of our revenues were generated from providing broadband services to the energy industry and 6 % of our revenues were generated from construction services . we expect that the most growth during fiscal 2014 will continue to come from devoting significant capital resources to developing the oil and gas market utilizing wireless services . 26 the company 's financial condition declined in 2013 as compared to the prior fiscal year ended december 31 , 2012 , as follows : · the company reported revenues of $ 7,156,000 for the year ended december 31 , 2013 , as compared to revenues of $ 7,328,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 172,000 or 2 % . · we reported gross profit of $ 2,997,000 for the year ended december 31 , 2013 , compared to $ 3,353,000 for the same prior year period ended december 31 , 2012 , a decrease of $ 356,000 or 11 % . · the company reported total comprehensive loss of $ 7,264,000 for the year ended december 31 , 2013 , as compared to a total comprehensive loss of $ 4,821,000 for the same prior year ended december 31 , 2012 ; an increase of $ 2,443,000 or 51 % . · the company 's energy broadband , inc. subsidiary reported revenues of $ 4,311,000 for the year ended december 31 , 2013 , as compared to revenues of $ 4,642,000 for the same prior year ended december 31 , 2012 ; a decrease of $ 331,000 or 7 % . · the company reported an increase of $ 558,000 or 8 % in operating expenses in the year ended december 31 , 2013 , as compared to the same prior year ended december 31 , 2012. the increase is primarily related to employment and professional expense . · lastly , the company invested $ 346,000 in cash during the year ended december 31 , 2013 , primarily for the purchase of assets in its energy broadband , inc. subsidiary for the continued expansion of networks and infrastructure . critical accounting policies revenue recognition our revenue is generated primarily from the sale of wireless communications products and services on a nationwide basis , including providing enterprise-class wireless broadband services . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectibility is probable . we record revenues from our fixed-price , long-term contracts using the percentage-of-completion method . revenues are recorded based on construction costs incurred to date as a percentage of estimated total cost at completion . the percentage-of-completion , determined by using total costs incurred to date as a percentage of estimated total costs at completion , reflects the actual physical completion of the project . if the current projected costs on a fixed fee contract exceed projected revenue , the entire amount of the loss is recognized in the period such loss is identified . we recognize product sales generally at the time the product is shipped . concurrent with the recognition of revenue , we provide for the estimated cost of product warranties and reduce revenue for estimated product returns . sales incentives are generally classified as a reduction of revenue and are recognized at the later of when revenue is recognized or when the incentive is offered . shipping and handling costs are included in cost of goods sold . service revenue is principally derived from wireless broadband services , including internet , voice , and data and monitoring service . subscriber fees are recorded as revenues in the period during which the service is provided . property and equipment property and equipment are stated at cost less accumulated depreciation . major renewals and improvements are capitalized ; minor replacements , maintenance and repairs are charged to current operations . depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years . story_separator_special_tag the company 's financing activities provided net cash of $ 2,786,000 in the year ended december 31 , 2013 , compared to $ 2,393,000 of cash provided in year ended december 31 , 2012. the cash provided in the year ended december 31 , 2013 , was primarily associated with proceeds from debt financing of $ 3,116,000 and the line of credit , net of 1,148,000. liquidity and capital resources general at december 31 , 2013 , the company 's current assets totaled $ 2,082,000 ( including cash and cash equivalents of $ 42,000 ) total current liabilities were $ 6,582,000 , resulting in negative working capital of $ 4,500,000. the company has funded operations to date primarily through a combination of utilizing cash on hand and borrowings . the company 's operations for the year ended december 31 , 2013 , were primarily funded by the company 's line of credit , net totaling $ 1,148,000 and convertible debt financing of $ 3,116,000. current debt facilities and instruments in december 2013 , the company extended the maturity date of its $ 12.0 million unsecured revolving credit facility with angus capital partners , a related party , from december 31 , 2015 to december 31 , 2017. the terms of the unsecured revolving credit facility allow the company to draw upon the facility as financing requirements dictate and provide for quarterly interest payments at a 3 % rate per annum . the payment of principal may be paid in cash , common shares or preferred shares at the lender 's election . the payment of interest may only be paid in cash . the loan may be prepaid without penalty or repaid at maturity . at december 31 , 2013 the outstanding balance on the line of credit totaled $ 4,281,000. the remaining line of credit available at december 31 , 2013 was $ 7,719,000 . 30 for the year ended december 31 , 2013 , the company issued 36,784 shares of its common stock for the settlement of $ 1,808,739 of principal and $ 349,261 of accrued interest for a total principal and interest amount of $ 2,158,000 owed to angus capital partners . the company issued common stock at an average price of $ 58.67 per share calculated based on the closing price the day the debt was settled . at december 31 , 2013 , angus capital partners and erf wireless , inc. both agreed to reduce the interest rate from the current 12 % per annum to 3 % per annum retroactive to january 1 , 2013 and extend the maturity date of the revolving note to december 31 , 2017 , while maintaining the maximum line of credit of $ 12 million . the company in consideration has accepted the return and cancellation of 36,784 common shares ( post-split ) of company common stock issued for the line of credit conversions during 2013. the company has accordingly reversed the payment of principal and interest of $ 2,158,000 in december 2013 and subsequently received the canceled shares in february 2014. additionally for the year ended december 31 , 2013 , the company issued 1,763,000 shares of its series a preferred stock to angus capital for the settlement of principal amount of $ 35,260 of debt . the company issued series preferred a stock at an average price of $ .02 per share or $ 8.00 ( post-split ) per share calculated based on the closing price of the common stock the day the debt was settled . in november 2011 , we entered into a debt financing agreement with dakota capital fund llc for financing of up to $ 3,000,000. during the fourth quarter of 2011 , the company received proceeds of $ 2,000,000 and had the option of additional funding of $ 1,000,000 for equipment purchases . this debt facility is secured by certain erf wireless assets and there is no prepayment penalty . at december 31 , 2013 , the outstanding principal balance on the facility totaled $ 1,494,000 and we have elected not to request any additional funds under this credit facility . the payment terms are $ 178,031 per quarter including interest , at an annual rate of 18 % per annum plus 10 % of positive operational cash flow as determined on a quarterly basis for repayment of additional principal beginning july 1 , 2012. the funding was utilized to purchase equipment to build out networks in major oil and gas exploration regions of north america . during the year ended december 31 , 2013 , we issued to certain accredited investors a principal amount of $ 325,000 of e-series bonds ( the `` bonds '' ) . a balance of $ 687,000 was outstanding at december 31 , 2012. at december 31 , 2013 , the outstanding principal balance of the bonds totaled $ 311,000. the bonds are due and payable upon maturity , a three-year period from the issuance date . interest on the bonds is payable at the rate of 7.5 % per annum , and is payable semiannually . the bondholder may require the company to convert the bond ( including any unpaid interest ) into shares of common stock at any time only during the first year . if the bonds are converted under this option , the company will issue shares representing 100 % of the bond principal and unpaid interest calculated through maturity . the common stock issued under this option will be valued at the average closing price average of the common shares for the five days prior to the notification . if the bond is converted within the first year the company will issue a three-year warrant to purchase one share of ebi common stock at a price of $ 4.00 for every $ 2.00 of bond principal .
| results of operations year ended december 31 , 2013 , compared to year ended december 31 , 2012 the following table sets forth summarized consolidated financial information for the years ended december 31 , 2013 and 2012 : replace_table_token_3_th for the year ended december 31 , 2013 , the company 's business operations reflected an increase in sales for its wbs and ens subsidiaries and offset by a decrease sales in ebi subsidiary . for the year ended december 31 , 2013 , the company 's consolidated operations generated net sales of $ 7,156,000 compared to prior-year period net sales of $ 7,328,000. the $ 172,000 decrease in total sales is primarily attributable to $ 331,000 decreased sales in ebi from declining deployment of our mobile broadband trailers ( mbt 's ) in the oil and gas regions . service sales decreased $ 160,000 and product sales decreased $ 12,000 for a net decrease of $ 172,000. for the year ended december 31 , 2013 , the company had a gross profit margin of 42 % , compared to a gross profit margin 46 % for the prior year period . the $ 356,000 decrease in gross profit margin is primarily attributed to ; ( i ) approximately $ 171,000 decrease in gross margin in ebi attributable to decreased sales associated with deployment of mbt 's in oil and gas regions , ( ii ) $ 150,000 decrease in gross margins in wbs due to increased depreciation and tower rent cost , and ( iii ) $ 35,000 decrease in gross margin in ens primarily related to material cost and tower rent .
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91 news corporation notes to the consolidated financial statements upon adoption of asu 2018-15 , intangiblesgoodwill and otherinternal-use software ( subtopic 350-24 ) : customer 's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract ( asu 2018-15 ) , the company evaluates upfront costs , including implementation , set-up or other costs ( collectively , implementation costs ) , for hosting arrangements under the internal-use software framework . costs related to preliminary project activities and post implementation activities are expensed as incurred , whereas costs incurred in the development stage are generally capitalized as prepaid assets within other current assets in the balance sheet . capitalized implementation costs are amortized on a straight-line basis over the expected term of the hosting arrangement , which includes consideration of the non-cancellable contractual term and reasonably certain renewals . story_separator_special_tag this discussion and analysis contains statements that constitute forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the exchange act ) , and section 27a of the securities act of 1933 , as amended . all statements that are not statements of historical fact are forward-looking statements . the words expect , estimate , anticipate , predict , believe and similar expressions and variations thereof are intended to identify forward-looking statements . these statements appear in a number of places in this discussion and analysis and include statements regarding the intent , belief or current expectations of the company , its directors or its officers with respect to , among other things , trends affecting the company 's financial condition or results of operations and the outcome of contingencies such as litigation and investigations . readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties . more information regarding these risks , uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading risk factors in item 1a of this annual report on form 10-k ( the annual report ) . the company does not ordinarily make projections of its future operating results and undertakes no obligation ( and expressly disclaims any obligation ) to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . readers should carefully review this document and the other documents filed by the company with the securities and exchange commission ( the sec ) . this section should be read together with the consolidated financial statements of news corporation and related notes set forth elsewhere in this annual report . the following discussion and analysis omits discussion of fiscal 2017. please see item 7. management 's discussion and analysis of financial condition and results of operations in the company 's annual report on form 10-k for the fiscal year ended june 30 , 2018 for a discussion on fiscal 2017. introduction news corporation ( together with its subsidiaries , news corporation , news corp , the company , we , or us ) is a global diversified media and information services company comprised of businesses across a range of media , including : news and information services , subscription video services in australia , book publishing and digital real estate services . in april 2018 , news corp and telstra combined their respective 50 % interests in the foxtel group and news corp 's 100 % interest in fox sports australia into a new company , nxe australia pty ltd. ( the transaction ) , which the company refers to herein as foxtel for post-transaction periods . following the completion of the transaction , news corp owns a 65 % interest in the combined business , with telstra owning the remaining 35 % . consequently , the company began consolidating the foxtel group in the fourth quarter of fiscal 2018 . ( see note 4acquisitions , disposals and other transactions in the accompanying consolidated financial statements ) . for periods prior to the completion of the transaction , the company continues to refer to its equity investment in the foxtel group as foxtel . the results of the combined business are reported within the subscription video services segment . to enhance the comparability of the financial information provided to users , the company has supplementally included pro forma financial information for the fiscal year ended june 30 , 2018 reflecting the transaction within its discussion and analysis below . the consolidated financial statements are referred to herein as the consolidated financial statements. the consolidated statements of operations are referred to herein as the statements of operations. the consolidated balance sheets are referred to herein as the balance sheets. the consolidated statements of cash flows are referred to herein as the statements of cash flows. the consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( gaap ) . 42 management 's discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the company 's financial condition , changes in financial condition and results of operations . this discussion is organized as follows : overview of the company 's business this section provides a general description of the company 's businesses , as well as developments that occurred during the two fiscal years ended june 30 , 2019 and through the date of this filing that the company believes are important in understanding its results of operations and financial condition or to disclose known trends . story_separator_special_tag specializing in property and is listed on the asx ( asx : rea ) . rea group advertises property and property-related services on its websites and mobile apps across australia and asia , including australia 's leading residential , commercial and share property websites , realestate.com.au , realcommercial.com.au , flatmates.com.au and spacely.com.au , and property portals in asia . story_separator_special_tag revenue is primarily derived from monthly affiliate fees received from pay-tv providers based on the number of subscribers and advertising . the most significant operating expenses of the subscription video services segment are the acquisition and production expenses related to programming , the expenses related to operating the technical facilities of the broadcast operations , expenses related to cable , satellite , internet and broadband transmission costs and studio 45 and engineering expense . the expenses associated with licensing certain programming rights are recognized during the applicable season or event , which can cause results at the subscription video services segment to fluctuate based on the timing and mix of foxtel 's local and international sports programming . programming rights associated with a dedicated channel are amortized over 12 months . other expenses include subscriber acquisition costs such as sales costs and marketing and promotional expenses related to improving the market visibility and awareness of the channels and their programming . additional expenses include salaries , employee benefits , rent and other routine overhead expenses . book publishing the book publishing segment derives revenues from the sale of general fiction , nonfiction , children 's and religious books in the u.s. and internationally . the revenues and operating results of the book publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace . the book publishing marketplace is subject to increased periods of demand during the end-of-year holiday season in its main operating geographies . this marketplace is highly competitive and continues to change due to technological developments , including additional digital platforms and distribution channels and other factors . each book is a separate and distinct product and its financial success depends upon many factors , including public acceptance . major new title releases represent a significant portion of the book publishing segment 's sales throughout the fiscal year . print-based consumer books are generally sold on a fully returnable basis , resulting in the return of unsold books . in the domestic and international markets , the book publishing segment is subject to global trends and local economic conditions . operating expenses for the book publishing segment include costs related to paper , printing , authors ' royalties , editorial , promotional , art and design expenses . selling , general and administrative expenses include salaries , employee benefits , rent and other routine overhead . digital real estate services the digital real estate services segment generates revenue through property and property-related advertising and services , including the sale of real estate listing and performance-based products to agents , brokers and developers , display advertising on its residential real estate and commercial property sites and residential property data services to the financial sector . the digital real estate services segment also generates revenue through licenses of certain professional software products on a subscription basis and fees and commissions from referrals generated through its end-to-end digital property search and financing offering and mortgage broking services . significant expenses associated with these sites , services and software solutions include development costs , advertising and promotional expenses , hosting and support services , salaries , broker commissions , employee benefits and other routine overhead expenses . consumers are increasingly turning to the internet and mobile devices for real estate information and services . the digital real estate services segment 's success depends on its continued innovation to provide products and services that are useful for consumers and real estate , mortgage and financial services professionals and attractive to its advertisers . the digital real estate services segment operates in a highly competitive digital environment with other real estate and property websites . other the other segment primarily consists of general corporate overhead expenses , the corporate strategy group and costs related to the u.k. newspaper matters . the company 's strategy group identifies new products and services across the company 's businesses to increase revenues and profitability and targets and assesses potential acquisitions , investments and dispositions . 46 other business developments in june 2019 , the company announced that it is reviewing strategic options for news america marketing , including a potential sale . there is no assurance regarding the timing of any action or transaction , nor that the strategic review will result in a transaction or other strategic change . in october 2018 , the company acquired opcity inc. ( opcity ) , a market-leading real estate technology platform that matches qualified home buyers and sellers with real estate professionals in real time . the total transaction value was approximately $ 210 million , consisting of approximately $ 182 million in cash , net of $ 7 million of cash acquired and approximately $ 28 million in deferred payments and restricted stock unit awards for opcity 's founders and qualifying employees , which is being recognized as compensation expense over the three years following the closing . included in the cash amount was approximately $ 20 million that is being held back for approximately 18 months after closing . the acquisition broadens realtor.com ® 's lead generation product portfolio , allowing real estate professionals to choose between traditional lead products or a concierge-based model that provides highly vetted , transaction-ready leads . opcity is a subsidiary of move , and its results are included within the digital real estate services segment . in addition to the acquisitions noted above , the company used $ 26 million of cash for additional acquisitions during fiscal 2019 , primarily relating to racing internet services ( racenet ) and medium rare content agency ( medium rare ) , an integrated content agency . racenet and medium rare are subsidiaries of news corp australia and the results of each are included within the news and information services segment .
| results of operations this section provides an analysis of the company 's results of operations for the two fiscal years ended june 30 , 2019. this analysis is presented on both a consolidated basis and a segment basis . supplemental revenue information is also included for reporting units within certain segments and is presented on a gross basis , before eliminations in consolidation . in addition , a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed . to enhance the comparability of the financial information provided to users , the company has supplementally included pro forma financial information for fiscal 2018 within its discussion and analysis below reflecting the transaction . the company maintains a 52-53 week fiscal year ending on the sunday closest to june 30 in each year . fiscal 2019 and 2018 each included 52 weeks . liquidity and capital resources this section provides an analysis of the company 's cash flows for the two fiscal years ended june 30 , 2019 , as well as a discussion of the company 's financial arrangements and outstanding commitments , both firm and contingent , that existed as of june 30 , 2019. critical accounting policies this section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the consolidated financial statements summarizes the company 's significant accounting policies , including the critical accounting policies discussed in this section . overview of the company 's businesses the company manages and reports its businesses in the following five segments : news and information services the news and information services segment includes the company 's global print , digital and broadcast radio media platforms .
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certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the risk factors section on page 19. additionally , more information about our business activities can be found in business . critical accounting policies the sec has issued cautionary advice regarding disclosure about critical accounting policies . the sec defines critical accounting policies as those that are both most important to the portrayal of a company 's financial condition and results , and that require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods . the preparation of our consolidated financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes . significant estimates made by us include valuation of loans , equity investments , and investments in subsidiaries , evaluation of the recoverability of accounts receivable and income tax assets , and the assessment of litigation and other contingencies . the matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments . although we believe that estimates and assumptions used in determining the recorded amounts of net assets and liabilities at december 31 , 2016 are reasonable , actual results could differ materially from the estimated amounts recorded in our financial statements . general we are a specialty finance company that has a leading position in originating , acquiring , and servicing loans that finance taxicab medallions and various types of commercial businesses . a wholly-owned portfolio company of ours , medallion bank , also originates consumer loans for the purchase of recreational vehicles , boats , motorcycles , and trailers , and to finance small-scale home improvements . since 1996 , the year in which we became a public company , we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 3 % , and our commercial loan portfolio at a compound annual growth rate of 4 % ( 7 % and 4 % on a managed basis when combined with medallion bank ) . since medallion bank acquired a consumer loan portfolio and began originating consumer loans in 2004 , it has increased its consumer loan portfolio at a compound annual growth rate of 18 % . in january 2017 , the company announced its plans to transform our overall strategy . we are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance portfolio . total assets under our management and the management of our unconsolidated wholly-owned subsidiaries , which includes our managed net investment portfolio , as well as assets serviced for third party investors , were $ 1,632,000,000 as of december 31 , 2016 and $ 1,655,000,000 as of december 31 , 2015 , and have grown at a compound annual growth rate of 11 % from $ 215,000,000 at the end of 1996. our loan-related earnings depend primarily on our level of net interest income . net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds . we fund our operations through a wide variety of interest-bearing sources , such as revolving bank facilities , bank certificates of deposit issued to customers , debentures issued to and guaranteed by the sba , and bank term debt . net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds , as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us . net interest income is also affected by economic , regulatory , and competitive factors that influence interest rates , loan demand , and the availability of funding to finance our lending activities . we , like other financial institutions , are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities . we also provide debt , mezzanine , and equity investment capital to companies in a variety of industries , consistent with our investment objectives . these investments may be venture capital style investments which may not be fully collateralized . medallion capital 's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or warrants to purchase an equity interest for a nominal exercise price ( such warrants are included in equity investments on the consolidated balance sheets ) . interest income is earned on the debt instruments . we are a closed-end , non-diversified management investment company , organized as a delaware corporation , under the 1940 act . we have elected to be treated as a business development company , or bdc , under the 1940 act . during our tax year ended december 31 , 2016 , we did not qualify as a ric under subchapter m of the internal revenue code of 1986 , as amended , or the code , and therefore we became subject to taxation as a corporation under subchapter c of the code . we had in previous years qualified and elected to be treated for federal income tax purposes as a ric . as a ric , we generally did not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distributed to our shareholders as dividends , if we met certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . see note 5 for more information . 38 our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates taxicab medallion , commercial , and consumer loans , raises deposits , and conducts other banking activities . story_separator_special_tag medallion loan portfolio our medallion loans comprised 41 % of the net portfolio of $ 652,278,000 at december 31 , 2016 , compared to 51 % of the net portfolio of $ 606,959,000 at december 31 , 2015 , and 59 % of $ 527,601,000 at december 31 , 2014. our managed medallion loans of $ 528,643,000 comprised 35 % of the net managed portfolio of $ 1,517,592,000 at december 31 , 2016 , compared to 43 % the net managed portfolio of $ 1,501,555,000 at december 31 , 2015 , and 52 % of $ 1,310,685,000 at december 31 , 2014. the medallion loan portfolio decreased by $ 41,592,000 or 13 % in 2016 ( and decreased by $ 112,261,000 or 18 % on a managed basis ) . the decreases in outstandings were primarily concentrated in the new york market , although all markets declined , and reflected increased realized and unrealized losses and net amortization of loan principal . total medallion loans serviced for third parties were $ 24,796,000 , $ 26,959,000 , and $ 27,658,000 at december 31 , 2016 , 2015 , and 2014. the weighted average yield of the medallion loan portfolio at december 31 , 2016 was 4.01 % , a decrease of 8 basis points from 4.09 % at december 31 , 2015 , which was an increase of 6 basis points from 4.03 % at december 31 , 2014. the weighted average yield of the managed medallion loan portfolio at december 31 , 2016 was 3.88 % , a decrease of 8 basis points from 3.96 % at december 31 , 2015 , which was an increase of 3 basis points from 3.93 % at december 31 , 2014. the decreases in yield from prior year primarily reflected the repricing of the existing portfolio to current market interest rates . at december 31 , 2016 , 31 % of the medallion loan portfolio represented loans outside new york , compared to 31 % and 32 % at year-end 2015 and 2014. at december 31 , 2016 , 24 % of the managed medallion loan portfolio represented loans outside new york , compared to 26 % at year-end 2015 and 2014. commercial loan portfolio our commercial loans represented 13 % of the net investment portfolio as of december 31 , 2016 , compared to 14 % at december 31 , 2015 and 2014 , and were 6 % , 8 % , and 9 % on a managed basis . commercial loans increased by $ 1,739,000 or 2 % during 2016 ( decreased by $ 39,682,000 or 32 % on a managed basis ) , primarily reflecting growth in the high-yield mezzanine portfolio , partially offset by a decrease in the other secured commercial loan portfolio and the exit from the asset based lending business . the decrease in the managed portfolio was primarily reflective of the sale of the asset-based portfolio as well as the changes described above . net commercial loans serviced for third parties were $ 1,644,000 at december 31 , 2016 , and serviced by third parties were $ 3,419,000 and $ 118,000 at december 31 , 2015 , and 2014. the weighted average yield of the commercial loan portfolio at december 31 , 2016 was 13.05 % , an increase of 25 basis points from 12.80 % at december 31 , 2015 , which was an increase of 89 basis points from 11.91 % at december 31 , 2014. the weighted average yield of the managed commercial loan portfolio at december 31 , 2016 was 12.76 % , an increase of 258 basis points from 10.18 % at december 31 , 2015 , which was an increase of 98 basis points from 9.20 % at december 31 , 2014. the increases primarily reflected the change in portfolio mix and higher yields on the mezzanine portfolio . we continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment . at december 31 , 2016 , variable-rate loans represented 7 % of the commercial portfolio , compared to 9 % and 6 % at december 31 , 2015 and 2014 , and were 7 % , 38 % , and 38 % on a managed basis . although this strategy initially produces a lower yield , we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources . 41 consumer loan portfolio our managed consumer loans , all of which are held in the portfolio managed by medallion bank , represented 46 % of the managed net investment portfolio as of december 31 , 2016 , compared to 41 % and 36 % at december 31 , 2015 and 2014. medallion bank originates adjustable rate consumer loans secured by recreational vehicles , boats , motorcycles , trailers , and home improvements located in all 50 states . the portfolio is serviced by a third party subsidiary of a major commercial bank . the weighted average gross yield of the managed consumer loan portfolio was 14.27 % at december 31 , 2016 , compared to 14.06 % and 14.71 % at december 31 , 2015 and 2014. the increase in 2016 reflected the second quarter sale of loans that was weighted towards lower yielding home improvement loans . adjustable rate loans represented 12 % of the managed consumer portfolio at december 31 , 2016 , compared to 20 % and 37 % at december 31 , 2015 and 2014 , reflecting medallion bank no longer offering variable rate recreation loans since january 2014. delinquency and loan loss experience we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more . we deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances .
| consolidated results of operations for the years ended december 31 , 2016 and 2015 net increase in net assets resulting from operations was $ 23,515,000 or $ 0.97 per diluted common share in 2016 , down $ 5,861,000 or 20 % from $ 29,376,000 or $ 1.20 per share in 2015 , primarily reflecting an initial income tax provision that resulted from our not qualifying to elect ric status for 2016 , lower net interest income , and higher operating expenses , partially offset by higher net realized/unrealized gains and noninterest income . net investment income after income taxes was $ 119,000 or $ 0.00 per share in 2016 , down $ 16,707,000 or 99 % from $ 16,826,000 or $ 0.69 in 2015. investment income was $ 25,088,000 in 2016 , down $ 17,565,000 or 41 % from $ 42,653,000 a year ago , and included in 2016 and 2015 were $ 3,000,000 and $ 18,889,000 in dividends from medallion bank and other controlled subsidiaries . excluding those items , investment income decreased $ 1,676,000 or 7 % , primarily reflecting a $ 1,317,000 increase in foregone interest income on nonaccrual loans , and a $ 851,000 reduction in lease revenue from our owned chicago medallions , in both cases , reflecting the poor performance of a number of our borrowers and lessees as business conditions have worsened . the yield on the investment portfolio was 4.17 % in 2016 , down 46 % from 7.74 % in 2015. excluding the dividends , the 2016 yield was down 6 % to 3.67 % from 4.31 % in 2015 , reflecting the above . average investments outstanding were $ 602,349,000 in 2016 , up 9 % from $ 550,763,000 a year ago , primarily reflecting the appreciation on medallion bank , partially offset by increased reserves and paydowns in the medallion portfolio .
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as a result of many factors , such as the slow-down of the macro-economic environment in china and its impact on economic growth in general , the competition in the fertilizer industry and the impact of such competition on pricing , revenues and margins , the weather conditions in the areas where our customers are based , the cost of attracting and retaining highly skilled personnel , the prospects for future acquisitions , and the factors set forth elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . in light of these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this report will in fact occur . you should not place undue reliance on the forward-looking statements contained in this report . the forward-looking statements speak only as of the date on which they are made , and , except to the extent required by u.s. federal securities laws , we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events . further , the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon , among other things , the existing regulatory environment , industry conditions , market conditions and prices , and our assumptions as of such date . we may change our intentions , at any time and without notice , based upon any changes in such factors , in our assumptions or otherwise . unless the context indicates otherwise , as used in the notes to the financial statements of the company , the following are the references herein of all the subsidiaries of the company ( i ) green agriculture holding corporation ( “ green new jersey ” ) , a wholly-owned subsidiary of green nevada incorporated in the state of new jersey ; ( ii ) shaanxi techteam jinong humic acid product co. , ltd. ( “ jinong ” ) , a wholly-owned subsidiary of green new jersey organized under the laws of the prc ; ( iii ) xi'an hu county yuxing agriculture technology development co. , ltd. ( “ yuxing ” ) , a variable interest entity in the prc ( “ vie ” ) controlled by jinong through contractual agreements ; ( iv ) shaanxi lishijie agrochemical co. , ltd. ( “ lishijie ” ) , a vie controlled by jinong through contractual agreements ; ( v ) songyuan jinyangguang sannong service co. , ltd. ( “ jinyangguang ” ) , a vie in the prc controlled by jinong through contractual agreements ; ( vi ) weinan city linwei district wangtian agricultural materials co. , ltd. ( “ wangtian ” ) , a vie controlled by jinong through contractual agreements ; ( vii ) aksu xindeguo agricultural materials co. , ltd. ( “ xindeguo ” ) , a vie controlled by jinong through contractual agreements ; ( vii ) xinjiang xinyulei eco-agriculture science and technology co. , ltd ( “ xinyulei ” ) , a vie controlled by jinong through contractual agreements ; ( ix ) sunwu county xiangrong agricultural materials co. , ltd. ( “ xiangrong ” ) , a vie controlled by jinong through contractual agreements ; ( x ) anhui fengnong seed co. , ltd. ( “ fengnong ” ) , a vie controlled by jinong through contractual agreements ; ( xi ) beijing gufeng chemical products co. , ltd. , a wholly-owned subsidiary of jinong in the prc ( “ gufeng ” ) ; and ( xii ) beijing tianjuyuan fertilizer co. , ltd. , gufeng 's wholly-owned subsidiary in the prc ( “ tianjuyuan ” ) . yuxing , lishijie , jinyangguang , wangtian , xindeguo , xinyulei , xiangrong and fengnong may also collectively be referred to as the “ the vie companies ” ; lishijie , jinyangguang , wangtian , xindeguo , xinyulei , xiangrong and fengnong may also collectively be referred to as “ the sales vies ” or “ the sales vie companies ” . unless the context otherwise requires , all references to ( i ) “ prc ” and “ china ” are to the people 's republic of china ; ( ii ) “ u.s . dollar , ” “ $ ” and “ us $ ” are to united states dollars ; and ( iii ) “ rmb ” , “ yuan ” and renminbi are to the currency of the prc or china . overview we are engaged in the research , development , production and sale of various types of fertilizers and agricultural products in the prc through our wholly-owned chinese subsidiaries , jinong and gufeng ( including gufeng 's subsidiary tianjuyuan ) , and our vie , yuxing . our primary business is fertilizer products , specifically humic-acid based compound fertilizer produced by jinong and compound fertilizer , blended fertilizer , organic compound fertilizer , slow-release fertilizer , highly-concentrated water-soluble fertilizer and mixed organic-inorganic compound fertilizer produced by gufeng . in addition , through yuxing , we develop and produce various agricultural products , such as top-grade fruits , vegetables , flowers and colored seedlings . for financial reporting purposes , our operations are organized into three business segments : fertilizer products ( jinong ) , fertilizer products ( gufeng ) and agricultural products ( yuxing ) . the fertilizer business conducted by jinong and gufeng generated approximately 72.3 % and 73.4 % of our total revenues for the years ended june 30 , 2019 and 2018 respectively . the sales vies generated 24.3 % and 22.9 % of our revenues for the years ended june 30 , 2019 and 2018 respectively . yuxing serves as a research and development base for our fertilizer products . story_separator_special_tag ( 2 ) on november 30 , 2017 , the company , through its wholly-owned subsidiary jinong , discontinued the strategic acquisition agreements and the series of contractual agreements with the shareholders of zhenbai . in return , the shareholders of zhenbai agreed to tender the whole payment consideration in the saa back to the company with early termination penalties . the convertible notes paid to zhenbai 's shareholders and the accrued interest has been forfeited . 40 january 1 , 2017 : cash principal of payment for notes for acquisition acquisition company name business scope ( rmb [ 1 ] ) ( rmb ) sunwu county xiangrong agricultural materials co. , ltd. sales of pesticides , agricultural chemicals , chemical fertilizers , agricultural materials ; manufacture and sales of mulches . 4,000,000 6,000,000 anhui fengnong seed co. , ltd. wholesale and retail sales of pesticides ; sales of chemical fertilizers , packaged seeds , agricultural mulches , micronutrient fertilizers , compound fertilizers and plant growth regulators 4,000,000 6,000,000 total 8,000,000 12,000,000 ( 1 ) the exchange rate between rmb and u.s. dollars on january 1 , 2017 is rmb1=us $ 0.144 , according to the exchange rate published by bank of china . pursuant to the saa and the acn , the shareholders of the targets , while retaining possession of the equity interests and continuing to be the legal owners of such interests , agreed to pledge and entrust all of their equity interests , including the proceeds thereof but excluding any claims or encumbrances , and the operations and management of its business to jinong , in exchange of an aggregate amount of rmb45,000,000 ( approximately $ 6,731,600 ) to be paid by jinong within three days following the execution of the saa , acn and the vie agreements , and convertible notes with an aggregate face value of rmb 63,000,000 ( approximately $ 9,418,800 ) with an annual fixed compound interest rate of 3 % and term of three years . jinong acquired the targets using the vie arrangement based on our need to further develop our business and comply with the regulatory requirements under the prc laws . as our business focuses on the production of fertilizer , all our business activities intertwine with those in the agriculture industry in china . specifically , we deal with compliance , regulation , safety , inspection , and licenses in fertilizer production , farm land use and transfer , growing and distribution of agriculture goods , agriculture basic supplies , seeds , pesticides , and trades of grains . it is an industry in which heavy regulations get implemented and strictly enforced . in addition , e-commerce , which is also under strict government regulation in the prc , has lately become a sales and distribution channel for agricultural products . currently , we are developing an online platform to connect the physical distribution network we either own or lease . compared with the regulatory environment in other jurisdictions , the regulatory environment in the prc is unique . for example , the “ m & a rules ” purports to require that an offshore special purpose vehicle controlled directly or indirectly by prc companies or individuals and formed for purposes of overseas listing through acquisition of prc domestic interests held by such prc companies or individuals obtain the approval of the china securities regulatory commission ( the “ csrc ” ) prior to the listing and trading of such special purpose vehicle 's securities on an overseas stock exchange . on september 21 , 2006 , the csrc published procedures regarding its approval of overseas listings by special purpose vehicles . for both e-commerce and agriculture industries , prc regulators limit the investment from foreign entities and set particularly rules for foreign-owned entities to conduct business . we expect these limitations on foreign-owned entities will continue to exist in e-commerce and agriculture industries . the vie arrangement , however , provides feasibility for obtaining administrative approval process and avoiding industry restrictions that can be imposed on an entity that is a wholly-owned subsidiary of a foreign entity . the vie agreements reduce uncertainty and the current limitation risk . it is our understanding that the vie agreements , as well as the control we obtained through vie arrangement , are valid and enforceable . such legal structure does not violate the known , published , and current prc laws . while there are substantial uncertainties regarding the interpretation and application of prc laws and future prc laws and regulations , and there can be no assurance that the prc authorities will take a view that is not contrary to or otherwise different from our belief and understanding stated above , we believe the substantial difficulty that we experienced previously to conduct business in agriculture as a foreign ownership can be greatly reduced by the vie arrangement . further , as an integral part of the vie arrangement , the underlying equity pledge agreements provide legal protection for the control we obtained . pursuant to the equity pledge agreements , we have completed the equity pledge processes with the targets to ensure the complete control of the interests in the targets . the shareholders of the targets are not entitled to transfer any shares to a third party under the exclusive option agreements . if necessary , they may transfer shares to our company without consideration .
| results of operations fiscal year ended june 30 , 2019 compared to the year ended june 30 , 2018. for the years ended june 30 replace_table_token_8_th 42 net sales total net sales for the fiscal year ended june 30 , 2019 were $ 294,320,803 , an increase of $ 7,267,273 or 2.5 % , from $ 287,053,530 for the fiscal year ended june 30 , 2018. this increase was primarily due to an increase in gufeng 's and vies ' net sales . for the fiscal year ended june 30 , 2019 , jinong 's net sales decreased $ 21,228,352 , or 21.7 % , to $ 76,494,490 from $ 97,722,842 for the fiscal year ended june 30 , 2018. this decrease was mainly attributable to the decrease in jinong 's sales price during the last fiscal year . for the fiscal year ended june 30 , 2019 , gufeng 's net sales were $ 136,285,236 , an increase of $ 23,301,663 , or 20.6 % from $ 112,983,573 , for the fiscal year ended june 30 , 2018. the increase was mainly attributable to the increase in gufeng 's sales volume during the last fiscal year . for the fiscal year ended june 30 , 2019 , yuxing 's net sales were $ 10,101,051 , a decrease of $ 383,979 , or 3.7 % , from $ 10,485,030 for the fiscal year ended june 30 , 2018. the decrease was mainly attributable to the decrease in market demand during the last fiscal year . for the fiscal year ended june 30 , 2019 , vies ' net sales were $ 71,440,026 , an increase of $ 5,577,941 or 8.5 % , from $ 65,862,085 for the fiscal year ended june 30 , 2018. the increase was mainly attributable to the increase in market demand during the last fiscal year .
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the company has 20,000,000 shares of common stock authorized , of which 14,012,000 and 13,907,000 are issued as of january 31 , 2015 and 2014 , respectively . during the fiscal years ended january 31 , 2015 , 2014 and 2013 , approximately 1,020 , 994 and 290 shares , respectively , were surrendered in exchange for story_separator_special_tag overview we operate in two segments , equipment leasing and seamap . our equipment leasing operations are conducted from our huntsville , texas headquarters and from our locations in calgary , canada ; brisbane , australia ; lima , peru ; bogota , colombia ; budapest , hungary ; singapore and ufa , russia . this includes the operations of our mcl , sap , mel , mml and mse subsidiaries and our branches in peru and colombia . seamap operates from its locations near bristol , united kingdom and in singapore . management believes that the performance of our equipment leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment . management further believes that the performance of our seamap segment is indicated by revenues from equipment sales and by gross profit from those sales . management monitors ebitda and adjusted ebitda , both as defined in the following table , as key indicators of our overall performance and liquidity . 28 the following table presents certain operating information by operating segment : replace_table_token_6_th ( 1 ) ebitda is defined as net income before ( a ) interest income and interest expense , ( b ) provision for ( or benefit from ) income taxes and ( c ) depreciation , amortization and impairment . adjusted ebitda excludes non-cash foreign exchange gains and losses and stock-based compensation . we consider ebitda and adjusted ebitda to be important indicators for the performance of our business , but not measures of performance or liquidity calculated in accordance with accounting principles generally accepted in the united states of america ( gaap ) . we have included these non-gaap 29 financial measures because management utilizes this information for assessing our performance and liquidity , and as indicators of our ability to make capital expenditures , service debt and finance working capital requirements . the credit agreement contains financial covenants based on ebitda or adjusted ebitda . management believes that ebitda and adjusted ebitda are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us . in particular , we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities . we believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations . ebitda and adjusted ebitda are not measures of financial performance or liquidity under gaap and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with gaap . in evaluating our performance as measured by ebitda , management recognizes and considers the limitations of this measurement . ebitda and adjusted ebitda do not reflect our obligations for the payment of income taxes , interest expense or other obligations such as capital expenditures . accordingly , editda and adjusted ebitda are only two of the measurements that management utilizes . other companies in our industry may calculate ebitda or adjusted ebitda differently than we do and ebitda and adjusted ebitda may not be comparable with similarly titled measures reported by other companies . in our equipment leasing segment , we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land , transition zone and marine seismic surveys worldwide . we provide short-term leasing of seismic equipment to meet a customer 's requirements . all active leases at january 31 , 2015 were for a term of less than one year . seismic equipment held for lease is carried at cost , net of accumulated depreciation . we acquire some marine lease pool equipment from our seamap segment . these amounts are carried in our lease pool at the cost to our seamap segment , less accumulated depreciation . from time to time , we sell lease pool equipment to our customers . these sales are usually transacted when we have equipment for which we do not have near term needs in our leasing business . additionally , when equipment that has been leased to a customer is lost or destroyed , the customer is charged for such equipment at amounts specified in the underlying lease agreement . these charges are included in lease pool equipment sales in the accompanying financial statements . we occasionally sell new seismic equipment that we acquire from other manufacturers . we produce and sell , as well as lease , equipment used to deploy and retrieve seismic equipment with helicopters . in addition to leasing seismic equipment , sap sells equipment , consumable supplies , systems integration , engineering hardware and software maintenance support services to the seismic , hydrographic , oceanographic , environmental and defense industries throughout southeast asia and australia . our seamap segment designs , manufactures and sells a variety of products used primarily in marine seismic applications . seamap 's primary products include the ( i ) gunlink and digishot seismic source acquisition and control systems , which provide marine operators more precise control of exploration tools ; and ( ii ) the buoylink rgps tracking system used to provide precise positioning of seismic sources and streamers ( marine recording channels that are towed behind a vessel ) . seismic equipment leasing is susceptible to weather patterns in certain geographic regions . in canada and russia , a significant percentage of the seismic survey activity normally occurs in the winter months , from december through march or april . story_separator_special_tag 31 we believe there are other areas of opportunity for our land leasing business , including the middle east , north africa , asia and the pacific rim . we have been active in each of these regions in recent years ; however , the level of activity has varied . based on discussion with our customers and other industry participants , we understand there are significant projects planned in these areas in fiscal 2016. there can be no assurance , however , that those projects will proceed or that we will have the opportunity to participate in any such projects . marine leasing activity has declined significantly over the past three years . we believe this is due in large part to an excess of equipment in the marine seismic market . as marine contractors have sought to reduce costs by retiring older vessels an excess of used equipment has become available , thereby reducing the demand for rental equipment . we believe this excess of available equipment will continue into fiscal 2016. however , during the fourth quarter of fiscal 2015 , we began to experience an increase in inquiries for the rental of certain marine equipment . while this is an encouraging development , it is unclear what effect this will have on our revenues from the rental of marine equipment in fiscal 2016. revenue from the rental of downhole seismic tools has increased over the past three years . this equipment is most often used in applications related to the development of oil and gas properties , such as frac monitoring or reservoir monitoring programs . accordingly , the degree to which current oil prices and exploration activity influence demand for these products can be different from that for our other equipment . we generally expect demand for these products to remain relatively constant during fiscal 2016 as compared to fiscal 2015. the market for products sold by seamap is dependent upon activity within the offshore , or marine , seismic industry , including the re-fitting of existing seismic vessels and the equipping of new vessels . our seamap business has benefited from equipping new-build vessels and from re-equipping older vessels with newer , more efficient technology . in addition , as seamap has expanded its installed base of products , including the product lines purchased in fiscal 2015 , our business for replacements , spare parts , repair and support services has expanded . the overall decline in seismic exploration activity has had , and can be expected to continue to have , an impact on the demand from seamap 's products and services . however , we believe the expansion of our product offerings and the desire for customers to upgrade to newer , more efficient technology will mitigate this impact to some extent . we also believe that seamap has been successful in penetrating new markets recently , partially due to the product lines purchased from ion in fiscal 2015. we continue to have discussions with existing and potential customers regarding new products and enhancement to existing products in order to better meet the needs of the marine seismic industry . in june 2013 , we entered into a manufacturing arrangement with petroleum geo-services asa ( pgs ) , one of the largest marine seismic contractors in the world . under this arrangement , we manufacture and sell to pgs a customized and proprietary marine energy source controller that is based on our gunlink 4000 product ( the pgs sourcelink ) . we have previously collaborated with pgs to develop pgs sourcelink . we expect pgs sourcelink will be deployed on the majority of pgs ' fleet of seismic vessels ; however , current industry conditions will likely result in a delay in the complete deployment of the new products . the deployment will take place over a period of several years . the oil and gas industry , in general , and the seismic industry , in particular , have historically been cyclical businesses . if worldwide oil and gas prices should remain at current depressed levels or decline from current levels , we could see a material change in the level of our business and our income from operations . in response to the decline in demand for our equipment and what we believe to be an excess of equipment in the market , we reduced the additions to our lease pool in fiscal 2015. during this period , we added approximately $ 11.8 million of equipment to our lease pool , as compared to approximately $ 49.0 million in fiscal 2014 and approximately $ 39.1 million in fiscal 2013. we plan to further reduce additions to our lease pool in fiscal 2016 to approximately $ 5.0 million . we expect any such additions will be limited to maintenance of our existing equipment or additional ancillary items that will enhance our ability to lease existing equipment . however , should industry conditions change , or unusual opportunities present themselves , we could revise our planned leased pool additions . 32 historically , there have been two or three primary manufacturers of land seismic equipment . recently , the industry has seen the emergence of additional entities seeking to introduce new equipment , particularly wireless recording equipment . accordingly , significant competition among these new and existing manufacturers has developed . this competition has , we believe , led to pricing pressure for the manufacturers of equipment . while we benefit from lower prices for new equipment , this situation has also begun to have a negative impact on the pricing for our products and services . we have not been able to determine the magnitude of this impact on our results to date . we believe one of our key competitive advantages is our broad geographic footprint and ability to operate in a number of areas . we have accomplished this over the past several years by establishing subsidiaries and branch operations such that we now operate in nine countries .
| results of operations for fiscal 2015 , we recorded an operating loss of approximately $ 6.7 million , compared to operating income of approximately $ 5.8 million for fiscal 2014 and approximately $ 13.9 million for fiscal 2013. the decrease in fiscal 2015 from fiscal 2014 relates primarily to lower equipment sales , higher depreciation expense , higher bad debt expense and higher foreign exchange losses . the decrease in fiscal 2014 from fiscal 2013 relates primarily to lower gross profits from seamap and lower leasing revenues , offset by lower depreciation expense . the gross profit for our equipment leasing segment was approximately $ 11.2 million in fiscal 2015 , compared to approximately $ 19.2 million in fiscal 2014 and approximately $ 20.2 million in fiscal 2013. the decline between fiscal 2014 and 2015 is due primarily to lower equipment sales and higher depreciation expense . in fiscal 2014 , we experienced lower leasing revenues as compared to fiscal 2013 , but this decrease was largely offset by lower depreciation costs . our seamap segment recorded gross profit of approximately $ 12.1 million , $ 12.6 million and $ 17.4 million in fiscal 2015 , 2014 and 2013 , respectively . the decrease in fiscal 2014 from fiscal 2013 resulted from lower revenues as more fully described below . 33 revenues and cost of sales equipment leasing revenues and cost of sales from our equipment leasing segment were comprised of the following : replace_table_token_7_th equipment leasing revenues increased approximately 3 % in fiscal 2015 as compared to fiscal 2014. this increase was due primarily to higher land leasing revenues in the united states , latin america , europe , the pacific rim , the middle east and higher down hole leasing revenues . these increases were partially offset by lower land leasing revenue in canada and russia and lower marine leasing revenues .
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in addition , for tax purposes , we have elected to be treated as a regulated investment company ( ric ) under the subchapter m of the internal revenue code of 1986 , as amended ( the code ) . we were incorporated under the maryland general corporation law on february 9 , 2011. we are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the united states . we provide customized financing solutions focused primarily on senior secured , junior secured and unitranche ( a combination of senior secured and junior secured debt in the same facility ) debt and , to a lesser extent , unsecured subordinated debt and equity , including equity co-investments in preferred and common stock , and warrants . our shares are currently listed on the nasdaq global market under the symbol mrcc. our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior , unitranche and junior secured debt and , to a lesser extent , subordinated debt and equity investments . we seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior , unitranche and junior secured debt of middle-market companies . our investments in senior , unitranche , junior secured debt and other investments generally will range between $ 2 million and $ 15 million each , although this investment size may vary proportionately with the size of our capital base . as of december 31 , 2014 , our portfolio included approximately 53.2 % senior secured debt , 41.4 % unitranche secured debt , 4.6 % junior secured debt and 0.8 % equity securities compared to december 31 , 2013 , when our portfolio consisted of 42.8 % senior secured debt , 46.3 % unitranche secured debt , 10.7 % junior secured debt and 0.2 % equity securities . we expect that the companies in which we invest may be leveraged , often as a result of leveraged buy-outs or other recapitalization transactions , and , in certain cases , will not be rated by national ratings agencies . if such companies were rated , we believe that they would typically receive a rating below investment grade ( between bb and ccc under the standard & poor 's system ) from the national rating agencies . while our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private u.s. companies , we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders . such investments may include investments in high-yield bonds , distressed debt , private equity or securities of public companies that are not thinly traded and securities of middle-market companies located outside of the united states . we expect that these public companies generally will have debt securities that are non-investment grade . on february 28 , 2014 , our wholly-owned subsidiary , monroe capital corporation sbic , lp ( mrcc sbic ) , a delaware limited partnership , received a license from the small business administration ( sba ) to operate as a small business investment company ( sbic ) under section 301 ( c ) of the small business investment company act of 1958. mrcc sbic commenced operations on september 16 , 2013. as of december 31 , 2014 , mrcc sbic had $ 20.0 million in regulatory and leveragable capital and $ 20.0 million in sba-guaranteed debentures outstanding . additionally , as of december 31 , 2014 , mrcc had received a commitment letter for an additional $ 20.0 million in sba-guaranteed debentures . see sba debentures below for more information . 63 investment income we generate interest income on the debt investments in portfolio company investments that we originate or acquire . our debt investments , whether in the form of senior , junior or unitranche secured debt , typically have an initial term of three to seven years and bear interest at a fixed or floating rate . in some instances we receive payments on our debt investment based on scheduled amortization of the outstanding balances . in addition , we receive repayments of some of our debt investments prior to their scheduled maturity date . in some cases , our investments provide for deferred interest of payment-in-kind ( pik ) interest . in addition , we may generate revenue in the form of commitment , origination , amendment , structuring or due diligence fees , fees for providing managerial assistance and consulting fees . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income . we record prepayment premiums and prepayment gains ( losses ) on loans as interest income . interest and dividend income is recorded on the accrual basis to the extent we expect to collect such amounts . expenses our primary operating expenses include the payment of fees to mc advisors under the investment advisory and management agreement ( management and incentive fees ) , and the payment of fees to mc management for our allocable portion of overhead and other expenses under the administration agreement and other operating costs . see note 6 to our consolidated financial statements and related party transactions below for additional information on our investment advisory and management agreement and administration agreement . our expenses also include interest expense on our revolving credit facility and our secured borrowings . we bear all other out-of-pocket costs and expenses of our operations and transactions . net gain ( loss ) on investments and secured borrowings we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment or derivative instrument without regard to unrealized gains or losses previously recognized . story_separator_special_tag several of monroe capital 's professionals are experienced in running work-out transactions and bankruptcies . the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of december 31 , 2014 ( dollars in thousands ) : replace_table_token_13_th the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of december 31 , 2013 ( dollars in thousands ) : replace_table_token_14_th story_separator_special_tag of december 31 , 2014 and 2013 , we had $ 82.3 million and $ 76.0 million outstanding , respectively , under this revolving credit facility . the revolving credit facility is secured by a lien on all of our assets , including cash on hand , but excluding the assets of our wholly-owned subsidiary , mrcc sbic . our ability to borrow under the credit facility is subject to availability under a defined borrowing base , which varies based on our portfolio characteristics and certain eligibility criteria and concentration limits , as well as required valuation methodologies . we may make draws under the revolving credit facility to make or purchase additional investments through december 2016 and for general working capital purposes until the maturity date of the revolving credit facility . borrowings under the revolving credit facility bear interest , at our election , at an 69 annual rate of libor ( one-month , two-month , three-month or six-month at our discretion based on the term of the borrowing ) plus 3.25 % ( 3.75 % prior to december 19 , 2013 ) or at a daily rate equal to 2.25 % ( 2.75 % prior to december 19 , 2013 ) per annum plus the greater of the prime interest rate , the federal funds rate plus 0.5 % or libor plus 1.0 % . in addition to the stated interest rate on borrowings under the revolving credit facility , we are required to pay a fee of 0.5 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 50 % of the then available maximum borrowing or a fee of 1.0 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 50 % of the then available maximum borrowing . the weighted average interest rate of our revolving credit facility borrowings ( excluding debt issuance costs ) for the years ended december 31 , 2014 and 2013 was 3.4 % and 4.1 % , respectively . the weighted average fee rate on our unused portion of the revolving credit facility for the years ended december 31 , 2014 and 2013 was 0.5 % and 0.7 % , respectively . as of both december 31 , 2014 and 2013 , all of the outstanding borrowings were accruing at an interest rate of 3.4 % ( based on one-month libor ) . our ability to borrow under the revolving credit facility is subject to availability under the borrowing base , which permits us to borrow up to 70 % of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted . our ability to borrow is also subject to certain concentration limits , and our continued compliance with the representations , warranties and covenants given by us under the facility . the revolving credit facility contains certain financial and restrictive covenants , including , but not limited to , our maintenance of : ( 1 ) a minimum consolidated net worth at least equal to the greater of ( a ) 55 % of assets on the last day of each quarter ( excluding from such calculation the portion of assets of mrcc sbic financed with sba debentures ) or ( b ) 80 % of the net proceeds to us from our initial offering plus 50 % of the net proceeds of the sales of our securities after the effectiveness of the revolving credit facility ; ( 2 ) a ratio of total assets ( less total liabilities other than indebtedness ) to total indebtedness of not less than 2.15 times ; and ( 3 ) a ratio of earnings before interest and taxes to interest expense of at least 2.5 times . the credit facility also requires us to undertake customary indemnification obligations with respect to ing capital llc and other members of the lending group and to reimburse the lenders for expenses associated with entering into the credit facility . the revolving credit facility also has customary provisions regarding events of default , including events of default for nonpayment , change in control transactions at both monroe capital corporation and mc advisors , failure to comply with financial and negative covenants , and failure to maintain our relationship with mc advisors . if we incur an event of default under the revolving credit facility and fail to remedy such default under any applicable grace period , if any , then the entire revolving credit facility could become immediately due and payable , which would materially and adversely affect our liquidity , financial condition , results of operations and cash flows . our credit facility also imposes certain conditions that may limit the amount of our distributions to stockholders . distributions payable in our common stock under the drip are not limited by the credit facility . distributions in cash or property other than common stock are generally limited to 110 % ( 125 % in certain instances ) of the amount of distributions required to maintain our status as a ric .
| results of operations operating results are as follows ( dollars in thousands ) : replace_table_token_15_th as we had no substantive operating activities prior to the initial public offering on october 24 , 2012 , the results of the periods prior to the initial public offering are excluded from this discussion . investment income for the years ended december 31 , 2014 , 2013 and 2012 , total investment income was $ 29.9 million , $ 18.2 million and $ 1.7 million , of which $ 26.8 million , $ 17.1 million , and $ 1.6 million was attributable to portfolio interest and $ 3.1 million , $ 1.1 million and $ 0.1 million to other income ( including amortization of discounts and origination fees , paydown gains ( losses ) and dividend income ) , respectively . the increase in interest income of $ 11.7 million during the year ended december 31 , 2014 is primarily due to higher outstanding invested assets and the continued optimization of the portfolio into higher yielding assets . 67 operating expenses the composition of our operating expenses was as follows ( dollars in thousands ) : replace_table_token_16_th the composition of our interest expense and other debt financing expenses was as follows ( dollars in thousands ) : replace_table_token_17_th the increase in expenses of $ 5.3 million during the year ended december 31 , 2014 is primarily due to an increase in interest expense as a result of additional borrowings required to support the growth of the portfolio , an increase in base management fees due to the growth in invested assets and increased incentive fees resulting from improvement in performance . net realized gain ( loss ) on investments sales and principal repayments totaled $ 107.1 million , $ 65.2 million and $ 11.9 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively , resulting in net realized gain ( loss ) on investments of $ 0.3 million , $ 0.2 million and zero , respectively .
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we own and operate a group of specialty insurance and reinsurance companies with the objective of generating compelling returns on tangible equity while limiting underwriting and investment volatility . we seek to accomplish this by consistently earning profits from insurance and reinsurance underwriting and generating meaningful risk-adjusted investment returns , while managing our capital opportunistically . for the year ended december 31 , 2018 , approximately 67.6 % of our group-wide gross written premiums originated from the u.s. e & s lines market including business assumed by our casualty reinsurance segment . we also have a specialty admitted insurance business in the united states . we intend to concentrate substantially all of our underwriting in casualty insurance and reinsurance , and for the year ended december 31 , 2018 , we derived 98.5 % of our group-wide gross written premiums from casualty insurance and reinsurance . we focus on writing business in specialty markets where our underwriters have particular expertise and where we have long-standing distribution relationships ; maintaining a strong balance sheet with appropriate reserves ; monitoring reinsurance recoverables carefully ; managing our investment portfolio actively without taking undue risk ; using technology to monitor trends in our business ; responding rapidly to market opportunities and challenges ; and actively managing our capital . we report our business in four segments : excess and surplus lines , specialty admitted insurance , casualty reinsurance and corporate and other . the excess and surplus lines segment offers e & s commercial lines liability and property insurance in every u.s. state and the district of columbia through james river insurance and its wholly-owned subsidiary , james river casualty . james river insurance and james river casualty are both non-admitted carriers . non-admitted carriers writing in the e & s market are not bound by most of the rate and form regulations imposed on standard market companies , allowing them flexibility to change the coverage terms offered and the rate charged without the time constraints and financial costs associated with the rate and form filing process . in 2018 , the average account in this segment ( excluding commercial auto policies ) generated annual gross written premiums of approximately $ 20,000 . the excess and surplus lines segment distributes primarily through wholesale insurance brokers . members of our management team have participated in this market for over three decades and have long-standing relationships with the wholesale agents who place e & s lines accounts . the excess and surplus lines segment produced 56.3 % of our gross written premiums and 74.9 % of our net written premiums for the year ended december 31 , 2018 . the specialty admitted insurance segment focuses on niche classes within the standard insurance markets , such as workers ' compensation coverage for building trades , healthcare employees , goods and services , manufacturing , specialty transportation , and agriculture , and on the fronting and program business . in our fronting business , we retain a small percentage of the risk and seek to earn fee income by allowing other carriers and producers to use our licensure , ratings , and infrastructure . given market conditions and availability of reinsurance for program opportunities , we began de-emphasizing program business in 2017. through falls lake national and its subsidiaries , this segment has admitted licenses in 49 states and the district of columbia and distributes through a variety of sources , including independent retail agents , program administrators and mgas . the specialty admitted insurance segment produced 32.1 % of our gross written premiums and 7.3 % of our net written premiums for the year ended december 31 , 2018 . the casualty reinsurance segment provides proportional and working layer casualty reinsurance to third parties and to our u.s.-based insurance subsidiaries . typically , we structure our reinsurance contracts ( also known as treaties ) as quota share arrangements , with loss mitigating features , such as commissions that adjust based on underwriting results . we frequently include risk mitigating features in our working layer excess of loss treaties , such as paid reinstatements , which allow the ceding company to capture a greater percentage of the profits should the business prove more profitable than expected , or alternatively , with additional premiums should the business incur higher than expected losses . we believe these structures best align our interests with the interests of our cedents . on a premium volume basis , treaties with loss mitigation features including sliding scale ceding commissions represented 81.7 % of the gross premiums written by our casualty reinsurance segment during 2018 . we typically do not assume large individual risks in our casualty reinsurance segment , nor do we write property catastrophe reinsurance . most of the policies assumed by our casualty reinsurance segment have a $ 1.0 million per occurrence limit , and we typically assume only a portion of that exposure . we believe this structure reduces volatility in our underwriting results . we do not assume stand-alone third-party property business at our casualty reinsurance segment , but we do have a small amount 67 of assumed business with ancillary property exposure . 83.7 % of premiums written by our casualty reinsurance segment during 2018 were general liability accounts assumed from e & s carriers . the casualty reinsurance segment distributes through reinsurance brokers . the casualty reinsurance segment produced 11.6 % of our gross written premiums and 17.8 % of our net written premiums for the year ended december 31 , 2018 . the casualty reinsurance segment writes business through two entities , jrg re and carolina re . through december 31 , 2017 , we had intercompany reinsurance agreements under which we ceded 70 % of the net written premiums of our u.s. subsidiaries ( after taking into account third-party reinsurance ) to jrg re . effective january 1 , 2018 , we generally discontinued ceding 70 % of our u.s.-written premiums to jrg re and instead ceded 70 % of our u.s.-written premiums to carolina re . story_separator_special_tag of this amount , 61.5 % relates to ibnr . the company 's net reserve for losses and loss adjustment expenses by segment are summarized as follows : replace_table_token_17_th our reserve committee consists of our chief actuary , president and chief executive officer , chief financial officer , and chief accounting officer . additionally , the presidents and chief actuaries of each of our three operating segments assist in the evaluations of their respective segments . the reserve committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgment to determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet . the reserve committee believes that using judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business that we write and the limited operating experience of the casualty reinsurance segment , the fronting and program business in the specialty admitted insurance segment and the commercial auto underwriting division in the excess and surplus lines segment . the process of estimating the reserve for losses and loss adjustment expenses requires a high degree of judgment and is subject to a number of variables . in establishing the quarterly actuarial recommendation for the reserve for losses and loss adjustment expenses , our internal actuaries estimate an initial expected ultimate loss ratio for each of our product lines by accident year ( or for our casualty reinsurance segment , on a contract by contract basis ) . input from our underwriting and claims departments , including premium pricing assumptions and historical experience , are considered by our internal actuaries in estimating the initial expected loss ratios . our actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses . these five methods utilize , to varying degrees , the initial expected loss ratio , detailed statistical analysis of past claims reporting and payment patterns , claims frequency and severity , paid loss experience , industry loss experience , and changes in market conditions , policy forms , exclusions , and exposures . the five actuarial methods that we use in our reserve estimation process are : expected loss method the expected loss method multiplies earned premiums by an initial expected loss ratio . 69 incurred loss development method the incurred loss development method uses historical loss reporting patterns to estimate future loss reporting patterns . in this method , our actuaries apply historical loss reporting patterns to develop incurred loss development factors that are applied to current reported losses to calculate expected ultimate losses . paid loss development method the paid loss development method is similar to the incurred loss development method , but it uses historical loss payment patterns to estimate future loss payment patterns . in this method , our actuaries apply historical loss payment patterns to develop paid loss development factors that are applied to current paid losses to calculate expected ultimate losses . bornhuetter-ferguson incurred loss development method the bornhuetter-ferguson incurred loss development method divides the projection of ultimate losses into the portion that has already been reported and the portion that has yet to be reported . the portion that has yet to be reported is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unreported at the valuation date . bornhuetter-ferguson paid loss development method the bornhuetter-ferguson paid loss development method is similar to the bornhuetter-ferguson incurred loss development method , except this method divides the projection of ultimate losses into the portion that has already been paid and the portion that has yet to be paid . the portion that has yet to be paid is estimated as the product of premiums earned for the accident year , the initial expected ultimate loss ratio and an estimate of the percentage of ultimate losses that are unpaid at the valuation date . different reserving methods are appropriate in different situations , and our actuaries use their judgment and experience to determine the weighting of the methods detailed above to use for each accident year and each line of business and , for our casualty reinsurance segment , on a contract by contract basis . for example , the current accident year has very little incurred and paid loss development data on which to base reserve projections . as a result , we rely heavily on the expected loss method in estimating reserves for the current accident year . we generally set our initial expected loss ratio for the current accident year consistent with our pricing assumptions . we believe that this is a reasonable and appropriate reserving assumption for the current accident year since our pricing assumptions are actuarially driven and since we expect to make an acceptable return on the new business that we write . if actual loss emergence is better than our initial expected loss ratio assumptions , we will experience favorable development , and if it is worse than our initial expected loss ratio assumptions , we will experience adverse development . conversely , sufficient incurred and paid loss development is available for our oldest accident years , so more weight is given to the incurred loss development method and the paid loss development method than the expected loss method . the bornhuetter-ferguson incurred loss development and paid loss development methods blend features of the expected loss method and the incurred and paid loss development methods . the bornhuetter-ferguson methods are typically used for the more recent prior accident years .
| underwriting results the following table compares our combined ratios by segment : replace_table_token_41_th 91 excess and surplus lines segment results for the excess and surplus lines segment are as follows : replace_table_token_42_th ( 1 ) underwriting profit is a non-gaap measure . see “ reconciliation of non-gaap measures ” for a reconciliation to income before tax and for additional information . ( 2 ) underwriting results include fee income of $ 17.0 million and $ 10.1 million for the years ended december 31 , 2017 and 2016 , respectively . combined ratio . the combined ratio of the excess and surplus lines segment for the year ended december 31 , 2017 was 93.6 % , comprised of a loss ratio of 80.2 % and an expense ratio of 13.4 % . the combined ratio of the excess and surplus lines segment for the year ended december 31 , 2016 was 84.3 % , comprised of a loss ratio of 62.6 % and an expense ratio of 21.7 % . loss ratio . the loss ratio of 80.2 % for the year ended december 31 , 2017 includes $ 20.0 million , or 4.3 percentage points , of adverse development in our loss estimates for prior accident years . the adverse reserve development in this segment was almost entirely from one large commercial auto account in the 2016 accident year . the loss ratio for the year ended december 31 , 2017 also includes $ 5.2 million of losses from hurricanes harvey , irma , and maria primarily related to property losses in florida . the catastrophe losses represent 1.1 percentage points of loss ratio additions for the year . the loss ratio of 62.6 % for the year ended december 31 , 2016 includes $ 24.1 million , or 8.0 percentage points , of net favorable development in our loss estimates for prior accident years . expense ratio .
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the objective of this financial review is to enhance the reader 's understanding of the accompanying tables and charts , the consolidated financial statements , notes to financial statements , and financial statistics appearing elsewhere in this annual report on form 10-k. where applicable , this discussion also reflects management 's insights of known events and trends that have or may reasonably be expected to have a material effect on farmers ' business , financial condition or results of operations . cautionary note regarding forward looking statements discussions in this annual report on form 10-k that are not statements of historical fact ( including statements that include terms such as “ will , ” “ may , ” “ should , ” “ believe , ” “ expect , ” “ anticipate , ” “ estimate , ” “ project , ” intend , ” and “ plan ” ) are forward-looking statements that involve risks and uncertainties . any forward-looking statement is not a guarantee of future performance , and actual future results could differ materially from those contained in forward-looking information . factors that could cause or contribute to such differences include , without limitation , risks and uncertainties detailed from time to time in farmers ' filings with the securities and exchange commission , including without limitation the risk factors disclosed in item 1a , “ risk factors ” of this annual report on form 10-k. 27 many of these factors are beyond the company 's ability to control or predict , and readers are cautioned not to put undue reliance on those forward-looking statements . the following list , which is not intended to be an all-encompassing list of risks and unc ertainties affecting the company , summarizes several factors that could cause the company 's actual results to differ materially from those anticipated or expected in these forward-looking statements : · general economic conditions in market areas where farmers conducts business , which could materially impact credit quality trends ; · business conditions in the banking industry ; · the regulatory environment ; · fluctuations in interest rates ; · demand for loans in the market areas where farmers conducts business ; · rapidly changing technology and evolving banking industry standards ; · competitive factors , including increased competition with regional and national financial institutions ; · new service and product offerings by competitors and price pressures ; and · other similar items . other factors not currently anticipated may also materially and adversely affect farmers ' business , financial condition , results of operations or cash flows . there can be no assurance that future results will meet expectations . while the company believes that the forward-looking statements in this annual report on form 10-k are reasonable , the reader should not place undue reliance on any forward-looking statement . in addition , these statements speak only as of the date made . farmers does not undertake , and expressly disclaims , any obligation to update or alter any statements whether as a result of new information , future events or otherwise , except as may be required by applicable law . story_separator_special_tag the net interest margin . noninterest income total noninterest income increased by $ 3 million in 2015. the increase in noninterest income is due to several factors . gains on the sale of mortgage loans increased from $ 358 thousand to $ 1.1 million , representing an increase of $ 743 thousand . retirement plan consulting fees also increased to $ 2.1 million compared to $ 1.8 million in 2014and service charges on deposit accounts increased from $ 2.6 million in 2014 to $ 3.3 million in 2015 , reflecting the size of the company of after the two acquisitions . investment commissions increased $ 146 thousand or 14 % , as management continues to focus on diversifying revenue sources to decrease the reliance on net interest income as the main driver of revenue . other operating income also increased $ 1 million , primarily as a result of the positive impact from account level transaction volumes from the merger related growth . included in the increase in other operating income was debit card interchange income , which increased $ 618 thousand , and atm fee income , which increased $ 74 thousand . the bank and company expect these amounts to increase during 2016 as the level of activity will be for a full twelve months . 29 noninterest expenses noninterest expense for 2015 was $ 54.0 million , compared to $ 38.2 million in 2014 , representing a increase of $ 15.8 million , or 41.5 % . most of the increase was from merger related costs , which were $ 6.4 million in 2015 , compared to none in 2014. salaries and employee benefits also increased $ 5.8 million , mainly due to an increase in the number of employees resulting from the mergers . the company 's full time equivalent employees ( “ fte ” ) increased by 105 from december 31 , 2014 to december 31 , 2015. occupancy and equipment costs also increased $ 947 thousand due to the additional eighteen banking locations resulting from the mergers . excluding expenses related to acquisition activities , noninterest expenses measured as a percentage of average assets decreased from 3.34 % in 2014 to 3.21 % in 2015. the company 's tax equivalent efficiency ratio for the twelve month period ended december 31 , 2015 was 75.26 % , compared to 70.24 % for the same period in 2014. excluding expenses related to acquisition activities , the efficiency ratio for the year ended december 31 , 2015 improved to 66.2 % . the main factors leading to the improvement in the efficiency ratio was the increase in net interest income and noninterest income , along with the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraph . story_separator_special_tag most of the decrease was a result of a 5.3 % decrease in salary and employee benefits , mainly due to severance costs recorded in 2013 and not in 2014. state and local taxes decreased $ 435 thousand to $ 878 thousand in 2014 compared to $ 1.3 million in 2013. the decrease is the result of the new and reduced financial institution 's tax rate by the state of ohio in 2014. merger related costs also decreased $ 330 thousand in 2014. professional fees increased 10.8 % as a result of corporate legal and consulting fees related to compensation practices and other business advisory fees . intangible amortization increased $ 143 thousand as a result of a full twelve months of amortization of intangible assets related to the acquisition of nai . advertising increased $ 201 thousand . the company 's tax equivalent efficiency ratio for the twelve month period ended december 31 , 2014 was 70.24 % , compared to 74.82 % for the same period in 2013. the main factor leading to the improvement in the efficiency ratio was the decrease in noninterest expenses and increase in noninterest income as explained earlier in this section . the efficiency ratio is calculated as follows : non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income , excluding security gains and losses and intangible amortization . this ratio is a measure of the expense incurred to generate a dollar of revenue . management will continue to closely monitor and keep the increases in other expenses to a minimum . income taxes income tax expense totaled $ 2.6 million for 2014 and $ 1.7 million in 2013. the effective income tax rate was 22.7 % for 2014 and 17.8 % for 2013. liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's ability to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . 31 along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates an d the purchasing of federal funds and borrowings on approved lines of credit at two major domestic banks . at december 31 , 2015 , farmers had not borrowed against these lines of credit . management feels that its liquidity position is more than adequate and w ill continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its members hip in the fhlb as a solid source of liquidity . as of december 31 , 2015 , the bank is eligible to borrow an additional $ 63.4 million from the fhlb under various fixed rate and variable rate credit facilities . advances outstanding from the fhlb at december 3 1 , 2015 amounted to $ 170.1 million . farmers ' primary investing activities are originating loans and purchasing securities . during 2015 , net cash used by investing activities amounted to $ 22.5 million , compared to $ 6.2 million provided in 2014. net increases in loans were $ 140 million in 2015 , compared to $ 35.4 million in 2014. the cash used by lending activities during 2015 can be attributed to the activity in the commercial real estate , residential real estate and commercial loan portfolios . purchases of securities available for sale were $ 72.7 million in 2015 , compared to $ 64.4 million in 2014 and proceeds from maturities and sales of securities available for sale were $ 165.6 million in 2015 , compared to $ 106.6 million in 2014. net cash of $ 30.7 million was received as a result of the acquisitions of nboh and tri-state . farmers ' primary financing activities are obtaining deposits , repurchase agreements and other borrowings . net cash provided by financing activities amounted to $ 50.7 million for 2015 , compared to $ 18.5 million used in 2014. the majority of this change can be attributed to the change in short-term borrowings . short-term borrowings increased $ 101.2 million in 2015 compared to a $ 22.5 million decrease in 2014. deposits decreased $ 39.3 million during 2015 compared to a $ 487 thousand increase during 2014. loan portfolio maturities and sensitivities of loans to interest rates the following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated . balances include unamortized loan origination fees and costs . replace_table_token_8_th the following schedule sets forth maturities based on remaining scheduled repayments of principal for commercial and commercial real estate loans listed above as of december 31 , 2015 : replace_table_token_9_th the amounts of commercial and commercial real estate loans as of december 31 , 2015 , based on remaining scheduled repayments of principal , are shown in the following table : replace_table_token_10_th 32 total loans were $ 1.3 billion at year-end 2015 , compared to $ 663.9 million at year-end 2014. loans grew 20 % organically during the past twelve months , which is in addition to the $ 432 million and $ 66 million increase in loans re sulting from the nboh and tri-state acquisitions , respectively . the organic increase in loans is a direct result of farmers ' focus on loan growth utilizing a talented lending and credit team , while adhering to a sound underwriting discipline .
| results of operations comparison of operating results for the years ended december 31 , 2015 and 2014. the company 's net income totaled $ 8.1 million during 2015 , compared to $ 9.0 million for 2014. on a per share basis , diluted earnings per share were $ 0.36 as compared to $ 0.48 diluted earnings per share for 2014. excluding expenses related to acquisition activities , net income for 2015 would have been $ 12.9 million , or $ 0.57 per share . common comparative ratios for results of operations include the return on average assets and return on average stockholders ' equity . for 2015 , the return on average equity was 4.97 % , compared to 7.45 % for 2014. the return on average assets was 0.54 % for 2015 and 0.79 % for 2014. excluding expenses related to acquisition activities , the return on average assets and return on average stockholders ' equity were 0.87 % and 7.95 % , respectively . the results for 2015 included $ 94 thousand in gains on sales of securities , compared to $ 457 thousand in 2015. on june 19 , 2015 , the company completed the acquisition of all outstanding stock of national bancshares corporation ( “ nboh ” ) , the parent company of first national bank of orrville ( “ first national bank ” ) . the transaction involved both cash and 7,262,955 shares of stock totaling $ 74.8 million . first national bank of orrville branches became branches of farmers national bank of canfield . pursuant to the agreement , each shareholder of nboh received either $ 32.15 per share in cash or 4.034 shares of farmers ' common stock , subject to an overall limitation of 80 % of the shares of nboh being exchanged for stock and 20 % for cash . on october 1 , 2015 , the company completed the acquisition of tri-state 1st banc , inc. ( “ tri-state ” ) , the parent company of 1 st national community bank ( “ fncb ” ) .
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all forward-looking statements made in this annual report on form 10-k are made pursuant to the reform act . the reader is cautioned that such forward-looking statements are based on information available at the time and or management 's good faith belief with respect to future events , and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements . forward-looking statements speak only as of the date the statement was made . we assume no obligation to update forward-looking information to reflect actual results , changes in assumptions or changes in other factors affecting forward-looking information . forward-looking statements are typically identified by the use of terms such as “ anticipate , ” “ believe , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ might , ” “ plan , ” “ predict , ” “ project , ” “ should , ” “ will , ” and similar words , although some forward-looking statements are expressed differently . although we believe that the expectations reflected in such forward-looking statements are reasonable , we can give no assurance that such expectations will prove to be correct . important factors that could cause actual results to differ materially from expectations include those factors described in item 1a . “ risk factors ” of this annual report on form 10-k. you should read this discussion with the financial statements and other financial information included in this report . our significant accounting policies are described in note 1 to the consolidated financial statements included in item 8 of this annual report on form 10-k. overview we are a diversified provider of pari-mutuel horseracing , casino gaming , entertainment , and the country 's premier source of online account wagering on horseracing events . we operate in four operating segments as follows : 1. racing operations , which includes : churchill downs racetrack ( “ churchill downs ” ) in louisville , kentucky , an internationally known thoroughbred racing operation and home of the kentucky derby since 1875 ; arlington international race course ( “ arlington ” ) , a thoroughbred racing operation in arlington heights along with ten off-track betting facilities ( “ otbs ” ) in illinois ; calder race course ( “ calder ” ) , a thoroughbred racing operation in miami gardens , florida ; and fair grounds race course ( “ fair grounds ” ) , a thoroughbred racing operation in new orleans along with twelve otbs in louisiana . 2. gaming , which includes : riverwalk casino hotel ( `` riverwalk '' ) in vicksburg , mississippi , which we acquired on october 23 , 2012. riverwalk operates approximately 700 slot machines , 18 table games , a five story , 80-room attached hotel , multi-functional event center and dining facilities ; harlow 's casino resort & spa ( “ harlow 's ” ) in greenville , mississippi , which operates approximately 825 slot machines , 15 table games and a poker room , a five-story , 105-room attached hotel , multi-functional event center , pool , spa and dining facilities ; calder casino , a slot facility in florida adjacent to calder , which operates approximately 1,200 slot machines and includes a poker room operation branded “ studz poker club ” ; fair grounds slots , a slot facility in louisiana adjacent to fair grounds , which operates approximately 625 slot machines ; and video services , llc ( “ vsi ” ) , the owner and operator of approximately 725 video poker machines in louisiana . 3. online business , which includes : twinspires , an advance deposit wagering ( “ adw ” ) business that is licensed as a multi-jurisdictional simulcasting and interactive wagering hub in the state of oregon . 39 fair grounds account wagering ( “ faw ” ) , an adw business that is licensed in the state of louisiana ; velocity , a business that is licensed in the british dependency isle of man focusing on high wagering-volume international customers ; luckity , an adw business launched during october 2012 that offers over 20 unique online games with outcomes based on and determined by pari-mutuel wagers on live horseraces ; bloodstock research information services ( “ bris ” ) , a data service provider for the equine industry ; and our equity investment in hrtv , llc ( “ hrtv ” ) , a horseracing television channel . 4. other investments , which includes : united tote company and united tote canada ( collectively “ united tote ” ) , which manufactures and operates pari-mutuel wagering systems for racetracks , otbs and other pari-mutuel wagering businesses ; bluff media ( `` bluff '' ) , a multimedia poker content brand and publishing company , acquired by the company on february 10 , 2012 ; our equity investment in miami valley gaming & racing , llc ( `` mvg '' ) , a joint venture to develop a harness racetrack and video lottery terminal facility in ohio ; and our other minor investments . in order to evaluate the performance of these operating segments internally , we use ebitda ( defined as earnings before interest , taxes , depreciation and amortization ) as a key performance measure of the results of operations . we believe that the use of ebitda enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner . during the year ended december 31 , 2012 , total handle for the pari-mutuel industry , according to figures published by equibase , increased 1.0 % compared to the same period of 2011. twinspires handle increased $ 84.6 million , or 10.9 % , during the year ended december 31 , 2012 , as compared to the same period of 2011 , primarily from growth in new , organic customers and an increase in average daily wagering . story_separator_special_tag we are currently working with our insurance carriers to finalize our claim and received $ 1.1 million during the year ended december 31 , 2012. we recognized insurance recoveries , net of losses of $ 0.5 million during the year ended december 31 , 2012. the company received an additional $ 0.4 million from its insurance carriers during 2013 , and will recognize insurance recoveries , net of losses of $ 0.4 million as a component of operating income during the three months ended march 31 , 2013. kentucky derby and kentucky oaks qualifying process during june 2012 , we announced a revision to the process by which thoroughbred racehorses qualify for the kentucky derby and kentucky oaks . effective for the 2013 kentucky derby , we will cease to use graded stakes earnings to determine qualifiers , and we will institute a point system . the kentucky derby will feature a preparatory season consisting of nineteen races for two-year old and early three-year old horses , and a championship series consisting of seventeen races for three-year old horses . points will be awarded to the top four finishers in each race , and the highest cumulative point winners will be eligible to start in the kentucky derby . the kentucky oaks will feature a similar preparatory season with twenty races and a championship series of fifteen races . the events which constitute the qualifying horse races and their assigned point value will be reviewed annually . mississippi river flooding as a result of the mississippi river flooding during 2011 , we temporarily ceased operations at harlow 's on may 6 , 2011 , and the board of mississippi levee commissioners ordered the closure of the mainline mississippi river levee on may 7 , 2011. on may 12 , 2011 , the property sustained damage to its 2,600-seat entertainment center and a portion of its dining facilities . on june 1 , 2011 , harlow 's resumed casino operations with temporary dining facilities . during december 2012 and january 2013 , we completed the renovation and improvement projects , which included a new buffet area , steakhouse , business center , spa facility , fitness center , pool and a multi-purpose event center . we carry flood , property and casualty insurance as well as business interruption insurance subject to a $ 1.3 million deductible 41 for damages . as of december 31 , 2012 , we have recorded a reduction of property and equipment of $ 8.5 million and incurred $ 2.0 million in repair expenditures at harlow 's . during the year ended december 31 , 2011 , we received $ 3.5 million in partial settlement of our claim . we finalized our claim with our carriers and received $ 12.0 million during the year ended december 31 , 2012. we recognized insurance recoveries , net of losses of $ 5.0 million during the year ended december 31 , 2012. the insurance claims for this event have been finalized with our insurance carriers , and we do not expect to receive additional funds or recognize additional income from the claim . mississippi wind damage on february 24 , 2011 , severe storms caused damage to portions of mississippi , including greenville , mississippi , the location of harlow 's . the harlow 's property sustained damage to a portion of the hotel , including its roof , furniture and fixtures in approximately 61 hotel rooms and fixtures in other areas of the hotel . the hotel was closed to customers for renovations following the storm damage and reopened during june 2011. we carry property and casualty insurance as well as business interruption insurance subject to a $ 0.1 million deductible for damages . as of december 31 , 2012 , we have recorded a reduction of property and equipment of $ 1.4 million and incurred $ 0.4 million in repair expenditures . we filed a preliminary claim with our insurance carriers for $ 1.0 million in damages , which we received during the second quarter of 2011. approximately $ 0.4 million of insurance recoveries received were recorded as a reduction of selling , general and administrative expenses against losses related to the interruption of business caused by the wind damage during the year ended december 31 , 2011. we received an additional $ 3.4 million from our insurance carriers during the year ended december 31 , 2012. we recognized insurance recoveries , net of losses , of $ 1.5 million during the year ended december 31 , 2012. the insurance claims for this event have been finalized with our insurance carriers , and we do not expect to receive additional funds or recognize additional income from the claim . legislative and regulatory changes please refer to subheading “ k . legislative changes ” in item 1 . “ business ” of this annual report on form 10-k for information regarding legislative and regulatory changes . critical accounting policies and estimates our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states . accordingly , we are required to make estimates , judgments and assumptions that we believe are reasonable based on our historical experience , contract terms , observance of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results may differ from those initial estimates . our most significant estimates relate to the valuation of property and equipment , goodwill and other intangible assets , which may be significantly affected by changes in the regulatory environment in which we operate , and to the aggregate costs for self-insured liability and workers ' compensation claims . additionally , estimates are used for determining income tax liabilities .
| results of continuing operations pari-mutuel handle the following table sets forth , for the periods indicated , pari-mutuel financial handle information ( in thousands ) : replace_table_token_6_th the pari-mutuel activity above is subject to the following information : ( 1 ) total handle and net pari-mutuel revenues generated by velocity during the years presented above are not included in total handle and net pari-mutuel revenues from the online business . 46 replace_table_token_7_th 47 replace_table_token_8_th nm : not meaningful u : > 100 % unfavorable f : > 100 % favorable the gaming activity presented above is subject to the following information : ( 1 ) on october 23 , 2012 , we completed the acquisition of riverwalk , whose results are presented in 2012 from the date of acquisition through december 31 , 2012 . ( 2 ) on december 16 , 2010 , we completed the acquisition of harlow 's , whose results are presented in 2010 from the date of acquisition through december 31 , 2010 . ( 3 ) certain gaming activity amounts including hotel revenue and certain promotional allowances have been excluded from prior year amounts to conform to current year presentation . there was no impact from these reclassifications on total consolidated net revenues , operating expenses or cash flows . 48 the following table sets forth , for the periods indicated , total consolidated revenues , including food and beverage , admissions and ancillary revenues , and certain other financial information and operating data ( in thousands , except per common share data and live race days ) : replace_table_token_9_th year ended december 31 , 2012 , compared to the year ended december 31 , 2011 our total net revenues increased $ 35.5 million , primarily from the continuing organic growth of our online business segment and from the acquisition of riverwalk . online business revenues increased $ 17.9 million during the year ended december 31 , 2012 , compared to the same period of 2011 , primarily reflecting an increase in online business handle of 10.9 % .
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we review the adequacy of our allowance for doubtful accounts quarterly . we determine the allowance needed based on historical write-off experience and by evaluating significant balances aged greater than 90 days 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 , the notes thereto , and the other financial information appearing elsewhere in this annual report on form 10-k. the following discussion includes forward-looking statements that involve certain risks and uncertainties . see part i “ disclosure regarding forward-looking statements ” and part i , item 1a “ risk factors ” in this annual report on form 10-k. overview we are a pure play u.s. natural gas contract operations services business and the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the u.s. and a leading supplier of aftermarket services to customers that own compression equipment in the u.s. our services are essential to the production , processing , transportation and storage of natural gas and are provided primarily to producers and distributors of oil and natural gas . our geographic business unit operating structure , technically experienced personnel and large fleet of natural gas compression equipment enable us to provide reliable contract operations services to our customers throughout the u.s. our revenues and income are derived from two primary business segments : contract operations . as of december 31 , 2016 , our contract operations business was largely comprised of our significant equity investment in archrock partners , l.p. and its subsidiaries , in addition to our owned fleet of natural gas compression equipment that we use to provide operations services to our customers . aftermarket services . our aftermarket services business provides a full range of services to support the compression needs of customers . we sell parts and components and provide operations , maintenance , overhaul and reconfiguration services to customers who own compression equipment . archrock partners , l.p. we have a significant equity interest in the partnership , a master limited partnership that provides natural gas contract operations services to customers throughout the u.s. as of december 31 , 2016 , public unitholders held a 55 % ownership interest in the partnership and we owned the remaining equity interest , including all of the general partner interest and incentive distribution rights . we consolidate the financial position and results of operations of the partnership . it is our intention for the partnership to be the primary vehicle for the growth of our contract operations business and we may grow the partnership through third-party acquisitions and organic growth . as of december 31 , 2016 , the partnership 's fleet included 6,209 compressor units comprising approximately 3.3 million horsepower , or 86 % of our and the partnership 's combined total u.s. horsepower . acquisitions and drop-downs on november 19 , 2016 , we sold to the partnership contract operations customer service agreements with 63 customers and a fleet of 262 compressor units used to provide compression services under those agreements , comprising approximately 147,000 horsepower , or approximately 4 % ( of then available horsepower ) of our and the partnership 's combined u.s. contract operations business . total consideration for the transaction was $ 85.0 million , excluding transaction costs and consisted of the partnership 's issuance to us of approximately 5.5 million common units and approximately 111,000 general partner units . this acquisition of assets by the partnership from us is referred to as the “ november 2016 contract operations acquisition. ” on march 1 , 2016 , the partnership completed an acquisition of contract operations customer service agreements with four customers and a fleet of 19 compressor units used to provide compression services under those agreements comprising approximately 23,000 horsepower . the $ 18.8 million purchase price was funded with $ 13.8 million in borrowings under the partnership 's revolving credit facility , a non-cash exchange of 24 partnership compressor units for $ 3.2 million , and the issuance of 257,000 of the partnership 's common units for $ 1.8 million . in connection with this acquisition , the partnership issued and sold to gp , our wholly owned subsidiary and the partnership 's general partner , 5,205 general partner units to maintain gp 's approximate 2 % general partner interest in the partnership . this acquisition by the partnership is referred to as the “ march 2016 acquisition. ” 38 on april 17 , 2015 , we sold to the partnership contract operations customer service agreements with 60 customers and a fleet of 238 compressor units used to provide compression services under those agreements , comprising approximately 148,000 horsepower , or 3 % ( of then available horsepower ) of the combined contract operations business of the partnership and us . the assets sold to the partnership also included 179 compressor units , comprising approximately 66,000 horsepower , previously leased by us to the partnership . total consideration for the transaction was approximately $ 102.3 million , excluding transaction costs , and consisted of the partnership 's issuance to us of approximately 4.0 million common units and approximately 80,000 general partner units . based on the terms of the contribution , conveyance and assumption agreement relating to the acquisition , the common units and general partner units , including incentive distribution rights , we received in this transaction were not entitled to receive a cash distribution relating to the quarter ended march 31 , 2015. we refer to this acquisition as the “ april 2015 contract operations acquisition. ” spin-off transaction on november 3 , 2015 ( the “ distribution date ” ) , we completed the spin-off of our international contract operations , international aftermarket services and global fabrication businesses into a standalone public company operating as exterran corporation . story_separator_special_tag in addition , exterran corporation 's form 10-k/a includes restated selected combined statement of operations data and other financial data for the years ended december 31 , 2012 and 2011 and restated selected combined balance sheet data as of december 31 , 2013 , 2012 and 2011. archrock 's consolidated financial statements as of december 31 , 2015 and 2014 and for the years ended december 31 , 2015 , 2014 and 2013 and related financial information were restated in archrock 's form 10-k/a , filed on february 9 , 2017 , to reflect adjustments for the accounting errors identified by exterran corporation 's management . in connection with the preparation and filing of the above-described restated financial statements , the company 's management , including our principal executive officer and current principal financial officer , determined that there were material weaknesses in our internal control over financial reporting in the periods before the completion of the spin-off on november 3 , 2015. we view internal controls over financial reporting as an integral part of our disclosure controls and procedures . based upon the material weaknesses in our internal control over financial reporting , company management , including our principal executive officer and current principal financial officer , has determined that our disclosure controls and procedures in the periods before the completion of the spin-off on november 3 , 2015 were not effective . as a result of the spin-off , management determined that certain risks and internal controls related to our former international operations , including belleli epc , were no longer relevant or necessary . the risks and certain internal controls associated with the material weaknesses noted above were among the risks and internal controls that were determined to be no longer relevant and therefore no remediation was necessary subsequent to the spin-off on november 3 , 2015. trends and outlook our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration , development and production of oil and natural gas reserves in the u.s. spending by oil and natural gas exploration and production companies is dependent upon these companies ' forecasts regarding the expected future supply , demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find , develop and produce reserves . for example , oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices or significant instability in energy markets . our revenue , earnings and financial position are affected by , among other things , market conditions that impact demand and pricing for natural gas compression , our customers ' decisions between using our services or our competitors ' services , our customers ' decisions regarding whether to own and operate the equipment themselves and the timing and consummation of any acquisition of additional contract operations customer service agreements and equipment from third parties . although we believe our contract operations business is typically less impacted by commodity prices than certain other oil and natural gas service providers , changes in oil and natural gas exploration and production spending normally result in changes in demand for our services . natural gas consumption in the u.s. for the twelve months ended november 30 , 2016 decreased by approximately 0.6 % to approximately 27,223 billion cubic feet ( “ bcf ” ) compared to approximately 27,395 bcf for the twelve months ended november 30 , 2015. the u.s. energy information administration ( “ eia ” ) forecasts that total u.s. natural gas consumption will increase by 0.4 % in 2017 compared to 2016. the eia estimates that the u.s. natural gas consumption level will be approximately 30 trillion cubic feet ( “ tcf ” ) in 2040 , or 15 % of the projected worldwide total of approximately 203 tcf . 40 natural gas marketed production in the u.s. for the twelve months ended november 30 , 2016 decreased by approximately 1.2 % to 28,380 bcf compared to 28,725 bcf for the twelve months ended november 30 , 2015. the eia forecasts that total u.s. natural gas marketed production will increase by 2 % in 2017 compared to 2016. the eia estimates that the u.s. natural gas production level will be approximately 35 tcf in 2040 , or 17 % of the projected worldwide total of approximately 202 tcf . historically , oil and natural gas prices and the level of drilling and exploration activity in the u.s. have been volatile . for example , the henry hub spot price for natural gas was $ 3.71 per million british thermal unit ( “ mmbtu ” ) at december 31 , 2016 , which was approximately 31 % higher and 63 % higher than prices at september 30 , 2016 and december 31 , 2015 , respectively , and the u.s. natural gas liquid composite price was $ 5.45 per mmbtu for the month of november 2016 , which was approximately 4 % higher and 29 % higher than prices for the months of september 2016 and december 2015 , respectively . while prices at december 31 , 2016 improved relative to the comparable periods above , lower natural gas and natural gas liquids prices during 2015 and 2016 as compared to 2014 prices caused many companies to reduce their natural gas drilling and production activities during 2015 and further reduce those activities during 2016 from their 2014 levels in select shale plays and in more mature and predominantly dry gas areas in the u.s. , where we provide a significant amount of contract operations services . in addition , the west texas intermediate crude oil spot price was $ 53.75 per barrel at december 31 , 2016 , which was approximately 13 % higher and 45 % higher than prices at september 30 , 2016 and december 31 , 2015 , respectively .
| operating highlights the following table summarizes our total available horsepower , total operating horsepower , average operating horsepower and horsepower utilization percentages ( in thousands , except percentages ) : replace_table_token_6_th ( 1 ) available horsepower is defined as idle and operating horsepower . new units completed by a third party manufacturer that have been delivered to us are included in the fleet . ( 2 ) operating horsepower is defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue . the year ended december 31 , 2016 compared to the year ended december 31 , 2015 contract operations ( dollars in thousands ) replace_table_token_7_th ( 1 ) defined as gross margin divided by revenue . the decrease in revenue during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily due to a decline in average operating horsepower and a decrease in rates driven by a decrease in customer demand due to market conditions . average operating horsepower decreased by 11 % from approximately 3,620,000 during the year ended december 31 , 2015 to approximately 3,234,000 during the year ended december 31 , 2016 . gross margin decreased during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to the decrease in revenue explained above , partially offset by a decrease in cost of sales driven by a decrease in repair and maintenance expense and a decrease in lube oil expense . these cost decreases were primarily driven by the decrease in average operating horsepower explained above , a decrease in commodity prices and efficiency gains in lube oil consumption , and cost management initiatives . gross margin percentage increased primarily due to a decrease in costs associated with the start-up of units , cost management initiatives and the decrease in lube oil explained above .
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the note was amended during july 2015 to mature on february 29 , 2016. during the year ended august 31 , 2016 , the note was sold to tangiers and $ 10,799 of accrued interest was added to the note principal balance bringing the new principal balance up to $ 25,114 . as there was an updated conversion feature on the new note , the discount of $ 25,114 was recorded with the offset to additional paid in capital . the debt discount was fully amortized during the year ended august 31 , 2016 as a result of the conversions of the note by tangiers . the note had accrued interest of $ 0 and $ 930 as of august 31 , 2016 and august 31 , 2015 , respectively . the debt discount had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 0 , respectively . during the year ended august 31 , 2016 the holder of the note converted $ 25,114 of the note and interest to common stock thus repaying the note in full . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company '' ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the story_separator_special_tag the note was amended during july 2015 to mature on february 29 , 2016. during the year ended august 31 , 2016 , the note was sold to tangiers and $ 10,799 of accrued interest was added to the note principal balance bringing the new principal balance up to $ 25,114 . as there was an updated conversion feature on the new note , the discount of $ 25,114 was recorded with the offset to additional paid in capital . the debt discount was fully amortized during the year ended august 31 , 2016 as a result of the conversions of the note by tangiers . the note had accrued interest of $ 0 and $ 930 as of august 31 , 2016 and august 31 , 2015 , respectively . the debt discount had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 0 , respectively . during the year ended august 31 , 2016 the holder of the note converted $ 25,114 of the note and interest to common stock thus repaying the note in full . the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . on may 12 , 2016 , the company issued a convertible note to u.s. affiliated , inc. ( a related party ) for $ 7,500 of cash consideration . the note bears interest at 6 % , matures on september 12 , 2016 , and is convertible into common stock at 50 % of the average bid price of the stock during the 30 days prior to the conversion . the company recorded a debt discount equal to $ 7,500 due to this conversion feature and amortized $ 6,768 during the year ended august 31 , 2016 , with a remaining debt discount balance of $ 732 as of august 31 , 2016. the note had accrued interest of $ 137 and $ 0 as of august 31 , 2016 and august 31 , 2015 , respectively . the note was repaid in full during the six months ended february 28 , 2017. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.0005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . convertible notes payable – third party vis veres group on july 2 , 2015 , the company issued a convertible note to vis veres group for $ 38,000 of cash consideration . the note bears interest at 8 % , matures on april 7 , 2016 , and is convertible into common stock at 55 % of the lowest 3 closing market prices of the previous 20 trading days prior to conversion . the company recorded a debt discount equal to $ 35,000 due to this conversion feature . the company also recorded a $ 3,000 debt discount due to accrued interest required by the agreement to be accrued at the beginning of the note . the note had accrued interest of $ 0 and $ 500 as of august 31 , 2016 and august 31 , 2015 , respectively . during the year ended august 31 , 2016 , vis veres group had converted the note into common shares within the terms of the agreement , therefore , there was no gain or loss recognized as a result of these conversions . the debt discounts had a balance at august 31 , 2016 and august 31 , 2015 of $ 0 and $ 29,857 , respectively . the company recorded debt discount amortization expense of $ 29,857 and $ 8,143 during the year ended august 31 , 2016 and the year ended august 31 , 2015 , respectively . as the note has been fully converted , it is considered paid in full as of august 31 , 2016. the company evaluated the convertible note and determined that the shares issuable pursuant to the conversion option were determinate due to the conversion price floor and , as such , does not constitute a derivative liability as the company has sufficient authorized shares and a conversion floor of $ 0.00005 . in the event that the authorized shares were not sufficient , the company has obtained authorization from a majority of shareholders such that the appropriate number of shares will be available or issuable for settlement to occur . 30 jmj financial group on july 21 , 2015 , the company issued a convertible note to jmj financial group for $ 27,778 of cash consideration . the note bears interest at 12 % , matures on july story_separator_special_tag overview service team inc. ( the `` company '' ) was incorporated pursuant to the laws of the state of nevada on june 6 , 2011. on august 22 , 2017 , the company changed its state of domicile to wyoming . the company was organized to comply with the warranty obligations of electronic devices manufactured by companies outside of the united states . the business proved to be unprofitable and the company discontinued its warranty and repair operations . on june 5 , 2013 , service team inc. acquired 100 percent of the
| results of operations the company had sales of $ 3,673,673 for the fiscal year ended august 31 , 2017 , compared to $ 3,030,734 during the fiscal year ended august 31 , 2016 , an increase of $ 642,939. this represents an increase of twenty-one percent . all of the sales are generated by trade leasing , inc. the service products division had no sales . cost of sales increased $ 424,850 from $ 2,525,865 to $ 2,950,715 from 2016 to 2017 which was due to increase in volume of production in the year 2017. gross margin increased by $ 218,089 from $ 504,869 to $ 722,958 from 2016 to 2017 primarily due to the improvements in manufacturing during 2017. operating and other expenses increased by $ 26,604 from $ 635,651 to $ 790,213 from 2016 to 2017 primarily due to lower stock based compensation expense . interest and other expenses increased by $ 103,032 from $ 326,693 to $ 429,725 from 2016 to 2017 primarily due to higher debt balances during 2017. the above changes resulted in net loss of $ 496,980 during the 2017 fiscal year compared to a net loss of $ 457,475 during the 2016 fiscal year .
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the period . equity activities are translated at the spot rate effective at the date of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our `` selected financial data '' and the consolidated financial statements and the related notes included elsewhere in `` financial statements and supplementary data . '' some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should read 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 one of the world 's leading global cros , by revenue , providing outsourced clinical development services to the biotechnology and pharmaceutical industries . we believe we are one of a select group of cros with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis . our therapeutic expertise includes areas that are among the largest in pharmaceutical development , and we focus in particular on oncology , central nervous system inflammation , respiratory , cardiometabolic and infectious diseases . we believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies , improve study predictability and provide better transparency for our clients throughout their clinical development processes . contracts define the relationships with our clients and establish the way we earn revenue . three types of relationships are most common : a fixed-price contract , a time and materials contract and fee-for-service arrangements . in cases where the contracts are fixed price , we may bear the cost of overruns for the contracted scope , or we may benefit if the costs are lower than we anticipated for the contracted scope . in cases where our contracts are fee-for-service , the contracts contain an overall budget for contracted resources . if actual resources used are lower than anticipated , the client generally keeps the savings and we may be responsible for covering the cost of the unused resource if we are unable to redeploy the resource . for time and material contracts , we bill the client only for the actual hours we spend to complete the contracted scope based upon stated hourly rates by position . the duration of our contracts range from a few months to several years . revenue for services is recognized only after persuasive evidence of an arrangement exists , the sales price is determinable , services have been rendered , and collectability is reasonably assured . once these criteria have been met , we recognize revenue for the services provided on fixed-fee contracts based on the proportional performance methodology , which determines the proportion of outputs or performance obligations which have been completed or delivered compared to the total contractual outputs for performance obligations . to measure performance , we compare the contract costs incurred to estimated total contract costs through completion . as part of the client proposal and contract negotiation process , we develop a detailed project budget for the direct costs based on the scope of the work , the complexity of the study , the geographical location involved and our historical experience . we then establish the individual contract pricing based on our internal pricing guidelines , discount agreements , if any , and negotiations with the client . the estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts , with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified . our costs consist of expenses necessary to carry out the clinical development project undertaken by us on behalf of the client . these costs primarily include the expense of obtaining appropriately qualified labor to administer the project , which we refer to as direct cost headcount . other costs we incur are attributable to the expense of operating our business generally , such as leases and maintenance of information technology and equipment . revenue from time and materials contracts is recognized as hours are 47 incurred . revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed . how we assess the performance of our business in addition to our gaap financial measures , we review various financial and operational metrics , including , new business awards , cancellations , and backlog . many of our current contracts include clinical trials covering multiple geographic locations . we utilize the same management systems and reporting tools to monitor and manage these activities on the same basis worldwide . for this reason , we consider our operations to be a single business segment , and we present our results of operations as a single reportable segment . our gross new business awards for the years ended december 31 , 2015 and 2014 were $ 1,927.6 million and $ 1,745.4 million , respectively . our gross new business awards , excluding the rps acquisition , for the year ended december 31 , 2013 was $ 997.7 million . new business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence or for our strategic solutions offering when the amount of revenue expected to be recognized is measurable . the number of new business awards can vary significantly from year to year , and awards can have terms ranging from several months to several years . for our strategic solutions offering , the value of a new business award is the anticipated service revenue to be recognized in the corresponding quarter of the next fiscal year . story_separator_special_tag we recorded reductions to the investment balance of $ 2.9 million and $ 2.1 million during the years ended december 31 , 2015 and 2014 , respectively , $ 0.7 million during the successor period from september 23 , 2013 to december 31 , 2013 and $ 0.8 million during the predecessor period from january 1 , 2013 to september 22 , 2013 , respectively , for our equity in the venture 's net loss for the period , which is recorded in the equity in losses of unconsolidated joint ventures , net of tax in our consolidated statement of operations . the investment will be adjusted for our equity in the venture 's net income ( loss ) , cash contributions , distributions , and other adjustments required by the equity method of accounting . the investment in wuxipra totaled $ 1.1 million and $ 1.0 million at december 31 , 2015 and 2014 , respectively . on december 4 , 2015 , we signed a framework agreement with wuxi to dissolve the wuxipra joint venture . under the new arrangement , the portion of the joint venture located in mainland china will become a wholly owned subsidiary of wuxi , and the portion of the joint venture located in hong kong will become a wholly owned subsidiary of pra . in addition , we will retain our strategic solutions 49 business in china and hong kong . we will form a preferred provider relationship with wuxi under which wuxi will provide full-service clinical trial services for global clinical trials subcontracted by us in china . the transaction is expected to close during the second quarter of 2016. in march 2013 , rps entered into a joint venture agreement with a2 healthcare corporation ( formerly part of asklep , inc. ) . the joint venture provides research and development outsourcing solutions in japan to the biopharmaceutical and medical device industries . this joint venture is based in tokyo , japan and is owned by pra ( 49 % ) and a2 healthcare corporation ( 51 % ) . on october 17 , 2014 , the joint venture changed its name from rps asklep , inc. to a2pra corporation , or a2pra . there was no change in the investment balance during the year ended december 31 , 2015. we recorded a $ 0.1 million reduction to the investment balance during the year ended december 31 , 2014 and there was no change in the investment balance during the successor 2013 period , for our equity in the venture 's net loss for the period , which is recorded in the equity in losses of unconsolidated joint venture , net of tax in our consolidated statement of operations . the investment will be adjusted for rps 's equity in the venture 's net income ( loss ) , cash contributions , distributions , and other adjustments required by the equity method of accounting . the investment in a2pra totaled $ 0.2 million at december 31 , 2015 and 2014. in august 2015 , the company and an affiliate of kkr entered into a joint venture . the joint venture was dissolved in december 2015. the purpose of the joint venture included , among other things , the evaluation of investments or acquisitions to enhance the strategic objectives of the company . the joint venture was jointly owned by the company ( 11 % ) and kkr ( 89 % ) . the company contributed $ 20.0 million to the joint venture in august 2015 and received $ 19.5 million when the joint venture was dissolved . the company recorded the $ 0.5 million reduction to the investment balance in equity in losses of unconsolidated joint ventures , net of tax in the consolidated statements of operations . the investment in the joint venture was adjusted for the company 's equity in the venture 's net income ( loss ) , cash contributions , distributions , and other adjustments required by the equity method of accounting . sources of revenue total revenues are comprised of service revenue and reimbursement revenue , each of which is described below . service revenue we generally enter into contracts with customers to provide services with payments based on either fixed-fee , time and materials , or fee-for-service arrangements . revenue for services is recognized only after persuasive evidence of an arrangement exists , the sales price is determinable , services have been rendered , and collectability is reasonably assured . once these criteria have been met , we recognize revenue for the services provided on fixed-fee contracts based on the proportional performance methodology , which determines the proportion of outputs or performance obligations which have been completed or delivered compared to the total contractual outputs for performance obligations . to measure performance , we compare the contract costs incurred to estimated total contract costs through completion . as part of the client proposal and contract negotiation process , we develop a detailed project budget for the direct costs based on the scope of the work , the complexity of the study , the geographical location involved and our historical experience . we then establish the individual contract pricing based on our internal pricing guidelines , discount agreements , if any , and negotiations with the client . the estimated total contract costs are reviewed and revised periodically throughout the lives of the contracts , with adjustments to revenue resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are first identified . revenue from time and materials contracts is recognized as hours are incurred . billable hours typically fluctuate during the terms of individual contracts , as services we provide 50 generally increase at the beginning of a study and decrease toward the end of a study . revenues and the related costs of fee-for-service contracts are recognized in the period in which services are performed . a majority of our contracts undergo modifications over the contract period and our contracts provide for these modifications .
| results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014 replace_table_token_6_th service revenue increased by $ 109.3 million , or 8.6 % , from $ 1,266.6 million during the year ended december 31 , 2014 to $ 1,375.8 million during the year ended december 31 , 2015. service revenue for the year ended december 31 , 2015 benefited from an increase in billable hours and the effective rate of the hours billed on our studies , offset by an unfavorable impact of $ 45.4 million from foreign currency exchange rate fluctuations . the growth in service revenue and the increase in billable hours were due largely to the increase in our backlog as we entered the year , the type of services we are providing on our active studies , which was driven by the life cycles of projects that were active during the period , the growth in new business awards as a result of higher demand for our services across the industries we serve , and more effective sales efforts and the growth in the overall cro market . new business awards arise when a client selects us to execute its trial . the number of awards can vary significantly from period to period and our studies have terms ranging from several months to several years . the increase in our effective rate of the hours billed on our studies is attributable to the contract pricing terms on our current mix of active studies and the mix of clients and the services that we provide to those clients .
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we offer no post-retirement benefits other than the plans discussed above and no significant post-employment benefits . note 11 , accumulated other comprehensive income ( loss ) : the following summarizes the changes in the balance and the reclassifications out of accumulated other comprehensive income ( loss ) on our consolidated balance sheets to the consolidated statements of comprehensive income ( amounts in thousands ) : replace_table_token_29_th f-18 ( 1 ) these amounts are included in the computation of net periodic pension costs and were reclassified to selling , general and administrative costs . for 2015 , this includes $ 222,000 in curtailment loss on the serp . note 12 , stock-based compensation plans : we have issued and outstanding awards for common stock under two employee compensation plans , the 2014 long term incentive plan ( the `` 2014 ltip plan `` ) and the 2004 long term incentive plan ( the `` 2004 ltip plan `` ) . no new awards may be granted under the 2004 ltip plan . as of december 31 , 2017 , approximately 842,000 shares were available for awards and options under the 2014 ltip plan . the following table summarizes our equity award activity during the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_30_th ( 1 ) the total intrinsic value of story_separator_special_tag overview industry the retail residential furniture industry 's results are influenced by the overall strength of the economy , new and existing housing sales , consumer confidence , spending on large ticket items , interest rates , and availability of credit . these factors remain tempered by rising consumer debt , home inventory constraints , and tight access to home mortgage credit , all of which provide impediments to industry growth . our business we sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer . our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles . our commissioned sales associates receive a high level of product training and are provided a number of tools with which to serve our customers . we also have over 100 in-home designers serving most of our stores . these individuals work with our sales associates to provide customers additional confidence and inspiration in their furniture purchase journey . we do not outsource the delivery function , something common in the industry , but instead ensure that the `` last contact '' is handled by a customer-oriented havertys delivery team . we are recognized as a provider of high quality fashionable products and exceptional service in the markets we serve . story_separator_special_tag 'times new roman ' , times , serif '' > % $ 191.3 5.3 % 3.8 % q2 196.8 1.1 ( 0.2 ) 194.8 3.8 3.8 187.7 7.2 4.8 q3 207.6 ( 1.9 ) ( 2.9 ) 211.7 0.8 1.2 209.9 5.7 3.0 q4 215.0 ( 2.6 ) ( 3.5 ) 220.6 2.2 2.5 215.9 1.4 ( 0.9 ) year $ 819.9 ( 0.2 ) % ( 1.3 ) % $ 821.6 2.1 % 2.1 % $ 804.9 4.7 % 2.5 % sales in 2017 declined slightly as the level of our store traffic weakened throughout the year . our average ticket increased 2.1 % allowing our sales results to not moderate at the same pace as traffic . our in-home designers were part of 20.6 % of our sales , with their average ticket twice the overall average . sales in 2016 began slowly as first quarter consumer spending remained at its sluggish end of 2015 pace . throughout 2016 our business became more concentrated around holidays and we adjusted our advertising cadence accordingly . our average ticket increased 2.3 % and our in-home designers were part of 19.7 % of our sales . sales in 2015 increased at a modest pace during the first nine months of the year . we did have some product availability issues during the first quarter resulting from the impact of the west coast port slowdown . we experienced a softening in our business in the fourth quarter , more prevalent in texas but also across many of our markets . our average ticket increased 4.7 % as our custom upholstery sales increased 11.8 % over 2014 as more business involved a member of our in-home design team . 2018 outlook we believe as the general economy improves and consumer spending and the housing market strengthens , our business will benefit . we have upgraded stores , offer appealing merchandise and expanded special order and service offerings which will be important drivers for our 2018 sales results . we expect our retail square footage will remain relatively flat in 2018 . 17 gross profit our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight , handling within our distribution centers and transportation costs to the local markets we serve . our gross profit is primarily dependent upon vendor pricing , the mix of products sold and promotional pricing activity . substantially all of our occupancy and home delivery costs are included in selling , general and administrative expenses as is a portion of our warehousing expenses . accordingly , our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold . year-to-year comparisons gross profit as a percentage of net sales was 54.3 % in 2017 compared to 54.0 % in 2016. we use the lifo inventory valuation method and the impact of changes in the lifo reserve generated a $ 2.7 million or 33 basis points negative impact in 2017 over 2016. our execution on product mix and pricing was able to offset this impact and deliver an overall improvement of 63 basis points . our havertys branded merchandise provides a strong value and fashion statement to consumers . story_separator_special_tag as we complete our analysis of the tax act , collect and prepare necessary data , and interpret any additional guidance issued by the irs , u.s. treasury department , and other standard-setting bodies , we may make adjustments to the provisional amounts . we also recognized a tax benefit of $ 4.7 million for the re-measurement of deferred tax assets and liabilities for which our accounting is complete . the total of these adjustments was additional deferred tax expense of $ 5.9 million and is what we believe is the impact of the tax act . 19 our effective tax rate was 51.2 % in 2017 , 38.1 % in 2016 , and 38.6 % in 2015. the 2016 and 2015 rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes . the 2017 rate is impacted by the negative effect of $ 5.9 million for the tax act . liquidity and capital resources overview of liquidity our primary cash requirements include working capital needs , contractual obligations , benefit plan contributions , income tax obligations and capital expenditures . we have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. we believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations and complete projects that we have underway or currently contemplate for the next fiscal and foreseeable future years . at december 31 , 2017 , our cash and cash equivalents balance was $ 79.5 million , an increase of $ 16.0 million compared to december 31 , 2016. this change in cash primarily resulted from strong operating results offset by purchases of property and equipment and dividends paid to stockholders . additional discussion of our cash flow results , including the comparison of 2017 activity to 2016 , is set forth in the analysis of cash flows section . at december 31 , 2017 , our outstanding indebtedness was $ 54.6 million in lease obligations required to be recorded on our balance sheet . we had no amounts outstanding and $ 47.4 million available under our revolving credit facility . capital expenditures our primary capital requirements have been focused on our stores , distribution centers , and the development of both proprietary and purchased information systems . we have successfully concluded our store remodeling program and in 2017 we completed the expansion of our florida distribution center and began a similar project in our western distribution center . our capital expenditures were $ 24.5 million in 2017 , $ 5.4 million less than in 2016. our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year , the investments we make for the maintenance of our existing stores , and our investment in new information systems to support our key strategies . in 2018 , we anticipate that our capital expenditures will be approximately $ 20.0 million , refer to our store expansion and capital expenditures discussion below . analysis of cash flows the following table illustrates the main components of our cash flows ( in thousands ) : replace_table_token_8_th 20 cash flows from operating activities . during 2017 , net cash provided by operating activities was $ 52.5 million . the primary components of the changes in operating assets and liabilities are listed below : · increase in inventories of $ 2.1 million as we increased stocking levels in the distribution centers in advance of chinese new year when suppliers are closed and added a new store . · increase in prepaid expenses of $ 2.5 million primarily from the timing of the payment of taxes and computer maintenance agreements . · increase in customer deposits of $ 2.9 million . · decrease in accounts payable of $ 5.2 million . · decrease in accrued liabilities of $ 4.3 million primarily from the timing of payments for compensation and real estate and property taxes . during 2016 , net cash provided by operating activities was $ 60.1 million . the primary components of the changes in operating assets and liabilities are listed below : · decrease in inventories of $ 6.9 million as we operated with leaner quantities in our distribution centers . · increase in other assets of $ 2.5 million , resulting from increased prepaid maintenance contracts and assets held under a non-qualified deferred compensation plan . · increase in prepaid expenses of $ 2.7 million primarily from the timing of the payment of payroll taxes and computer maintenance agreements . · decrease in accounts payable of $ 2.2 million . · increase in customer deposits of $ 3.9 million . during 2015 , net cash provided by operating activities was $ 52.2 million . the primary components of the changes in operating assets and liabilities are listed below : · increase in inventories of $ 2.3 million , mainly due to the increase in showrooms , reduced $ 0.5 million for the inventory in our lubbock store that was destroyed . · decrease in other current assets of $ 1.7 million , resulting from a $ 3.3 million decrease in receivables for tenant incentives , partially offset by a casualty claim of $ 1.3 million . · decrease in other assets of $ 2.7 million mainly due to the maturities of certain certificates of deposit . · increase in accounts payable of $ 3.7 million . · decrease in customer deposits of $ 2.7 million as our business was down in the fourth quarter of 2015 versus the comparable period of 2014. cash flows used in investing activities . net cash used in investing activities was $ 21.6 million , $ 13.2 million and $ 28.4 million for 2017 , 2016 and 2015 , respectively .
| 2017 highlights sales were slightly lower in 2017 than in 2016 , falling 0.2 % or $ 1.7 million . our average ticket increased 2 % but store traffic was down mid-single digits . gross profit as a percent of net sales increased 30 basis points in spite of a negative 33 basis points impact from lifo . sg & a costs increased less than 1 % but with less leverage increased 50 basis points as a percent of sales . our pre-tax income was $ 43.2 million , a decrease of 5.7 % or $ 2.6 million . our fourth quarter results were pre-tax income of $ 14.1 million down from $ 17.3 million in the prior year period . we made $ 24.5 million in important capital expenditure investments in our business and paid $ 11.4 million in dividends in 2017. management objectives management is focused on capturing more market share and increasing sales per square foot of showroom space . this organic growth will be driven by concentrating our efforts on our customers with improved interactions highlighted by new products , services , enhanced stores and better technology . the company 's strategies for profitability include targeted marketing initiatives , productivity and process improvements , and efficiency and cost-saving measures . our focus is to serve our customers better and distinguish ourselves in the marketplace . key performance indicators we evaluate our performance based on several key metrics which include net sales , comparable store sales , sales per square foot , gross profit , operating costs as a percentage of sales , ebitda , cash flow , total debt to total capital , and earnings per share . the goal of utilizing these measurements is to provide tools in economic decision-making such as store growth , capital allocation and product pricing .
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a discussion and analysis regarding our financial condition , results of operations and cash flows for the year ended september 30 , 2020 compared to the year ended september 30 , 2019 is presented below . a discussion regarding our financial condition , results of operations and cash flows for the year ended september 30 , 2019 compared to the year ended september 30 , 2018 is included in item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k filed with the sec on november 15 , 2019. overview we are a leading provider of cloud revenue management solutions for life sciences and high tech companies . our software helps companies drive mission critical business processes such as pricing , quoting , contracting , regulatory compliance , rebates and incentives . with deep industry expertise , model n supports the complex business needs of the world 's leading brands in life sciences and high tech including johnson & johnson , astrazeneca , novartis , microchip technology , and on semiconductor . model n revenue cloud transforms the revenue life cycle into a strategic , end-to-end process aligned across the enterprise . deployments may vary from specific divisions or territories to enterprise-wide implementations . customers may purchase and deploy a single cloud product or a full suite . we derive revenues primarily from the sale of subscriptions to our cloud-based solutions , as well as subscriptions for maintenance and support and managed support services related to on-premise solutions . we price our solutions based on a number of factors , including revenues under management and number of users . subscription revenues are recognized ratably over the coverage period . we also derive revenues from selling professional services related to past sales of perpetual licenses and implementation and professional services associated with our cloud-based solutions . the actual timing of revenue recognition may vary based on our customers ' implementation requirements and the availability of our services personnel . we market and sell our solutions to customers in the life sciences and high tech industries . historically , our growth was driven by the sale of on-premise solutions . over the last few years , we shifted our focus to selling cloud-based software and in 2017 , we started transitioning customers with on-premise software to cloud-based software . our most significant customers in any given period generally vary from period to period due to the timing in the delivery of our professional services and related revenue recognition . during the fiscal years ended september 30 , 2020 , and 2019 , no customer represented more than 10 % of our total revenues or more than 10 % of our subscription revenues . during the fiscal years ended september 30 , 2018 , one customer , johnson & johnson , accounted for approximately 15 % of our total revenues . no customer represented more than 10 % of our subscription revenues during the fiscal years ended september 30 , 2020 , 2019 , and 2018. for the fiscal years ended september 30 , 2020 , 2019 , and 2018 , approximately 9 % , 8 % , and 12 % of our total revenues were derived from customers located outside the united states respectively . for the fiscal years ended september 30 , 2020 , 2019 , and 2018 , our total revenues were $ 161.1 million , $ 141.2 million , and $ 154.6 million , respectively , representing a year-over-year increase of approximately 14 % from 2019 to 2020 and year-over-over decrease of approximately 9 % from 2018 to 2019. revenue increased in fiscal year 2020 due to the increase in subscription revenues resulting from an increased number of customer contracts as well as the increase in professional services revenues resulting from an increase in services provided to our new and existing customers . revenues decreased in fiscal year 2019 primarily due to the reduction in professional services revenue as we moved towards cloud-based solutions . covid-19 the world health organization declared the outbreak of covid-19 a pandemic and the u.s. federal government declared it a national emergency in march 2020. many federal , state and local governments and private entities have mandated various restrictions , including travel restrictions , restrictions on public gatherings , stay at home orders and advisories and quarantining of people who may have been exposed to the virus . our financial results for the fiscal year ended september 30 , 2020 has not been materially impacted by covid-19 . the extent of the impact of covid-19 on our future operational and financial performance , revenues , and liquidity will depend on certain developments , including the duration and spread of the outbreak as well as the impact on our customers , employees , and partners , all of which are uncertain and can not be predicted . we are conducting business with substantial modifications to employee travel , employee work locations , and virtualization or cancellation of certain sales and marketing events , among other modifications . many of our customers have implemented similar measures , which may limit our ability to sell or provide professional services to them . customers may also delay or 40 cancel purchasing decisions or projects in light of uncertainties to their businesses arising from the covid-19 pandemic . as the majority of our revenue is subscription-based , the effect of the covid-19 pandemic may not be fully reflected in our results of operations until future periods . key business metrics in addition to the measures of financial performance presented in our consolidated financial statements , we use adjusted ebitda to establish budgets and operational goals and to evaluate and manage our business internally . we believe adjusted ebitda provides investors with consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results and our competitors ' operating results . see “ non-gaap financial measure ” below . story_separator_special_tag 44 quarterly results of operations ( unaudited ) the following table sets forth our unaudited quarterly statements of operations data for the last eight fiscal quarters . the information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this annual report and , in the opinion of management , includes all adjustments , which includes only normal recurring adjustments , necessary for the fair presentation of the results of operations for these periods . this data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report . these quarterly operating results are not necessarily indicative of our operating results for any future period . replace_table_token_9_th liquidity and capital resources our principal sources of liquidity are our cash and cash equivalents . as of september 30 , 2020 , we had cash and cash equivalents of $ 200.5 million . based on our future expectations and historical usage , we believe our current cash and cash equivalents are sufficient to meet our operating needs including principal payments related to our debt for at least the next twelve months . our future capital requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing and extent of spending to support research and development efforts , expansion of our business and capital expenditures . to the extent that existing cash and cash equivalents and cash from operations are insufficient to fund our future activities , we may elect to raise additional capital through the sale of additional equity or debt securities , obtain a credit facility or sell certain assets . if additional funds are raised through the issuance of debt securities , these securities could have rights , preferences and privileges senior to holders of common stock and terms of any debt could impose restrictions on our operations . the sale of additional equity or additional convertible debt securities could result in more dilution to our stockholders and additional financing may not be available in amounts or on terms acceptable to us . we may also seek to invest in , or acquire complementary businesses or technologies , any of which could also require us to seek additional equity or debt financing . additional funds may not be available on terms favorable to us or at all . in may 2020 , we issued $ 172.5 million aggregate principal amount of 2.625 % convertible senior notes ( the “ notes ” ) . the notes mature on june 1 , 2025 unless repurchased , redeemed or converted in accordance with their terms prior to such date . the net proceeds from the issuance of the notes was $ 166.4 million , net of initial purchasers ' discounts . we used $ 40.0 million of the net proceeds to repay in full the debt outstanding under , and terminated the credit agreement dated may 4 , 2018 , as 45 amended , by and among us , wells fargo , as administrative agent , and the lenders party thereto . refer to notes 8 and 9 in the notes to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information . cash flows replace_table_token_10_th operating activities net cash provided by operating activities during the fiscal year ended september 30 , 2020 was primarily the result of non-cash adjustments of $ 34.6 million exceeding our net loss of $ 13.7 million partially offset by net cash outflows of $ 6.5 million from changes in operating assets and liabilities . non-cash expenses consisting primarily of stock-based compensation of $ 22.5 million , depreciation and amortization of $ 5.5 million , amortization of debt discount and issuance costs of $ 3.4 million , and amortization of capitalized contract acquisition costs of $ 2.5 million . the net change in operating assets and liabilities primarily reflects an outflow from the changes in accounts receivable of $ 8.8 million due to timing of billing and cash collections , prepaid expenses and other assets of $ 3.1 million , and other current and long-term liabilities of $ 2.4 million , partially offset by an inflow from the changes in deferred revenue of $ 6.4 million caused by the timing of amounts invoiced and revenue recognized , accrued employee compensation of $ 0.9 million , and accounts payable of $ 0.5 million due to timing of vendor invoices and payments . net cash provided by operating activities during the fiscal year ended september 30 , 2019 , was primarily the result of non-cash adjustments of $ 30.5 million exceeding our net loss of $ 19.3 million partially offset by net cash outflows of $ 0.8 million from change in operating assets and liabilities . non-cash adjustments primarily included stock-based compensation of $ 21.3 million , depreciation and amortization of $ 6.8 million , and amortization of capitalized contract acquisition cost of $ 1.8 million . the net change in operating assets and liabilities primarily reflects an outflow from the changes in prepaid expense and other assets of $ 5.2 million partly offset by an inflow from the changes in accrued employee compensation of $ 2.0 million , the changes in accounts receivable of $ 0.9 million primarily reflective of the timing of cash collections , the changes in accounts payable of $ 0.7 million , and the changes in deferred revenue of $ 0.5 million primarily due to timing of amounts invoiced and revenue recognized . investing activities net cash used in investing activities for fiscal years ended september 30 , 2020 , and 2019 , was primarily due to purchases of property and equipment .
| results of operations the following tables set forth our consolidated results of operations for the periods presented and as a percentage of our total revenues for those periods . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . we adopted asc topic 606 , revenue from contracts with customers , on october 1 , 2018 , using the modified retrospective method . the reported results for fiscal years 2020 and 2019 reflect the application of asc topic 606 , while the reported results for fiscal year 2018 are not adjusted and continue to be reported under asc topic 605. replace_table_token_4_th 42 comparison of the fiscal years ended september 30 , 2020 and 2019 revenues replace_table_token_5_th subscription subscription revenues increased by $ 11.0 million , or 10 % , to $ 116.2 million for the fiscal year ended september 30 , 2020 , from $ 105.2 million for the fiscal year ended september 30 , 2019. the increase in our subscription revenues was due primarily to an increased number of customer contracts . as a percentage of total revenues , subscription revenues decreased from 74 % to 72 % . our focus will continue to be on growing our recurring revenue from saas subscriptions in future periods . professional services professional services revenue increased by $ 8.9 million , or 25 % , to $ 44.9 million for the fiscal year ended september 30 , 2020 , from $ 36.0 million for the fiscal year ended september 30 , 2019. as a percentage of total revenues , professional services revenue increased from 26 % to 28 % .
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under the agreements there are no minimum purchase commitments ; however , we have agreed to indemnify the manufacturers for certain claims , allegations or losses with respect to appliances we sell . litigation : on march 6 , 2015 , a complaint was filed in united states district court for the central district of california by jason feola , individually and as a representative of a putative class consisting of purchasers of the company 's common stock between march 15 , 2012 and february 11 , 2015 , against appliance recycling centers story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 8. financial statements and supplementary data. ” certain information contained in the discussion and analysis set forth below and elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risk and uncertainties . in evaluating such statements , you should specifically consider the various factors identified in this annual report that could cause results to differ materially from those expressed in such forward-looking statements , including matters set forth in “ item 1a . risk factors. ” overview we operate two reportable segments : recycling and retail . our recycling segment includes all income generated from collecting , recycling and installing appliances for utilities and other customers and includes a significant portion of our byproduct revenue , which is primarily generated through the recycling of appliances . our recycling segment also includes all income generated from our agreement with general electric ( “ ge ” ) acting through its ge appliances business component . ge sells its recyclable appliances in certain regions of the united states to us and we collect , process and recycle the appliances . these appliances include units manufactured by ge as well as by other manufacturers . the agreement requires that we will only recycle , and will not sell for re-use or resale , the recyclable appliances purchased from ge . we have established regional processing centers ( “ rpcs ” ) in philadelphia and louisville to support our agreement with ge . the rpc in philadelphia is operated by arca advanced processing , llc ( “ aap ” ) through a joint venture agreement between arca and 4301 operations , llc ( “ 4301 ” ) . the current market conditions and steep declines in the prices of the commodities that we sell have caused us to re-evaluate the volume of activity that we are processing with ge . we continue to adjust our relationship with ge and other suppliers of appliances to ensure that we are operating the aap facility in the most cost effective manner . in the event that commodity prices recover , we are poised to expand our volume of business that we process for these suppliers when the benefits of processing appliances exceed the freight costs to transport such appliances to aap . our retail segment is comprised of income generated from the sale of appliances through appliancesmart ® stores and includes a small portion of our byproduct revenues from collected appliances . our business components are uniquely positioned in the industry to work together to provide a full array of appliance-related services . appliancesmart operates eighteen company-owned stores , sells new appliances directly to consumers and provides affordable energy star ® options for energy efficiency appliance replacement programs . our twelve rpcs process appliances at end of life to remove environmentally damaging substances and produce byproducts for sale in north america . aap employs advanced technology to refine traditional appliance recycling techniques to achieve optimal revenue-generating and environmental benefits . we are also the exclusive north american distributor for untha recycling technology ( “ urt ” ) , one of the world 's leading manufacturers of technologically advanced refrigerator recycling systems and recycling facilities for electrical household appliances and electronic scrap . we believe the concept of the ge contract and aap model are the future of appliance recycling and hope to open similar but smaller centers throughout the united states . however , the current prices of the byproducts that we sell from our recycling activities make it difficult to support similar centers at this point in time . we can not predict when these potential centers may open or if the appropriate volumes can be obtained to support the concept at future locations . revenues and earnings in our recycling segment are impacted by seasonal variances , with the second and third quarters generally having higher levels of revenues and earnings . this seasonality is due primarily to our utility customers supporting more marketing and advertising during the spring and summer months . our customers tend to promote the recycling programs more aggressively during the warmer months because they believe more people want to clean up their garages and basements during that time of the year . however , the ge agreement and the addition of some customers shifting to marketing their appliance recycling programs year-round have helped to mitigate seasonality . our recycling segment typically operates three types of programs : 1. fees charged for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs . 2. fees charged for recycling and replacing old appliances with new energy star ® appliances for energy efficiency programs sponsored by utilities . 23 3. income generated through the processing of recyclable appliances purchased at our rpcs by selling the raw material separated during the recycling process . over the last twelve months , recycling-only programs have continued to report declining revenues and volumes . we believe factors impacting this reduction include intense competition on pricing in the industry and a declining number of utility program-eligible refrigerators manufactured before 1993 energy standards took effect . we also experienced declining revenues and volumes from our appliance replacement programs . story_separator_special_tag the receivership of jaco environmental in november 2015 has resulted in a considerable increase in demand for our service offerings as utility customers around the country seek qualified suppliers to service their appliance recycling programs . countering this growth have been the recent declines from certain utility customers that have discontinued their appliance recycling programs . we anticipate that we will be replacing less profitable programs with existing customers with programs that are less revenue dependent on the byproduct revenues . byproduct revenues . our byproduct revenues of $ 10.3 million for 2015 decreased $ 7.7 million or 42.6 % from $ 18.0 million in 2014 . the decrease in byproduct revenues was primarily the result of the following factors : revenues related to carbon offset sales decreased $ 0.2 million to $ 0.8 million in 2015 compared with 2014. byproduct revenues include all revenues generated by aap . aap revenues , excluding $ 0.3 million in carbon offset sales mentioned above , decreased $ 4.3 million in 2015 , to $ 6.5 million , compared with 2014. the decrease was due primarily to declines in average steel and non-ferrous metal scrap prices per gross ton and a reduction in the number of appliances processed . we can not predict byproduct material prices and results can vary significantly from period to period . at the present time we expect to generate an increase in carbon offset revenues in 2016 to that generated in 2015 , but can not predict the amount or timing of carbon offset sales . carbon offset sales are dependent on market conditions , including demand and acceptable market prices . we have continued to experience declines in average steel and non-ferrous scrap prices throughout 2015 and expect that in 2016 there will be continued pressure on our byproduct revenues until such point in time that the average selling prices for such commodities recover to levels that we have experienced in recent years . total gross profit . our gross profit of $ 25.4 million in 2015 decreased $ 7.4 million , or 22.4 % , compared with $ 32.8 million in 2014 . gross profit as a percentage of total revenues decreased to 22.8 % in 2015 compared with 25.1 % in 2014 . our gross profit for future periods can be affected favorably or unfavorably by numerous factors , including : 1. the mix of retail products we sell . 2. the prices at which we purchase product from the major appliance manufacturers who supply product to us . 3. the prices at which we can purchase recyclable appliances for processing at our rpcs . 4. the volume of appliances we receive through our recycling and replacement contracts . 5. the volume and price of byproduct materials . 6. the volume and price of carbon offset sales created by the destruction of ozone-depleting refrigerants . retail segment gross profit . gross profit in our retail segment decreased to $ 17.5 million in 2015 compared with $ 17.9 million in 2014 . gross profit as a percentage of related revenues increased to 26.4 % in 2015 compared with 26.3 % in 2014. retail segment gross profit decreased by $ 0.4 million compared with 2014 , primarily the result of one less week of sales in 2015 and and lower byproduct revenues , higher costs associated with store remodels and relocations , offset somewhat by higher warranty revenues . we incurred approximately $ 0.3 million in connection with store remodels and relocations this year that resulted in reduced retail lease occupancy rates in 2016 and beyond . we anticipate that we should see savings of approximately $ 0.5 million per year in 2016 as a result of these activities . we continue to evaluate strategies for addressing our underperforming stores , from right-sizing showroom space to closure . 27 recycling segment gross profit . gross profit in our recycling segment decreased to $ 7.9 million in 2015 compared with $ 14.9 million in 2014 . gross profit as a percentage of related revenues was 17.4 % in 2015 compared with 23.7 % in 2014. the decrease in gross profit was driven primarily by the following factors : the impact of lower appliance replacement volumes and appliance recycling-only programs for arca resulted in a $ 1.3 million reduction in gross profit during 2015. byproduct revenues declined by $ 2.9 million for arca . carbon offset revenues in 2015 decreased by $ 0.2 million compared with 2014. gross profit for aap decreased $ 2.6 million compared to 2014 as a result in declines in byproduct revenues resulting from reduced volumes processed and pricing of the products that aap sells . selling , general and administrative expenses . our selling , general and administrative ( “ sg & a ” ) expenses of $ 29.6 million for 2015 decreased $ 0.7 million or 2.3 % compared with $ 30.3 million in 2014 . our sg & a expenses as a percentage of total revenues increased to 26.4 % in 2015 compared with 23.1 % in 2014 . the decrease in selling , general and administrative expenses was due primarily to lower sales commissions resulting from lower sales and reduced occupancy costs resulting from lease reductions amounting to $ 0.5 million and lower operating costs at aap of approximately $ 0.2 million . we anticipate that we should experience a decrease in our legal expense in 2016 by approximately $ 0.5 million with reduced activity on the class action complaint and other sales and use tax contingencies as compared with the 2015 levels experienced . provision for ( benefit from ) income taxes . for 2015 , we recorded a benefit for income taxes of $ 1.7 million . for 2014 , we recorded a provision for income taxes of $ 0.7 million . we maintained a valuation allowance of $ 0.6 million against our state net operating loss carryforward , foreign tax credits and capital loss carryforward deferred tax assets as of january 2 , 2016 and january 3 , 2015. noncontrolling interest .
| results of operations the following table sets forth our consolidated financial data as a percentage of total revenues for fiscal years 2015 and 2014 : replace_table_token_2_th the following table sets forth the key results of operations by segment for fiscal years 2015 and 2014 ( dollars in millions ) : replace_table_token_3_th our total revenues of $ 111.8 million for 2015 decreased $ ( 19.1 ) million , or 15 % , from $ 130.9 million in 2014 . the change in revenues was attributed primarily to the following factors : retail segment same-store sales declined by $ 1.4 million compared with the prior year . sales were lower in fiscal 2015 as there were 52 weeks as compared with 53 weeks in fiscal 2014. byproduct revenues from our retail segment activity declined $ 0.4 million compared to the prior year . 25 recycling segment appliance replacement program revenues decreased by $ 9.6 million compared with the prior year . recycling-only program revenues declined $ 0.5 million compared with the prior year . carbon offset revenues decreased $ 0.1 million in 2015. other byproduct revenues from our recycling segment activity declined by $ 2.8 million compared to the prior year . aap revenues , excluding carbon offsets , decreased by $ 4.3 million compared with the prior year . recycling segment revenues accounted for 41 % of total revenues in 2015 compared with 48 % in 2014 . recycling segment revenues and retail segment revenues each include a portion of byproduct revenues . in both 2015 and 2014 , the recycling segment accounted for approximately 94 % of byproduct revenues . the decrease in replacement program revenues impacted the overall mix of revenues between the recycling and retail segments in 2015 compared with 2014. future revenues and related earnings from appliance replacement programs are uncertain and may fluctuate significantly from year to year .
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the intangible assets are being amortized over their expected period of story_separator_special_tag general our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which are prepared in conformity with accounting principles generally accepted in the united states of america . as such , we are required to make certain estimates , judgments and assumptions that management believes are reasonable based upon the information available . we base these estimates on our historical experience , future expectations and various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments that may not be readily apparent from other sources . these estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods . these estimates and assumptions relate to estimates of the carrying amount of goodwill , intangibles , stock based-compensation , valuation allowances for deferred income taxes , accounts receivable , the expected term of a customer relationship , accruals and other factors . we evaluate these estimates on an ongoing basis . actual results could differ from those estimates under different assumptions or conditions , and any differences could be material . overview liveperson provides online engagement solutions offering a cloud-based platform which enables businesses to pro-actively connect with consumers and an online marketplace providing information and knowledge . we are organized into two operating segments : business and consumer . the business segment facilitates real-time online interactions — chat , voice , and content delivery , across multiple channels and screens for global corporations of all sizes . the consumer segment facilitates online transactions between independent service providers ( “ experts ” ) and individual consumers ( “ users ” ) seeking information and knowledge for a fee via real-time chat . we were incorporated in the state of delaware in november 1995 and the liveperson service was introduced initially in november 1998. in order to sustain growth in these segments , our strategy is to expand our position as the leading provider of online engagement solutions that facilitate real-time assistance and expert advice . to accomplish this , we are focused on the following current initiatives : expanding business with existing customers and adding new customers . we are expanding our sales capacity by adding enterprise and midmarket sales agents . we have also expanded our efforts to retain existing smb customers through increased interaction with them during the early stages of their usage of our services . introducing new products and capabilities . we are investing in product marketing , research and development and executive personnel to support our expanding efforts to build and launch new products and capabilities to support existing customer deployments , and to further penetrate our total addressable market . these investments are initially focused in the areas of online marketing engagement and chat transcript text analysis . over time , we expect to develop and launch additional capabilities that leverage our existing market position as a leader in proactive , intelligence-driven online engagement . expanding our international presence . we continue to increase our investment in sales and support personnel in the united kingdom , australia , latin america and western europe , particularly france and germany . we are also working with sales and support partners as we expand our investment in the asia-pacific region . we continue to improve the multi-language and translation capabilities within our hosted solutions to further support international expansion . 35 financial overview for the three and twelve months ended december 31 , 2012 financial overview of the three and twelve months ended december 31 , 2012 compared to the comparable periods in 2011 are as follows : revenue increased 16 % and 18 % to $ 42.5 million and $ 157.4 million in the three and twelve months ended december 31 , 2012 , respectively from $ 36.5 million and $ 133.1 million in the comparable periods in 2011. revenue from our business segment increased 18 % and 20 % to $ 38.8 million and $ 142.3 million in the three and twelve months ended december 31 , 2012 , respectively from $ 32.9 million and $ 118.6 million in the comparable periods in 2011. gross profit margin decreased to 76 % from 78 % in the three months ended december 31 , 2012 , from the comparable period in 2011. gross profit margin increased to 77 % from 75 % in the twelve months ended december 31 , 2012 , from the comparable period in 2011. operating expenses increased 32 % and 30 % to $ 40.0 million and $ 147.1 million in the three and twelve months ended december 31 , 2012 , respectively from $ 30.4 million and $ 113.5 million in the comparable periods in 2011. financial income was $ 206,000 and $ 305,000 in the three and twelve months ended december 31 , 2012 , respectively . we incurred financial expense of $ 132,000 and $ 548,000 in the comparable periods in 2011. financial income and expense is the result of currency rate fluctuations associated with the exchange rate movement of the u.s. dollar against the new israeli shekel . story_separator_special_tag if a professional services arrangement does not qualify for separate accounting , we recognize the fees , and the related labor costs , ratably over a period of 48 months , representing our current estimate of the term of the customer relationship . for revenue generated from online transactions between experts and users , we recognize revenue net of expert fees in accordance with asc 605-45 , “ principal agent considerations , ” due primarily to the fact that the expert is the primary obligor . additionally , we perform as an agent without any risk of loss for collection , and are not involved in selecting the expert or establishing the expert 's fee . we collect a fee from the consumer and retain a portion of the fee , and then remit the balance to the expert . revenue from these transactions is recognized when there is persuasive evidence of an arrangement , no significant company obligations remain , collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable . stock-based compensation we follow asc 718-10 , “ stock compensation , ” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services , with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions . asc 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award ( with limited exceptions ) . incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized . as of december 31 , 2012 , there was approximately $ 39.9 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements . that cost is expected to be recognized over a weighted average period of approximately 2.1 years . 37 accounts receivable our customers are located primarily in the united states . we perform ongoing credit evaluations of our customers ' financial condition ( except for customers who purchase the liveperson services by credit card via internet download ) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers , historical trends and other information that we believe to be reasonable , although they may change in the future . if there is a deterioration of a customer 's credit worthiness or actual write-offs are higher than our historical experience , our estimates of recoverability for these receivables could be adversely affected . although our large number of customers limits our concentration of credit risk we do have several large customers . if we experience a significant write-off from one of these large customers , it could have a material adverse impact on our consolidated financial statements . no single customer accounted for or exceeded 10 % of our total revenue in 2012 , 2011 and 2010. one customer accounted for approximately 15 % and 18 % of accounts receivable at december 31 , 2012 and 2011 , respectively . we increased our allowance for doubtful accounts by $ 20,000 to approximately $ 708,000 , principally due to an increase in the proportion of our receivables due from customers with greater credit risk . a large proportion of receivables are due from larger corporate customers that typically have longer payment cycles . goodwill in accordance with asc 350 , “ goodwill and other intangible assets , ” goodwill and indefinite-lived intangible assets are not amortized , but reviewed for impairment upon the occurrence of events or changes in circumstances that would reduce the fair value below its carrying amount . goodwill is required to be tested for impairment at least annually . in september 2011 , the fasb issued asu no . 2011-08 , intangibles — goodwill and other ( topic 350 ) . asu 2011-08 permits an entity to 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 amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than 50 % . if it is determined that the fair value of a reporting unit is more likely than not to be less than its carrying value ( including unrecognized intangible assets ) than it is necessary to perform the second step of the goodwill impairment test . the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions . similarly , estimates and assumptions are used in determining the fair value of other intangible assets . these estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge . we perform internal valuation analyses and consider other market information that is publicly available . estimates of fair value are primarily determined using discounted cash flows and market comparisons . these approaches use significant estimates and assumptions including projected future cash flows ( including timing ) , discount rates reflecting the risk inherent in future cash flows , perpetual growth rates , determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables . in the third quarter of 2012 , we determined that it is not more-likely that the fair value of the reporting units is less than their carrying amount . accordingly , we did not perform the two-step goodwill impairment test . impairment of long-lived assets in accordance with asc 360-10 , “ accounting for the impairment or disposal of long-lived assets , ” long-lived assets , such as property , plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable .
| results of operations the company is organized into two operating segments : business and consumer . the business segment facilitates real-time online interactions — chat , voice , and content delivery , across multiple channels and screens for global corporations of all sizes . the consumer segment facilitates online transactions between experts and users seeking information and knowledge for a fee via real-time chat . 40 comparison of fiscal years ended december 31 , 2012 and 2011 revenue — business . revenue increased by 20 % to $ 142.3 million for the year ended december 31 , 2012 , from $ 118.6 million for the year ended december 31 , 2011. this increase is primarily attributable to revenue from existing customers who increased their use of our services in the amount of approximately $ 12.6 million , net of cancellations and , to a lesser extent , to revenue from new customers in the amount of approximately $ 8.6 million and an increase in professional services revenue of approximately $ 3.3 million . our revenue growth has traditionally been driven by a mix of revenue from new customers as well as expanding business from existing customers . revenue — consumer . revenue increased by 4 % to $ 15.1 million for the year ended december 31 , 2012 , from $ 14.5 million for the year ended december 31 , 2011. this increase is primarily attributable to an increase in gross revenue as a result of increased chat minutes . cost of revenue — business . cost of revenue consists of compensation costs relating to employees who provide customer service to our customers , compensation costs relating to our network support staff , the cost of supporting our server and network infrastructure , and allocated occupancy costs and related overhead .
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on april 14 , 2014 , the company acquired a 100 % ownership interest in progressive finance holdings , llc ( “ progressive ” ) , a leading virtual lease-to-own company , for merger consideration of $ 700.0 million , net of cash acquired . progressive provides lease-purchase solutions through over 15,000 retail locations in 46 states . it does so by purchasing merchandise from third-party retailers desired by those retailers ' customers , and in turn leasing that merchandise to the customers on a rent-to-own basis . progressive consequently has no stores of its own , but rather offers lease-purchase solutions to the customers of traditional retailers . on july 15 , 2014 , the company announced that a rigorous evaluation of the company-operated store portfolio had been performed , which , along with other cost-reduction initiatives , resulted in the closure of 44 underperforming stores and the realignment of home office and field support . our major operating divisions are the aaron 's sales & lease ownership division , progressive , homesmart and woodhaven furniture industries , which manufactures and supplies the majority of the upholstered furniture and bedding leased and sold in our stores . historically , aaron 's has demonstrated revenue growth from the opening of new sales and lease ownership stores and increases in same store revenues from previously opened stores . we also use our franchise program to help us expand our sales and lease ownership concept more quickly and into more communities than through opening only company-operated stores . total revenues increased from $ 2.213 billion in 2012 to $ 2.725 billion in 2014 , primarily as a result of the progressive acquisition during 2014 . total revenues for the year ended december 31 , 2014 increased $ 490.6 million , or 22.0 % , over the prior year . the increase was due to $ 549.5 million in revenue from progressive , partially offset by a decrease of $ 58.9 million in revenue from our core business primarily resulting from a 2.8 % decrease in company-operated same store revenues . the company 's franchised and company-operated store activity is summarized as follows : replace_table_token_4_th 1 in january 2014 , we sold our 27 company-operated rimco stores and the rights to five franchised rimco stores . 26 same store revenues . we believe the changes in same store revenues are a key performance indicator . this indicator is calculated by comparing revenues for the year to revenues for the prior year for all stores open for the entire 24-month period , excluding stores that received lease agreements from other acquired , closed or merged stores . business environment and company outlook like many industries , the rent-to-own industry has been transformed by the internet and virtual marketplace . we believe the progressive acquisition will be strategically transformational for the company in this respect and will strengthen our franchise . we also believe the rent-to-own industry has suffered in recent periods due to economic challenges faced by our core customers . accordingly , we undertook a comprehensive review of our core business in order to position us to succeed over the long term . as a result , we are implementing a strategic plan focused on our core business as follows : renewing our focus on same store revenue growth for our core portfolio , through improved execution , optimization of merchandising and pricing on an enhanced go-to-market strategy ; enhancing and growing our online platform ; driving cost efficiency to recapture margin , including through selling , general and administrative cost savings and rationalizing underperforming stores ; moderating new company-operated store growth to result in no net store growth after store closings ; and strengthening and growing the franchise store base . we reduced our company-operated sales and lease ownership stores by a net of 44 stores in 2014 , net of store opening and acquisition activity . we spend on average approximately $ 700,000 to $ 800,000 in the first year of operation of a new store , which includes purchases of lease merchandise , investments in leasehold improvements and financing first-year start-up costs . our new sales and lease ownership stores typically achieve revenues of approximately $ 1.1 million in their third year of operations . comparable stores open more than three years normally achieve approximately $ 1.4 million in revenues , which we believe represents a higher unit revenue volume than the typical rent-to-own store . most of our stores are cash flow positive in the second year of operations . we use our franchise program to help us expand our sales and lease ownership concept more quickly and into more areas than through opening only company-operated stores . our franchisees added a net of one store in 2014 , which was impacted by our purchase of nine franchised stores during the year . franchise royalties and other related fees represent a source of high margin revenue for us . total revenues from franchise royalties and fees for the year ended december 31 , 2014 decreased from $ 66.7 million in 2012 to $ 65.9 million in 2014 , representing a decline in the compounded annual growth rate of .6 % . total revenues from franchise royalties and fees for the year ended december 31 , 2014 decreased $ 2.7 million , or 3.9 % , over the prior year . we offer lease-purchase solutions through our progressive business to the customers of traditional retailers , primarily in the furniture , mattress , mobile phone , consumer electronics , appliance and household accessory industries . progressive has no stores of its own but provides lease-purchase solutions through over 15,000 retail partner locations in 46 states . key components of net earnings in this management 's discussion and analysis section , we review our consolidated results . for the years ended december 31 , 2014 , 2013 and 2012 , some of the key revenue and cost and expense items that affected earnings were as follows : revenues . story_separator_special_tag 28 goodwill and other intangible assets intangible assets are classified into one of three categories : ( 1 ) intangible assets with definite lives subject to amortization , ( 2 ) intangible assets with indefinite lives not subject to amortization and ( 3 ) goodwill . for intangible assets with definite lives , tests for impairment must be performed if conditions exist that indicate the carrying value may not be recoverable . for intangible assets with indefinite lives and goodwill , tests for impairment must be performed annually and when events or circumstances indicate that impairment may have occurred . factors which could necessitate an interim impairment assessment include a sustained decline in the company 's stock price , prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results . indefinite-lived intangible assets represent the value of trade names and trademarks acquired as part of the progressive acquisition . at the date of acquisition , the company determined that no legal , regulatory , contractual , competitive , economic or other factors limit the useful life of the trade name and trademark intangible asset and , therefore , the useful life is considered indefinite . the following table presents the carrying value of goodwill and other intangible assets , net as of december 31 , 2014 : ( in thousands ) 2014 goodwill $ 530,670 other indefinite-lived intangible assets 53,000 definite-lived intangible assets 244,471 goodwill and other intangibles , net $ 828,141 the company has historically performed its annual goodwill impairment test as of september 30 each year for its sales and lease ownership and homesmart reporting units . during the three months ended december 31 , 2014 , the company voluntarily changed its annual impairment assessment date from september 30 to october 1 for those reporting units . upon the acquisition of progressive , the company selected october 1 as the annual impairment assessment date for the goodwill of the progressive reporting unit and its indefinite-lived intangible assets . the company believes this change in measurement date , which represents a change in method of applying an accounting principle , is preferable under the circumstances . the change was made to align the annual goodwill impairment test for the sales and lease ownership and homesmart reporting units with the annual goodwill impairment and indefinite-lived intangible asset tests for the progressive reporting unit and to provide the company with additional time to complete its annual goodwill impairment testing in advance of its year-end reporting . in connection with the change in the date of the annual goodwill impairment test , the company performed a goodwill impairment test as of both september 30 , 2014 and october 1 , 2014 , and no impairment was identified . the change in accounting principle does not delay , accelerate or avoid an impairment charge . the company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of october 1 for periods prior to october 1 , 2014 without the use of hindsight . as such , the company prospectively applied the change in the annual goodwill impairment assessment date beginning october 1 , 2014. management has deemed its operating segments to be reporting units due to the fact that the operations included in each operating segment have similar economic characteristics . as of december 31 , 2014 , the company had five operating segments and reporting units : sales and lease ownership , progressive , homesmart , franchise and manufacturing . as of december 31 , 2014 , the company 's sales and lease ownership , progressive and homesmart reporting units were the only reporting units with assigned goodwill balances . the following is a summary of the company 's goodwill by reporting unit at december 31 , 2014 : ( in thousands ) 2014 sales and lease ownership $ 226,828 progressive 289,184 homesmart 14,658 total $ 530,670 we use a combination of valuation techniques to determine the fair value of our reporting units , including a multiple of gross revenue approach and discounted cash flow models that use assumptions consistent with those we believe hypothetical marketplace participants would use . we estimate the fair value of indefinite-lived trade name and trademark intangible assets based on projected discounted future cash flows under a relief from royalty type method . under the income approach , we estimate fair value based on estimated discounted cash flows , which require assumptions about short-term and long-term 29 revenue growth rates , operating margins , capital requirements , and a weighted-average cost of capital and or discount rate . under the market approach , we estimate fair value after considering the multiples of gross revenue for benchmark companies . we believe the benchmark companies evaluated for each reporting unit serve as an appropriate input for calculating fair value as those benchmark companies have similar risks , participate in similar markets , provide similar products and services for their customers and compete with us directly . the values separately derived from each of the income and market approach valuation techniques were used to develop an overall estimate of each reporting unit 's fair value . the selection and weighting of the various fair value techniques , which requires the use of management judgment to determine what is most representative of fair value , may result in a higher or lower fair value . intangible assets acquired in recent transactions are naturally more susceptible to impairment , primarily due to the fact that they are recorded at fair value based on recent operating plans and macroeconomic conditions present at the time of acquisition . consequently , if operating results and or macroeconomic conditions deteriorate shortly after an acquisition , it could result in the impairment of the acquired assets .
| results of operations as of december 31 , 2014 , the company had five operating and reportable segments : sales and lease ownership , progressive , homesmart , franchise and manufacturing . the results of progressive , which is presented as a reportable segment , have been included in the company 's consolidated results from the april 14 , 2014 acquisition date . in january 2014 , the company sold the 27 company-operated rimco stores and the rights to five franchised rimco stores . in all periods presented , rimco has been reclassified from the rimco segment to other . the company 's sales and lease ownership , progressive , homesmart , and franchise segments accounted for substantially all of the operations of the company and , therefore , unless otherwise noted , only material changes within these four segments are discussed . the production of our manufacturing segment , consisting of the woodhaven furniture industries division , is primarily leased or sold through the company-operated and franchised stores , and consequently , substantially all of that segment 's revenues and earnings before income taxes are eliminated through the elimination of intersegment revenues and intersegment profit . results of operations – years ended december 31 , 2014 , 2013 and 2012 replace_table_token_5_th nmf—calculation is not meaningful 32 revenues information about our revenues by reportable segment is as follows : change year ended december 31 , 2014 vs. 2013 2013 vs. 2012 ( in thousands ) 2014 2013 2012 $ % $ % revenues : sales and lease ownership 1 $ 2,037,101 $ 2,076,269 $ 2,068,124 $ ( 39,168 ) ( 1.9 ) % $ 8,145 .4 % progressive 2 549,548 — — 549,548 nmf — — homesmart 1 64,276 62,840 55,226 1,436 2.3 7,614 13.8 franchise 3 65,902 < div
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as such , we have elected to apply the practical expedient which allows an entity to exclude disclosures 69 about its remaining performance obligations if story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected historical consolidated financial data ” included under item 6 of this annual report on form 10-k and our financial statements and related notes included under item 8 of this annual report on form 10-k. this discussion contains forward-looking statements based on our current expectations , estimates and projections about our operations and the industry in which we operate . our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties , including those described in “ risk factors ” and “ cautionary note regarding forward-looking statements ” and elsewhere in this annual report on form 10-k. we assume no obligation to update any of these forward-looking statements . overview we are a global oilfield products company , serving the drilling , downhole , subsea , completions and production sectors of the oil and natural gas industry . we design , manufacture and distribute products and engage in aftermarket services , parts supply and related services that complement our product offering . the company 's products include highly engineered capital equipment as well as products that are consumed in the drilling , well construction , production and transportation of oil and natural gas . our consumable products are used in drilling , well construction and completions activities , within the supporting infrastructure , and at processing centers and refineries . our engineered capital products are directed at : drilling rig equipment for new rigs , upgrades and refurbishment projects ; subsea construction and development projects ; pressure pumping equipment ; the placement of production equipment on new producing wells ; and downstream capital projects . in 2019 , over 80 % of our revenue was derived from consumable products and activity-based equipment , while the balance was primarily derived from capital products with a small amount from rental and other services . we seek to design , manufacture and supply high quality reliable products that create value for our diverse customer base , which includes , among others , oil and natural gas operators , land and offshore drilling contractors , oilfield service companies , subsea construction and service companies , and pipeline and refinery operators . in the first quarter of 2019 , we changed our reporting segments to align them with business activity drivers and the manner in which management reviews and evaluates operating performance . forum now operates in the following three reporting segments : drilling & downhole , completions and production , and we believe that this reporting segment structure better aligns with the key phases of the well cycle and provides improved operating efficiencies . prior to this change , we operated in three business segments : drilling & subsea , completions , and production & infrastructure . we moved the downhole product line from completions to drilling & subsea to form the new drilling & downhole segment . completions retained the stimulation & intervention and coiled tubing product lines . finally , we renamed production & infrastructure the production segment . our historical results of operations have been recast to retrospectively reflect these changes in accordance with generally accepted accounting principles . a summary of the products and services offered by each segment is as follows : drilling & downhole . this segment designs and manufactures products and provides related services to the drilling , well construction , artificial lift and subsea energy construction and services markets as well as other sectors such as alternative energy , defense and communications . the products and related services consist primarily of : ( i ) capital equipment and a broad line of expendable drilling products consumed in the drilling process ; ( ii ) well construction casing and cementing equipment , protection products for artificial lift equipment and cables , and composite plugs used for zonal isolation in hydraulic fracturing ; and ( iii ) subsea remotely operated vehicles and trenchers , specialty components and tooling , products used in subsea pipeline infrastructure , and complementary subsea technical services . completions . this segment designs , manufactures and supplies products and provides related services to the coiled tubing , stimulation and intervention markets . the products and related services consist primarily of : ( i ) capital and consumable products sold to the pressure pumping , hydraulic fracturing and flowback services markets , including hydraulic fracturing pumps , pump consumables , cooling systems and flow iron as well as wireline cable , and pressure control equipment used in the well completion and intervention service markets ; and ( ii ) coiled tubing strings and coiled line pipe and related services . production . this segment designs , manufactures and supplies products and provides related equipment and services for production and infrastructure markets . the products and related services consist primarily of : ( i ) engineered process systems , production equipment , as well as specialty separation equipment ; and ( ii ) a wide 35 range of industrial valves focused on serving upstream , midstream , and downstream oil and natural gas customers as well as power and other general industries . market conditions the level of demand for our products is directly related to the activity levels and the capital and operating budgets of our customers , which in turn are heavily influenced by energy prices and expectations as to future price trends . in addition , the availability of existing capital equipment adequate to serve exploration and production requirements , or lack thereof , drives demand for our capital equipment products . the probability of changes in energy prices and their extent and duration are difficult to predict . story_separator_special_tag on january 3 , 2018 , we contributed our subsea rentals business to ashtead to create an independent provider of subsea survey and equipment rental services . in exchange , we received a 40 % interest in the combined business , a cash payment of £2.7 million british pounds and a note receivable from ashtead of £3.0 million british pounds . following this transaction , our 40 % interest in ashtead was accounted for as an equity method investment and reported as investment in unconsolidated subsidiary in our consolidated balance sheets . on september 3 , 2019 , we sold our aggregate 40 % interest in ashtead to the majority owners of ashtead . total consideration for forum 's 40 % interest and the settlement of the £3.0 million british pounds note receivable from ashtead was $ 47.7 million . forum received $ 39.3 million in cash proceeds and a new £6.9 million british pounds note receivable with a three year maturity . there are factors related to the businesses we have acquired and disposed that may result in lower or higher net profit margins on a go-forward basis , primarily the federal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase . for additional information regarding our acquisitions and dispositions , refer to note 4 acquisitions & dispositions . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the following reasons : since our initial public offering in 2012 , we have grown our business both organically and through strategic acquisitions . we expanded and diversified our product portfolio and business lines with the acquisition of two businesses in 2018 . the historical financial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented . in addition , we completed two strategic dispositions in 2019. the historical financial data for periods prior to these dispositions include the results attributable to the disposed assets for the periods presented . as such , historical financial results may not provide an accurate indication of our future results . as we integrate acquired companies and further implement internal controls , processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares , it is likely that we will incur incremental selling , general and administrative expenses relative to historical periods . our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy . 38 story_separator_special_tag $ 7.9 million . in 2018 , we recognized goodwill impairments totaling $ 298.8 million and intangible impairments totaling $ 64.7 million . see note 7 goodwill and intangible assets and note 6 property and equipment for further information related to these charges . the contingent consideration benefit relates to a gain of $ 4.6 million recognized in the first quarter of 2019 due to reducing the estimated fair value of the contingent cash liability associated with the acquisition of ght . see note 4 acquisitions & dispositions for additional information . other income and expense other income and expense includes interest expense , foreign exchange losses ( gains ) and other , net , gains on the disposition of businesses and a gain realized on our previously held equity investment . we incurred $ 31.6 million of interest expense during the year ended december 31 , 2019 , a decrease of $ 0.9 million compared to the year ended december 31 , 2018 due to a lower average outstanding balance on our credit facility . the foreign exchange losses ( gains ) are primarily the result of movements in the british pound , the euro , and canadian dollars relative to the u.s. dollar . these movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location 's functional currency , primarily u.s. dollar denominated cash , trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the u.s. dollar . the foreign exchange loss was $ 5.0 million for the year ended december 31 , 2019 compared to a gain of $ 6.3 million for the year ended december 31 , 2018 . in the first quarter of 2018 , we recognized a gain of $ 33.5 million as a result of the deconsolidation of our forum subsea rentals business which was contributed to ashtead in exchange for an aggregate 40 % interest in the combined business . in the third quarter of 2019 , we sold our aggregate 40 % interest in ashtead and recognized a gain of $ 1.6 million as a result of this transaction . in the fourth quarter of 2019 , we sold certain assets of our cooper alloy brand of valve products and recognized a gain on disposition totaling $ 2.3 million . see note 4 acquisitions & dispositions for further information related to these transactions . taxes the effective tax rate , calculated by dividing total tax benefit by loss before income taxes , was ( 0.3 ) % and ( 4.0 ) % for the years ended december 31 , 2019 and 2018 respectively . the tax rate for 2019 is different than 2018 primarily due to higher goodwill impairments , increases in our valuation allowance related to our deferred tax assets and a non-recurring benefit of the tax effects of tax reform recorded in 2018. we recorded a tax benefit of $ 1.8 million for the year ended december 31 , 2019 , compared to a tax benefit of $ 15.7 million for the year ended december 31 , 2018 .
| results of operations year ended december 31 , 2019 compared with year ended december 31 , 2018 replace_table_token_6_th 39 revenue our revenue for the year ended december 31 , 2019 was $ 956.5 million , a decrease of $ 107.7 million , or 10.1 % , compared to the year ended december 31 , 2018 . in general , the decrease in revenue is due to lower drilling and completions activity in the north america market resulting from lower oil and natural gas prices compared to the previous year resulting in lower spending by exploration and production companies . for the year ended december 31 , 2019 , our drilling & downhole segment , completions segment , and production segment comprised 35.0 % , 31.4 % and 33.6 % of our total revenue , respectively , compared to 31.4 % , 34.6 % and 34.0 % , respectively , for the year ended december 31 , 2018 . the changes in revenue by operating segment consisted of the following : drilling & downhole segment — revenue was $ 334.8 million for the year ended december 31 , 2019 , an increase of $ 0.8 million , or 0.2 % , compared to the year ended december 31 , 2018 . this increase was driven by a $ 10.3 million increase in revenue for our subsea product line , primarily due to higher sales of non-oil and natural gas capital equipment and an $ 11.1 million increase in revenue for our downhole product line due to continued sales volume growth for our artificial lift products , including the revenue contribution from espct which was acquired in the third quarter of 2018. these increases were mostly offset by a $ 20.6 million decrease in revenue for our drilling product line on lower sales volumes of consumable products due to lower u.s. rig activity .
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level 2 inputs include quoted prices for similar assets and liabilities in active markets , and inputs other than quoted prices that are observable for the asset or liability , such as interest rates and yield curves that are observable at commonly quoted intervals . level 3 inputs are unobservable inputs for the asset or liability , and include situations where there is little , if any , market activity for the asset f-16 or liability . where inputs used to measure fair value may fall into different levels of the fair value hierarchy , the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein , where certain terms have been defined . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements . we base these forward-looking statements on our current plans , expectations and beliefs about future events . there are risks , including the factors discussed in “ risk factors ” in item 1a and elsewhere in this report , that our actual experience will differ materially from these expectations . for more information , see “ cautionary notice regarding forward-looking statements ” at the beginning of this report . in this report , except as the context suggests otherwise , the words “ company , ” “ atlanticus holdings corporation , ” “ atlanticus , ” “ we , ” “ our , ” “ ours , ” and “ us ” refer to atlanticus holdings corporation and its subsidiaries and predecessors . overview we utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market . currently , within our credit and other investments segment , we are applying the experiences gained and infrastructure built from servicing over $ 25 billion in consumer loans over our 21 -year operating history to support lenders who originate a range of consumer loan products . these products include retail credit , personal loans , and credit cards marketed through multiple channels , including retail point-of-sale , direct mail solicitation , internet-based marketing and partnerships with third parties . in the point-of-sale channel , we partner with retailers and service providers in various industries across the u.s. to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics , furniture , elective medical procedures , healthcare , educational services and home-improvements . our flexible technology platform allows our lending partners to integrate our paperless process and instant decision-making platform with the technology infrastructure of participating retailers and service providers . these services of our lending partners are often extended to consumers who may have been declined under traditional financing options . we specialize in supporting this “ second-look ” credit service . additionally , we support lenders who market general purpose personal loans and credit cards directly to consumers through additional channels , which enables them to reach consumers through a diverse origination platform that includes direct mail , internet-based marketing and our retail partnerships . our technology platform and proprietary analytics enable lenders to make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by traditional providers of credit . by offering a range of products through a multitude of channels , we enable lenders to provide the right type of credit , whenever and wherever the consumer has a need . in most cases , we invest in the receivables originated by lenders who utilize our technology platform and other related services . using our infrastructure and technology platform , we also provide loan servicing , including risk management and customer service outsourcing , for third parties . also through our credit and other investments segment , we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure . beyond these activities within our credit and other investments segment , we invest in and service portfolios of credit card receivables . one of our portfolios of credit card receivables is encumbered by non-recourse structured financing , and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing . additionally , we report within our credit and other investments segment : ( 1 ) the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer ; and ( 2 ) gains or losses associated with investments previously made in consumer finance technology platforms . these include investments in companies engaged in mobile technologies , marketplace lending and other financial technologies . these investments are carried at the lower of cost or market valuation . none of these companies are publicly-traded and there are no material pending liquidity events . the recurring cash flows we receive within our credit and other investments segment principally include those associated with ( 1 ) point-of-sale and direct-to-consumer receivables , ( 2 ) servicing compensation and ( 3 ) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility . 18 we believe that our point-of-sale and direct-to-consumer receivables are generating , and will continue to generate , attractive returns on assets , thereby facilitating debt financing under terms and conditions ( including advance rates and pricing ) that will support attractive returns on equity , and we continue to pursue growth in this area . story_separator_special_tag as such , if we are unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such costs , then , depending upon the earnings generated from our auto finance segment and our liquidating credit card portfolios , we may experience continuing pressure on our ability to achieve consistent profitability . noncontrolling interests . we reflect the ownership interests of noncontrolling holders of equity in our majority-owned subsidiaries as noncontrolling interests in our consolidated statements of operations . unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future , we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters . income taxes . we experienced an effective income tax benefit rate of 13.5 % and 48.7 % for the years ended december 31 , 2017 , and 2016 , respectively . our effective income tax benefit rate for the year ended december 31 , 2017 , is below the statutory rate principally due to ( 1 ) interest and penalties that we accrued on unpaid federal tax liabilities and ( 2 ) our establishment of valuation allowances against our net federal deferred tax assets associated with our net loss incurred in this year . our effective income tax benefit rate for the year ended december 31 , 2016 is above the statutory rate principally due to income of our u.k. subsidiary ( 1 ) that is not subject to tax in the u.s. , and ( 2 ) the u.k. tax on which was fully offset by a release of u.k. valuation allowances . we net against our income tax benefit line item on our consolidated statements of operations interest and penalties associated with our tax liabilities ( including our accrued liabilities for uncertain tax positions and our unpaid tax liabilities ) . we likewise report the reversal of such interest and penalties within the income tax benefit line item to the extent that we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor . during the years ended december 31 , 2017 and 2016 , $ 0.5 million and $ 0.4 million , respectively , of net income tax-related interest and penalties are netted against those years ' income tax benefit line items . in december 2014 , we reached a settlement with the irs concerning the tax treatment of net operating losses we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. our net unpaid income tax assessment associated with that settlement was $ 7.4 million at december 31 , 2017 ; this amount excludes unpaid interest and penalties on the tax assessment , the accruals for which aggregated $ 4.1 million at december 31 , 2017. prior to our filing amended return claims that would have eliminated the $ 7.4 million assessment ( and corresponding interest and penalties ) under a negotiated provision of the irs settlement , the irs filed a lien ( as is customarily the case ) associated with the assessment . subsequently , an irs examination team denied our amended return claims , and we filed a protest with irs appeals . during the fourth quarter of 2017 , we attended an irs appeals conference related to the subject matter underlying our amended return claims and submitted supplemental information to address matters on which the irs appeals officer needed additional support . credit and other investments segment our credit and other investments segment includes our activities relating to our servicing of and our investments in the point-of-sale , direct-to-consumer personal finance and credit card operations , our various credit card receivables portfolios , as well as other product testing and investments that generally utilize much of the same infrastructure . the types of revenues we earn from our investments in receivables portfolios and services primarily include finance charges , fees and the accretion of discounts associated with the point-of-sale receivables or annual fees on our direct-to-consumer receivables . 23 we record ( i ) the finance charges , discount accretion and late fees assessed on our credit and other investments segment receivables in the interest income - consumer loans , including past due fees category on our consolidated statements of operations , ( ii ) the rental revenue , over-limit , annual , activation , monthly maintenance , returned-check , cash advance and other fees in the fees and related income on earning assets category on our consolidated statements of operations , and ( iii ) the charge offs ( and recoveries thereof ) within our provision for losses on loans and fees receivable on our consolidated statements of operations ( for all credit product receivables other than those for which we have elected the fair value option ) and within losses upon charge off of loans and fees receivable recorded at fair value on our consolidated statements of operations ( for all of our other receivables for which we have elected the fair value option ) . additionally , we show the effects of fair value changes for those credit card receivables for which we have elected the fair value option as a component of fees and related income on earning assets in our consolidated statements of operations . we historically have invested in receivables portfolios through subsidiary entities . if we control through direct ownership or exert a controlling interest in the entity , we consolidate it and reflect its operations as noted above . if we exert significant influence but do not control the entity , we record our share of its net operating results in the equity in income of equity-method investee category on our consolidated statements of operations . managed receivables we make various references within our discussion of the credit and other investments segment to our managed receivables .
| consolidated results of operations replace_table_token_3_th year ended december 31 , 2017 , compared to year ended december 31 , 2016 total interest income . total interest income consists primarily of finance charges and late fees earned on point-of-sale and direct-to-consumer receivables , credit card and auto finance receivables . period-over-period results primarily relate to growth in point-of-sale finance and direct-to-consumer products , the receivables of which increased from $ 214.3 million as of december 31 , 2016 to $ 316.7 million as of december 31 , 2017 . these increases were partially offset , however , by continued net liquidations of our historical credit card receivable portfolios over the past year . we are currently experiencing continued period-over-period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our car receivables—growth which we expect to result in net period-over-period growth in our total interest income for these operations throughout 2018. future periods ' growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables . despite anticipated increases in point-of-sale and direct-to-consumer receivables , continued net liquidations of our 20 historical credit card receivables will continue to offset some of the expected increases but are not expected to result in overall net declines in interest income period-over-period . interest expense . variations in interest expense are due to our debt facilities being repaid commensurate with net liquidations of the underlying credit card , auto finance and installment loan receivables that serve as collateral for the facilities offset by new borrowings associated with growth in point-of-sale and direct-to-consumer receivables and car operations as evidenced within note 9 , “ notes payable , ” to our consolidated financial statements .
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2018-07 , compensation-stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting to simplify the accounting for share-based transactions by expanding the scope of topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees . as a result , nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date , taking into consideration the probability of satisfying performance conditions . this asu is effective for annual and interim reporting periods beginning after december 15 story_separator_special_tag introduction the following discussion should be read in conjunction with the other sections of this report , including the financial statements and supplementary data , contained in part ii , item 8 of this annual report on form 10-k. in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause actual results to differ materially from management 's expectations . factors that could cause such differences are discussed in part i , “ cautionary note regarding forward-looking statements ” and part i , item 1a. “ risk factors. ” we assume no obligation to update any of these forward-looking statements . overview we earn revenue by deploying professionals to provide services to our clients , including project management , construction management and related consulting . these services are primarily delivered on a “ cost plus ” or “ time and materials ” basis in which we bill negotiated hourly or monthly rates or a negotiated multiple of the direct cost of these professionals , plus actual out-of-pocket expenses . our direct expenses are the actual cost of these professionals , including payroll and benefits . we also provide services under fixed price contracts or time and materials contracts with a cap . 22 the professionals we deploy are occasionally subcontractors . we generally bill the actual cost of these subcontractors and recognize this cost as both revenue and direct expense . cfr refers to our revenue excluding amounts paid or due to subcontractors . we believe cfr is an important measure because it represents the revenue on which we earn gross profit , whereas total revenue includes subcontractors on which we generally pass through the cost and earn minimal or no gross profit . we compete for business based on a variety of factors such as technical capability , global resources , price , reputation and past experience , including client requirements for substantial experience in similar projects . we have developed significant long-standing relationships , which bring us repeat business and would be very difficult to replicate . we believe we have an excellent reputation for attracting and retaining professionals . in addition , we believe there are high barriers to entry for new competitors especially in the project management market . selling , general and administrative expenses ( “ sg & a ” ) consist primarily of personnel costs that are not billable and corporate or regional costs such as sales , business development , proposals , operations , finance , human resources , legal , marketing , management and administration . discontinued operations includes the results of our former construction claims group , which was sold on may 5 , 2017. the company operates in a single reporting segment , known as the project management group which provides fee-based construction management services to our clients , leveraging our construction expertise to identify potential trouble , difficulties and sources of delay on a construction project before they develop into costly problems . our experienced professionals are capable of managing all phases of the construction process from concept through completion , including cost and budget controls , scheduling , estimating , expediting , inspection , contract administration and management of contractors , subcontractors and suppliers . critical accounting policies and estimates our consolidated financial statements contained in this annual report on form 10-k were prepared in accordance with u.s. gaap . while there are a number of accounting policies , methods and estimates that affect the consolidated financial statements as described in note 3 to the consolidated financial statements , areas that are particularly significant are discussed below . we believe our assumptions are reasonable and appropriate , however actual results may be materially different than estimated . revenue recognition we generate revenue primarily from providing professional services to our clients under various types of contracts . we evaluate contractual arrangements to determine how to recognize revenue . below is a description of the basic types of contracts from which we may earn revenue : time and materials contracts under the time and materials ( “ t & m ” ) arrangements , contract fees are based upon time and materials incurred . the contracts may be structured as basic time and materials , cost plus a margin or time and materials subject to a maximum contract value ( the `` cap value '' ) . due to the potential limitation of the cap value , the economic factors of the contracts subject to a cap value differ from the economic factors of basic t & m and cost plus contracts . the majority of our contracts are for consulting projects where we bill the client monthly at hourly billing rates . the hourly billing rates are determined by contract terms . under cost plus contracts , we charge our clients for our costs , including both direct and indirect costs , plus a fixed fee or rate . under time and materials contracts with a cap value , we charge our clients for time and materials based upon the work performed subject to a cap or a not to exceed value . there are often instances that a contract is modified to extend the contract value past the cap . as the consideration is variable depending on the outcome of the contract renegotiation , we estimate the total contract price in accordance with the variable consideration guidelines and only include consideration we expect to receive . story_separator_special_tag in turn , measurement of an impairment loss requires a determination of fair value , which is based on the best information available . we use internal discounted cash flow estimates , quoted market prices when available and independent appraisals , as appropriate , to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . 24 income taxes we make judgments and interpretations based on enacted tax laws , published tax guidance , as well as estimates of future earnings . these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluate the deferred tax assets to determine on the basis of objective factors whether the net assets will be realized through future years ' taxable income . in the event that actual results differ from these estimates and assessments , additional valuation allowances may be required . we will recognize a tax benefit in the financial statements for an uncertain tax position only if management 's assessment is that the position is “ more likely than not ” ( i.e. , a likelihood greater than 50 percent ) to be allowed by the tax jurisdiction based solely on the technical merits of the position . the term “ tax position ” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods . stock options we recognize compensation expense for all stock-based awards . these awards have included awards of common stock , deferred stock units and stock options . while fair value may be readily determinable for awards of stock and deferred stock units , market quotes are not available for long-term , nontransferable stock options because these instruments are not traded . we currently use the black-scholes option pricing model to estimate the fair value of options . option valuation models require the input of highly subjective assumptions , including but not limited to stock price volatility , expected life and stock option exercise behavior . contingencies estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies , as well as in determining our liabilities for incurred but not reported insurance claims . significant judgments by us and reliance on third-party experts are utilized in determining probable and or reasonably estimable amounts to be recorded or disclosed in our financial statements . the results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined . we do not believe that material changes to these estimates are reasonably likely to occur . 25 2018 business overview consolidated results ( in thousands ) replace_table_token_9_th story_separator_special_tag style= '' vertical-align : bottom ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > selling , general and administrative ( “ sg & a ” ) expenses sg & a expenses represented 31.3 % and 33.1 % of revenues in 2017 and 2016 , respectively . sg & a expenses decreased $ 19,496 from $ 170,682 in 2016 to $ 151,186 in 2017. the decrease was primarily due to decreases in the middle east as a result of a $ 10,696 decrease in bad debt expense due to the large increase in reserves for certain accounts receivable in the middle east during 2016 and a $ 3,663 decrease primarily due to non productive labor costs reduction related to the closeout of projects . in addition , there was a $ 10,336 decrease in europe and a $ 4,207 decrease in africa primarily related to a reduction in foreign currency translation expense . partially offsetting these decreases were cost increases primarily due to expenses related to the company 's profit improvement plan of approximately $ 5,019 , increased severance costs of approximately $ 7,078 and restatement expenses of approximately $ 1,440. operating profit ( loss ) : replace_table_token_14_th * includes hill 's share of loss ( profits ) of equity method affiliates on the consolidated statements of operations . operating loss decreased primarily due to an increase in operating profit in the united states as a result of increased revenues in the western region from new work . the middle east contributed to the decrease in the operating loss primarily from decreases in unapplied labor , bad debt and foreign currency translation expense . europe also contributed to the decrease in operating loss due to a decrease in foreign currency translation expense . the decrease was partially offset by an increase in corporate expenses primarily due to the profit improvement plan , restatement expenses and increased severance costs . corporate expenses increased by $ 7,929 , and represented 8.8 % of total revenue in 2017 compared to 6.7 % of total revenue in 2016 . 29 interest and related financing fees , net net interest and related financing fees increased $ 676 to $ 3,031 in 2017 as compared with $ 2,355 in 2016 due to the establishment of new credit facilities and long term financing after the construction claims group sale . income taxes in 2017 , income tax expense was $ 3,103 compared to $ 5,955 in 2016. the effective income tax rates for 2017 and 2016 were ( 86.5 ) % and ( 37.2 ) % , respectively . the differences between the federal statutory rate and the effective tax rate are caused by several items including the difference between the u.s. federal statutory rates and the foreign tax rates , the impact of the tax cuts and jobs act of 2017 , the interaction of losses between continuing and discontinuing operation and other miscellaneous items .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 total revenue : replace_table_token_10_th cfr was $ 337,244 and $ 383,495 of the total revenue for the twelve months ended december 31 , 2018 and 2017 , respectively , which was approximately 78.7 % and 79.3 % of total revenues , respectively . the decrease in revenue and the corresponding decrease in cfr for the twelve months ended december 31 , 2018 compared to the same period in 2017 was primarily due to the following : 26 united states : the northeast united states had a decline in revenue of approximately $ 16,955 due to the slowdown of a large university project and a project related to hurricane sandy as these projects close out . the mid-atlantic united states had a decline in revenue of approximately $ 7,676 mostly due to certain roadway projects coming to an end . these declines were partially offset by the addition of some new work and increased scope of work for ongoing projects in other areas of the united states . middle east : saudi arabia had a decline of revenue of approximately $ 21,830 primarily due to the slow down of king abdullah project as it nears completion and the close out of jabal omar project . also , oman had a decline in revenue of approximately $ 13,768 primarily due to the slow down of a major airport project as it nears completion and the closeout of a major hotel project . gross profit : replace_table_token_11_th the change in gross margin as a percentage of revenue for the twelve months ended december 31 , 2018 compared to the same period in 2017 was primarily due to the following : europe : the increase in gross margin percent of revenue is primarily related to the cancellation of a large project in germany at the end of 2017.
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if the tax position meets the more-likely-than-not recognition threshold , the tax effect is recognized at the largest amount of story_separator_special_tag ( dollars in thousands , except per share amounts ) overview we are a holding company and are engaged principally in : the manufacture and sale of cigarettes in the united states through our liggett group llc and vector tobacco inc. subsidiaries , and the real estate business through our new valley llc subsidiary , which is seeking to acquire additional operating companies and real estate properties . new valley owns 50 % of douglas elliman realty , llc , which operates the largest residential brokerage company in the new york metropolitan area . all of our tobacco operations ' unit sales volume in 2012 , 2012 and 2010 was in the discount segment , which management believes has been the primary growth segment in the industry for over a decade . the significant discounting of premium cigarettes in recent years has led to brands , such as eve , that were traditionally considered premium brands to become more appropriately categorized as discount , following list price reductions . our tobacco subsidiaries ' cigarettes are produced in approximately 117 combinations of length , style and packaging . liggett 's current brand portfolio includes : pyramid — the industry 's first deep discount product with a brand identity re-launched in the second quarter of 2009 , and grand prix — re-launched as a national brand in 2005 , liggett select — a leading brand in the deep discount category , eve — a leading brand of 120 millimeter cigarettes in the branded discount category , and usa and various partner brands and private label brands . in 1999 , liggett introduced liggett select , one of the leading brands in the deep discount category . liggett select represented 7.0 % in 2012 , 8.7 % in 2011 and 13.0 % in 2010 of liggett 's unit volume . in september 2005 , liggett repositioned grand prix to distributors and retailers nationwide . grand prix represented 9.6 % in 2012 , 12.7 % in 2011 and 18.5 % in 2010 of liggett 's unit volume . in april 2009 , liggett repositioned pyramid as a box-only brand with a new low price to specifically compete with brands which are priced at the lowest level of the deep discount segment . pyramid is now the largest seller in liggett 's family of brands with 62.7 % of liggett 's unit volume in 2012 , 56.4 % in 2011 and 42.6 % in 2010 . according to management science associates , liggett held a share of approximately 12.1 % of the overall discount market segment for 2012 compared to 12.8 % for 2011 and 11.9 % for 2010 . under the master settlement agreement ( `` msa '' ) reached in november 1998 with 46 states and various territories , the three largest cigarette manufacturers must make settlement payments to the states and territories based on how many cigarettes they sell annually . liggett , however , is not required to make any payments unless its market share exceeds approximately 1.65 % of the u.s. cigarette market . additionally , vector tobacco has no payment obligation unless its market share exceeds approximately 0.28 % of the u.s. market . liggett 's and vector tobacco 's payments under the msa are based on each company 's incremental market share above the minimum threshold applicable to such company . we believe that our tobacco subsidiaries have gained a sustainable cost advantage over their competitors as a result of the settlement . the discount segment is a challenging marketplace , with consumers having less brand loyalty and placing greater emphasis on price . liggett 's competition is now divided into two segments . the first segment is made up of the three largest manufacturers of cigarettes in the united states , philip morris usa inc. , r.j. reynolds tobacco company , and lorillard tobacco company . the three largest manufacturers , while primarily premium cigarette based companies , also produce and sell discount cigarettes . the second segment of competition is comprised of a group of smaller manufacturers and importers , most of which sell deep discount cigarettes . our largest competitor in this segment is commonwealth brands , inc. ( a wholly owned subsidiary of imperial tobacco plc ) . 28 recent developments 7.75 % senior secured notes due 2021. in february 2013 , we sold $ 450,000 of our 7.75 % senior secured notes due 2021 in a private offering to qualified institutional investors in accordance with rule 144a of the securities act of 1933. we agreed to consummate a registered exchange offer for the 7.75 % senior secured notes within 360 days after the date of the initial issuance of the 7.75 % senior secured notes . the new 7.75 % senior secured notes to be issued in the exchange offer will have substantially the same terms as the original notes , except that the new 7.75 % senior secured notes will have been registered under the securities act . we will be required to pay additional interest on the 7.75 % senior secured notes if we fail to timely comply with our obligations under the registration rights agreement until such time as we comply . the 7.75 % senior secured notes pay interest on a semi-annual basis at a rate of 7.75 % per year and mature on february 15 , 2021. we may redeem some or all of the 7.75 % senior secured notes at any time prior to february 15 , 2016 at a make-whole redemption price . on or after february 15 , 2016 we may redeem some or all of the 7.75 % senior secured notes at a premium that will decrease over time , plus accrued and unpaid interest and liquidated damages , if any , to the redemption date . story_separator_special_tag as of december 31 , 2012 , 3,057,000 shares were outstanding on the share lending agreement and $ 12 had been amortized to interest expense . prudential franchise agreements . douglas e lliman realty is in discussions with prudential related to certain matters in connection with the franchise agreements , and douglas elliman realty has elected to cease operating as a prudential franchisee . douglas elliman realty is seeking a resolution of these matters . the stated initial expiration date of the franchise agreements is march 13 , 2013 unless douglas elliman realty chooses to renew the franchise agreements prior to march 13 , 2013. as a result of the termination or expiration of the franchise agreements , in accordance with the terms of the limited liability company operating agreement , douglas elliman realty is required to redeem the approximate 20 % equity interest owned by a former affiliate of prudential . the redemption price for such equity interest is to be determined through an appraisal process in accordance with the terms of douglas elliman realty 's limited liability company operating agreement . chelsea eleven . in february and april 2012 , chelsea closed on the remaining utility and two residential units of the 54 unit building and the project is concluded . new valley received net distributions of $ 9,483 and $ 7,638 from new valley oaktree chelsea eleven , llc for the years ended december 31 , 2012 and 2011 , respectively . new valley accounted for its 40 % interest in new valley oaktree chelsea eleven , llc under the equity method of accounting . new valley recorded equity income of $ 3,137 , $ 3,000 and $ 900 for the years ended december 31 , 2012 , 2011 and 2010 , respectively , related to new valley chelsea . fifty third-five building . in september 2010 , new valley , through its nv 955 llc subsidiary , contributed $ 2,500 to a joint venture , fifty third-five building llc ( “ jv ” ) , of which it owns 50 % . the jv was formed for the purposes of acquiring a defaulted real estate loan , collateralized by real estate located in new york city . in october 2010 , new valley contributed an additional $ 15,500 to the jv and the jv acquired the defaulted loan for approximately $ 35,500 . in december 2012 , all outstanding principal and interest on the loan was repaid and the defaulted note was retired . new valley received a liquidating distribution of $ 20,900 from the jv on december 28 , 2012. this investment was accounted for under the equity method of accounting . the company recorded equity income of $ 2,900 for the year ended december 31 , 2012. socal portfolio . in october 2011 , a newly-formed joint venture , between affiliates of new valley and winthrop realty trust , entered into an agreement with wells fargo bank to acquire a $ 117,900 c-note ( the “ c-note ” ) for a purchase price of $ 96,700. the c-note was the most junior tranche of a $ 796,000 first mortgage loan originated in july 2007 which was collateralized by a 31-property portfolio of office properties situated throughout southern california , consisting of approximately 4.5 million square feet . the c-note bore interest at a rate per annum of libor plus 310 basis points , required payments of interest only prior to maturity and matured on august 9 , 2012. on november 3 , 2011 , new valley invested $ 25,000 for an approximate 26 % interest in the joint venture . the investment is a variable interest entity ; however , new valley is not the primary beneficiary . on september 28 , 2012 , all outstanding principal and interest was repaid and the c-note was retired . new valley received a liquidating distribution of $ 32,275 from the joint venture on september 28 , 2012. new valley accounted for this investment under the equity method of accounting . new valley recorded equity income of $ 7,180 and $ 95 for the years ended december 31 , 2012 and 2011 , respectively . we had no exposure to loss as a result of new valley 's investment in nv socal llc at december 31 , 2012 . 11 beach street . in june 2012 , nv beach llc , a wholly-owned subsidiary of new valley , invested $ 9,642 with an additional $ 1,321 investment to be made in the future for an approximate 49.5 % interest in 11beach street investor llc ( the `` beach jv '' ) . beach jv plans to renovate and convert an existing office building in manhattan into a luxury residential condominium . beach jv is a variable interest entity ; however , new valley is not the primary beneficiary . new valley accounts for its interest in beach jv under the equity method of accounting . our maximum exposure to loss as a result of new valley 's investment in beach jv was $ 9,642 at december 31 , 2012 . maryland portfolio . in july 2012 , new valley invested $ 5,000 for an approximate 30 % interest in a joint venture that owns a 25 % interest in a portfolio of approximately 5,500 apartment units primarily located in baltimore county , maryland . the investment is a variable interest entity ; however , new valley is not the primary beneficiary . new valley accounts for this investment under the equity method of accounting . new valley recorded equity loss of $ 269 and received distributions of $ 117 for the year 30 ended december 31 , 2012 . our maximum exposure to loss as a result of new valley 's investment in nv maryland was $ 4,615 at december 31 , 2012 . 701 seventh avenue . in august and september 2012 , new valley invested a total of $ 7,800 for an approximate 11 % interest in a joint venture that acquired property located at 701 seventh avenue in times square in manhattan .
| results of operations the following discussion provides an assessment of our results of operations , capital resources and liquidity and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . the consolidated financial statements include the accounts of vgr holding , liggett , vector tobacco , liggett vector brands , new valley and other less significant subsidiaries . our significant business segments for the three years ended december 31 , 2012 were tobacco and real estate . the tobacco segment consists of the manufacture and sale of cigarettes . the real estate segment includes the company 's investment in escena , aberdeen and investments in non-consolidated real estate businesses . the accounting policies of the segments are the same as those described in the summary of significant accounting policies and can be found in note 1 to our consolidated financial statements . 34 replace_table_token_4_th _ ( 1 ) operating income includes litigation judgment expense of $ 16,161 and a $ 3,000 settlement charge . 2012 compared to 2011 revenues . all of our revenues were from the tobacco segment in 2012 and 2011 . liggett increased the list price of pyramid by $ 1.30 per carton in january 2011 , $ 1.10 per carton in august 2011 , $ 1.00 per carton in june 2012 , and $ 0.60 per carton in december 2012. the list price of liggett select and eve also increased by $ 1.00 per carton in june 2011. the list price of grand prix also increased by $ 1.10 per carton in june 2011. liggett increased the list price of liggett select , eve , and grand prix by $ 0.80 per carton in october 2011 , $ 1.00 per carton in june 2012 , and $ 0.60 per carton in december 2012. all of our sales were in the discount category in 2012 and 2011 .
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( k ) retail non-fuel base revenues decreased primarily due to refunds of approximately $ 28.2 million for the reduction in the federal corporate income tax rate due to the tcja , partially offset by a $ 7.7 million base rate increase compared to 2017 29 base rate increase related to the 2017 puct final order . excluding the impact of rate changes , retail non-fuel base revenues in 2018 , increased by $ 19.8 million primarily due to an increase in kwh sales that resulted from favorable weather and an increase in the average number of customers served . ( l ) retail non-fuel base revenues increased primarily due to the non-fuel base rate increase approved in the 2017 puct final order . 2017 included approximately $ 8.8 million of retail non-fuel base revenues for the period from july 18 , 2017 through december 31 , 2017 , which was recognized when the 2017 puct final order was approved in december 2017. excluding the $ 8.8 million 2017 puct final order impact , retail non-fuel base revenues increased $ 4.5 million , or 0.7 % , in 2017 compared to 2016 . ( m ) retail non-fuel base revenues increased primarily due to the recognition of $ 40.9 million related to the 2016 puct final order . ( n ) taxes other than income taxes increased primarily due to increased property valuations in texas as a result of mps units 3 and 4 being placed in service in 2016 and increased revenue related taxes in texas . ( o ) taxes other than income taxes increased primarily due to increased property tax rates and valuations in texas as a result of mps units 1 and 2 and the eoc being placed in service during the first quarter of 2015 and increased billed revenues for texas revenue related taxes . these increases were partially offset by decreased property taxes in arizona due to lower property values . ( p ) the effective tax rate , other decreased primarily due to the tcja that reduced the federal corporate income tax rate from 35 % to 21 % , excluding the tax impact of other items in the table above partially offset by a reduction in state tax reserves in 2017 due to the favorable settlement of texas state income tax audits . ( q ) the effective tax rate , other decreased primarily due to favorable settlements of state income tax audits in texas and arizona . ( r ) the effective tax rate , other increased primarily due to the change to normalize state income taxes in accordance with the 2016 puct final order and the nmprc final order . ( s ) palo verde o & m expenses decreased primarily due to lower incentives and administrative and general ( `` a & g '' ) benefits in 2018 compared to 2017 . ( t ) palo verde o & m expenses increased primarily due to higher a & g expenses . ( u ) afudc decreased due to lower balances of construction work in progress ( `` cwip '' ) , primarily due to mps units 3 and 4 being placed in service in may and september 2016 , respectively , and a reduction in the afudc rate effective january 2017 . ( v ) afudc decreased due to lower balances of cwip , primarily due to the mps units and the eoc being placed in service in 2015 and 2016 , and a reduction in the afudc rate effective january 2016 as a result of the 2016 puct final order . 30 impact of new accounting standard and use of non-gaap financial measures upon adoption of asu 2016-01 , financial instruments - recognition and measurement of financial assets and financial liabilities , the company recorded , as of january 1 , 2018 , a cumulative effect adjustment to retained earnings of $ 41.0 million , net of tax , for the unrealized gains ( losses ) related to equity securities held in the ndt . as required by asu 2016-01 , changes in the fair value of equity securities are now recognized in the company 's statements of operations . the adoption of the new standard added the potential for significant volatility to the company 's reported results of operations as changes in the fair value of equity securities may occur . furthermore , the equity investments included in the ndt are significant and are expected to increase significantly during the remaining life ( estimated to be 27 to 30 years ) of palo verde . accordingly , the company has provided the following non-gaap financial measures , which reconcile gaap net income to non-gaap adjusted net income and gaap basic earnings per share to non-gaap adjusted basic earnings per share , to exclude the impact of changes in fair value of equity securities and realized gains ( losses ) from the sale of both equity and fixed income securities . replace_table_token_14_th adjusted net income and adjusted basic earnings per share are not measures of financial performance under gaap and should not be considered as an alternative to net income and earnings per share , respectively . furthermore , the company 's presentation of any non-gaap financial measure may not be comparable to similarly titled measures used by other companies . the company believes adjusted net income and adjusted basic earnings per share are useful financial measures for investors and analysts in understanding the company 's core operating performance because each measure removes the effects of variances reported in the company 's results of operations that are not indicative of fundamental changes in the earnings capacity of the company . 31 story_separator_special_tag approved formula at least four months after our last revision , except in the month of december . in addition , if we materially over-recover fuel costs , we must seek to refund the over-recovery , and if we materially under-recover fuel costs , we may story_separator_special_tag ( k ) retail non-fuel base revenues decreased primarily due to refunds of approximately $ 28.2 million for the reduction in the federal corporate income tax rate due to the tcja , partially offset by a $ 7.7 million base rate increase compared to 2017 29 base rate increase related to the 2017 puct final order . excluding the impact of rate changes , retail non-fuel base revenues in 2018 , increased by $ 19.8 million primarily due to an increase in kwh sales that resulted from favorable weather and an increase in the average number of customers served . ( l ) retail non-fuel base revenues increased primarily due to the non-fuel base rate increase approved in the 2017 puct final order . 2017 included approximately $ 8.8 million of retail non-fuel base revenues for the period from july 18 , 2017 through december 31 , 2017 , which was recognized when the 2017 puct final order was approved in december 2017. excluding the $ 8.8 million 2017 puct final order impact , retail non-fuel base revenues increased $ 4.5 million , or 0.7 % , in 2017 compared to 2016 . ( m ) retail non-fuel base revenues increased primarily due to the recognition of $ 40.9 million related to the 2016 puct final order . ( n ) taxes other than income taxes increased primarily due to increased property valuations in texas as a result of mps units 3 and 4 being placed in service in 2016 and increased revenue related taxes in texas . ( o ) taxes other than income taxes increased primarily due to increased property tax rates and valuations in texas as a result of mps units 1 and 2 and the eoc being placed in service during the first quarter of 2015 and increased billed revenues for texas revenue related taxes . these increases were partially offset by decreased property taxes in arizona due to lower property values . ( p ) the effective tax rate , other decreased primarily due to the tcja that reduced the federal corporate income tax rate from 35 % to 21 % , excluding the tax impact of other items in the table above partially offset by a reduction in state tax reserves in 2017 due to the favorable settlement of texas state income tax audits . ( q ) the effective tax rate , other decreased primarily due to favorable settlements of state income tax audits in texas and arizona . ( r ) the effective tax rate , other increased primarily due to the change to normalize state income taxes in accordance with the 2016 puct final order and the nmprc final order . ( s ) palo verde o & m expenses decreased primarily due to lower incentives and administrative and general ( `` a & g '' ) benefits in 2018 compared to 2017 . ( t ) palo verde o & m expenses increased primarily due to higher a & g expenses . ( u ) afudc decreased due to lower balances of construction work in progress ( `` cwip '' ) , primarily due to mps units 3 and 4 being placed in service in may and september 2016 , respectively , and a reduction in the afudc rate effective january 2017 . ( v ) afudc decreased due to lower balances of cwip , primarily due to the mps units and the eoc being placed in service in 2015 and 2016 , and a reduction in the afudc rate effective january 2016 as a result of the 2016 puct final order . 30 impact of new accounting standard and use of non-gaap financial measures upon adoption of asu 2016-01 , financial instruments - recognition and measurement of financial assets and financial liabilities , the company recorded , as of january 1 , 2018 , a cumulative effect adjustment to retained earnings of $ 41.0 million , net of tax , for the unrealized gains ( losses ) related to equity securities held in the ndt . as required by asu 2016-01 , changes in the fair value of equity securities are now recognized in the company 's statements of operations . the adoption of the new standard added the potential for significant volatility to the company 's reported results of operations as changes in the fair value of equity securities may occur . furthermore , the equity investments included in the ndt are significant and are expected to increase significantly during the remaining life ( estimated to be 27 to 30 years ) of palo verde . accordingly , the company has provided the following non-gaap financial measures , which reconcile gaap net income to non-gaap adjusted net income and gaap basic earnings per share to non-gaap adjusted basic earnings per share , to exclude the impact of changes in fair value of equity securities and realized gains ( losses ) from the sale of both equity and fixed income securities . replace_table_token_14_th adjusted net income and adjusted basic earnings per share are not measures of financial performance under gaap and should not be considered as an alternative to net income and earnings per share , respectively . furthermore , the company 's presentation of any non-gaap financial measure may not be comparable to similarly titled measures used by other companies . the company believes adjusted net income and adjusted basic earnings per share are useful financial measures for investors and analysts in understanding the company 's core operating performance because each measure removes the effects of variances reported in the company 's results of operations that are not indicative of fundamental changes in the earnings capacity of the company . 31 story_separator_special_tag approved formula at least four months after our last revision , except in the month of december . in addition , if we materially over-recover fuel costs , we must seek to refund the over-recovery , and if we materially under-recover fuel costs , we may
| historical results of operations the following discussion includes detailed descriptions of factors affecting individual line items in the results of operations . the amounts presented below are presented on a pre-tax basis . operating revenues we realize revenue from the sale of electricity to retail customers at regulated rates and the sale of energy in the wholesale power market generally at market-based prices . sales for resale to our sole full requirement customer ( which are ferc-regulated cost-based wholesale sales within our service territory ) , accounted for less than 1 % of revenues in each of 2018 , 2017 and 2016. revenues from the sale of electricity include fuel costs that are recovered from our customers through fuel adjustment mechanisms . prior to 2017 , a significant portion of fuel costs have been recovered through base rates in new mexico . effective july 1 , 2016 , with the implementation of the nmprc final order , fuel costs are no longer recovered through base rates . beginning july 1 , 2016 , all fuel costs are recovered through a fuel adjustment mechanism . we record deferred fuel revenues for the difference between actual fuel costs and recoverable fuel revenues until such amounts are collected from or refunded to customers . `` non-fuel base revenues '' refers to our revenues from the sale of electricity excluding such fuel costs . retail non-fuel base revenue percentages by customer class are presented below : replace_table_token_15_th no retail customer accounted for more than 3 % of our non-fuel base revenues during such periods . as shown in the table above , residential and small commercial customers represent approximately 79 % of our non-fuel base revenues . while this customer base is more stable , it is also more sensitive to changes in weather conditions .
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goodwill and other intangible assets goodwill is the difference between the purchase price in a business combination and the fair value of assets and liabilities acquired , and is not amortized . other intangible assets include various state insurance licenses , which have been determined to have indefinite useful lives and , therefore , are not amortized . both goodwill and other intangible assets with indefinite useful lives are subject to annual impairment analysis . the goodwill impairment test uses a two-step process as set forth under current accounting guidance . in the first step , the fair value of a reporting unit is compared to its carrying value . if the carrying value of a reporting unit exceeds its fair value , the second step of the impairment test is performed for purposes of measuring the impairment . in the second step , the fair value of projected new business is compared to the carrying value of goodwill . a requirement of this method is that the inforce must pass loss recognition testing . if the carrying amount of the reporting unit goodwill exceeds the fair value of projected new business , an impairment loss is recognized in an amount equal to that excess . in january 2017 , the fasb issued accounting standards update ( `` asu `` ) no . 2017-04 , simplifying the test for goodwill impairmen t. an entity story_separator_special_tag the following is management 's discussion and analysis of the consolidated financial condition and consolidated results of operations of the company . it is intended to be a discussion of certain key financial information regarding the company and should be read in conjunction with the consolidated financial statements and related notes to this annual report on form 10-k. overview we conduct operations as an insurance holding company emphasizing ordinary life insurance and endowment products in niche markets where we believe we can achieve competitive advantages . as an insurance provider , we collect premiums on an ongoing basis to pay future benefits to our policy and contract holders . our core operations include issuing : whole life insurance ; endowments ; final expense ; and limited liability property policies . the company derives its revenues principally from 1 ) premiums earned for insurance coverages provided to insureds ; 2 ) net investment income ; and 3 ) net realized capital gains and losses . profitability of our insurance operations depends heavily upon the company 's underwriting discipline , as we seek to manage exposure to loss through : favorable risk selection and diversification ; management of claims ; use of reinsurance ; sizing of our in force block ; careful monitoring of our mortality and morbidity experience ; and management of our expense ratio , which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses . pricing adequacy depends on a number of factors , including the ability to obtain regulatory approval for rate changes , proper evaluation of underwriting risks , the ability to project future losses based on historical loss experience adjusted for known trends , the company 's response to competitors , and expectations about regulatory and legal developments and expense levels . the company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin . the company has the ability to adjust dividend scales and interest crediting rates at its discretion based on economic and other factors . the profitability of fixed annuities , riders and other “ spread-based ” product features depends largely on the company 's ability to earn target spreads between earned investment rates on assets and interest credited to policyholders . the investment return , or yield , on invested assets is an important element of the company 's earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid . the majority of the company 's invested assets have been held in fixed maturities available-for-sale and held-to-maturity securities , primarily in asset classes of corporate bonds , municipal bonds , and government obligation bonds . the interest rate environment has a significant impact on the determination of insurance contract liabilities , our investment rates and yields and our asset/liability management . the primary investment objective for the company is to maximize economic value , consistent with acceptable risk parameters , including the management of credit risk and interest rate sensitivity of invested assets , while generating sufficient after-tax income to meet policyholder and corporate obligations . the company maintains a conservative investment strategy that may vary based on a variety of factors including business needs , regulatory requirements and tax considerations . we previously announced that we determined that a portion of the life and annuity insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable u.s. federal income tax treatment afforded by sections 7702 and 72 ( s ) of the internal revenue code ( `` irc '' ) of 1986. to the extent that these policies had unreported income build-up , we may be liable 28 citizens , inc. and consolidated subsidiaries to the irs for failure to withhold taxes or to notify policyholders of their obligation to pay taxes directly to the irs . we have undertaken an analysis of our potential liability to the irs arising from this matter , as well as other expenses we may incur to remediate ( i.e. , conform to the requirements of the irs ) certain previously issued domestic life insurance and annuity policies and to address any missed reporting for policies issued to non-u.s. citizens and have established a best estimate reserve of $ 12.3 million , net of tax as of december 31 , 2017 for probable liabilities and expenses . story_separator_special_tag our policies in this segment are sold and serviced through a home service marketing distribution system utilizing employee-agents who work on a route system to collect premiums and service policyholders , and through networks of funeral homes that collect premiums and provide personal policyholder service . premiums in this segment increased slightly in 2017 compared to 2016 , as renewal premiums and first year premiums increased . we noted slight increases in 2016 compared to 2015 which were driven by renewal premiums . economic and insurance industry developments significant economic issues impacting our business and industry currently and into the future are discussed below . slow increases in the interest rate environment will limit increases in profit margins for insurers . we have been impacted by the historically low interest rate environment over the past several years as our fixed income investment portfolio , primarily invested in callable securities , has been reinvested at lower yields . the company 's conservative investment strategy has not changed but we have focused new investments into securities of state , municipalities , essential services and corporate issuers compared to our historical investment in u.s. government holdings . our investment earnings also impact the reserve and dac balances , as assumptions are used in the development of the balances . due to the recent decline in investment yields on our portfolio , our projection of long-term investment returns has declined . this has resulted in increasing the reserves on policies issued in the current year , as well as reducing the dac asset . as an increasing percentage of the world population reaches retirement age , we believe we will benefit from increased demand for living benefit products rather than death benefit products , as customers will require cash accumulation to pay expenses to meet their lifetime income needs . our ordinary life products are designed to accumulate cash values to provide for living expenses in a policy owner 's later years , while continuously providing a death benefit . there has been a trend toward consolidation of domestic life insurance companies , due to significant losses incurred by the life insurance industry as a result of the credit crisis and related economic pressures , as well as increasing costs of regulatory compliance for domestic life insurance companies . many of the events and trends affecting the life insurance industry have had an impact on the life reinsurance industry . these events have led to a decline in the availability of reinsurance . while we currently cede a limited amount of our primary insurance business to reinsurers , we may find it difficult to obtain reinsurance in the future , forcing us to seek reinsurers who are more expensive to us . if we can not obtain affordable reinsurance coverage , either our net exposures will increase or we will have to reduce our underwriting commitments . 30 citizens , inc. and consolidated subsidiaries innovation and digital development strategies will be implemented in various industries including the insurance industry in the coming years which could significantly impact our business . it will be critical that we embrace these changes to the benefit of our policyholders , agents and stockholders . while our management has extensive experience in writing life insurance policies for foreign residents , changes to foreign laws and regulations and their related application and enforcement , along with currency controls affecting our foreign resident insureds could adversely impact our revenues , results of operations and financial condition . story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > replace_table_token_9_th the company monitors death claims based upon expectations . these values may routinely fluctuate from year to year . policy surrenders increased 10.4 % in 2017 from 2016 and 6.3 % from 2015 to 2016 , or 0.8 % and 0.7 % of direct ordinary whole life insurance in force for 2017 and 2016 , respectively . the increase in surrender expense is primarily related to our international business and is expected to increase over time due to the aging of this block of business . our premium persistency rates have remained consistent for 2017 and 2016 . a significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them . total direct insurance in force reported in 2017 was $ 5.0 billion and was consistent with 2016 and 2015 . endowment benefits decreased slightly in 2017 compared to 2016 amounts . we have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner . these benefits have been popular in the pacific rim and latin america , where the company has experienced increased interest in our guaranteed products in recent years . annual guaranteed endowments are factored into the premium , and , as such , the increase or decrease is expected to have little impact on expected profitability . matured endowments decreased in the current year after increasing in 2016 and 2015 . we expect this increasing trend to continue as this block of business increases , persists and policies begin to reach maturity . property claims decreased 10 % to approximately $ 1.7 million in 2017 compared with the amount reported for 2016 due to a decrease in weather-related claims . other policy benefits resulted primarily from interest paid on premium deposits and policy benefit accumulations and increased as these policy liabilities also increased . increase in future policy benefit reserves . the change in future policy benefit reserves has increased in 2017 by 0.2 % and decrease in 2016 by 1.5 % . the 2016 decrease was mainly due to higher surrender activity recorded when compared to the prior year . changes in future policy benefit reserves are largely driven by policyholder activity ( e.g . premiums , surrenders , etc . ) policyholder dividends .
| consolidated results of operations a discussion of consolidated results is presented below , followed by a discussion of segment operations and financial results by segment . revenues insurance revenues are primarily generated from premium revenues and investment income . in addition , realized gains and losses on investment holdings can significantly impact revenues from year to year . replace_table_token_4_th premium income . premium income derived from life , accident and health , and property insurance sales remained relatively flat during 2017 compared to 2016 , and increased 1.7 % during 2016 compared to 2015 . life insurance reflected an increase resulting primarily from renewal premiums , which increased 2.2 % in 2017 and 2.4 % in 2016 and totaled $ 171.9 million , $ 168.3 million and $ 164.4 million on the consolidated level in 2017 , 2016 and 2015 , respectively . new sales , reflected as first year premiums , decreased 18.8 % and 0.5 % , and 2.7 % in the life segment in 2017 , 2016 and 2015 , respectively . in 2017 , to increase productivity , we introduced a set of repriced products in our international markets that are more expensive policies for our customers and likely negatively impacted our new sales . in addition , venezuela , which has historically been one of our top markets , has experienced economic and social turmoil , which has negatively impacted our sales in the country , decreasing 10 % year over year based upon total premiums from 2016 to 2017 . endowment sales represent a significant portion of new business sales internationally with the 20-year endowment and endowment to age 65 as our top products . in addition , most of our life insurance policies contain a policy loan provision , which allows the policyholder to use cash value within a policy to pay premiums .
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” executive overview recent developments on april 14 , 2014 , we entered into a master acquisition agreement ( the “ acquisition agreement ” ) with zebra technologies corporation to sell our enterprise business for $ 3.5 billion in cash . the transaction closed on october 27 , 2014. as a result of the sale , we have reported the enterprise business as a discontinued operation in our consolidated financial statements and footnotes for all periods presented . our business we are a leading global provider of mission-critical communication infrastructure , devices , accessories , software , and services . our products and services help government , public safety and commercial customers improve their operations through increased effectiveness , efficiency , and safety of their mobile workforces . we serve our customers with a global footprint of sales in more than 100 countries based on our industry leading innovation and a deep portfolio of products and services . we conduct our business globally and manage it by two segments : products : the products segment offers an extensive portfolio of infrastructure , devices , accessories , and software . the primary customers of the products segment are government , public safety and first-responder agencies , municipalities , and commercial and industrial customers who operate private communications networks and manage a mobile workforce . our products segment is comprised of devices and systems . devices includes two-way portable and vehicle mounted radios , accessories , and software features and upgrades . systems includes the radio network core and central processing software , base stations , consoles , repeaters , and software applications and features . in 2014 , the segment 's net sales were $ 3.8 billion , representing 65 % of our consolidated net sales . services : the services segment provides a full set of service offerings for government , public safety and commercial communication networks including : ( i ) integration services , ( ii ) lifecycle support services , ( iii ) managed services , ( iv ) smart public safety solutions , and ( v ) iden services . integration services includes implementation , optimization , and integration of networks , devices , software , and applications . lifecycle support services includes lifecycle planning , software and hardware maintenance , security patches and upgrades , call center support , network monitoring , and repair services . managed services includes managing and operating customer systems and devices at defined services levels . smart public safety solutions includes software and hardware solutions for our customers ' `` command & control '' centers providing video monitoring support , data analytics , and content management with the objective of enabling smart policing . iden services consists primarily of hardware and software maintenance services for our legacy iden customers . in 2014 , the segment 's net sales were $ 2.1 billion , representing 35 % of our consolidated net sales . what were our 2014 financial results ? net sales were $ 5.9 billion in 2014 compared to $ 6.2 billion in 2013 . we had an operating loss of $ 1.0 billion in 2014 , compared to operating earnings of $ 947 million in 2013 . included in the 2014 operating loss was a $ 1.9 billion pension settlement loss , including related expenses . loss from continuing operations was $ 697 million , or $ ( 2.84 ) per diluted common share in 2014 , compared to earnings of $ 933 million , or $ 3.45 per diluted common share in 2013 . cash used for operating activities was $ 685 million in 2014 , compared to cash provided by operating activities of $ 555 million in 2013 . we contributed $ 1.3 billion to our pension plans during 2014 , compared to $ 182 million in 2013 . we provided cash to shareholders through repurchases of $ 2.5 billion in shares and $ 318 million in cash dividends during 2014 . what were the financial results for our two segments in 2014 ? in the products segment , net sales were $ 3.8 billion in 2014 , a decrease of $ 302 million , or 7 % , compared to $ 4.1 billion in 2013 . on a geographic basis , net sales decreased in north america , latin america and asia pacific and middle east ( `` apme '' ) and increased in europe and africa ( `` ea '' ) compared to 2013. operating losses were $ 667 million in 2014 , compared to operating earnings of $ 639 million in 2013 . operating margin decreased in 2014 to ( 17.5 ) % from 15.6 % in 2013 . approximately $ 1.3 billion of pension settlement losses were allocated to the products segment in 2014. in the services segment , net sales were $ 2.1 billion in 2014 , a decrease of $ 44 million , or 2 % , compared to $ 2.1 billion in 2013 . on a geographic basis , net sales decreased in north america , latin america and apme and increased in ea , compared to 2013 . operating losses were $ 339 million in 2014 , compared to operating earnings of $ 308 million in 25 2013 . operating margin decreased in 2014 to ( 16.3 ) % from 14.5 % in 2013 . approximately $ 584 million of pension settlement losses were allocated to the services segment in 2014. what were our major accomplishments in 2014 ? 2014 was a transformational year both structurally and financially . in addition to selling our enterprise business for $ 3.5 billion , we restructured our operations and financial profile to become a more focused , streamlined business . we had pockets of growth in 2014 , most notably in ea , while the north america downturn during the first half of the year pressured overall top-line growth . north america ended 2014 with growth driven by record fourth quarter sales and backlog . story_separator_special_tag our effective tax rate in 2014 was favorably impacted by : ( i ) state tax benefits on the pension settlement loss , ( ii ) $ 29 million in tax benefits associated with the net reduction in unrecognized tax benefits and ( iii ) $ 19 million in net reduction in our deferred tax liability for undistributed foreign earnings primarily due to changes in permanent reinvestment assertions . these benefits were partially offset by tax expense for the establishment of a $ 55 million valuation allowance on certain foreign deferred tax assets . our negative effective tax rate in 2013 was lower than the u.s. statutory tax rate of 35 % due to : ( i ) $ 337 million associated with excess foreign tax credits on undistributed foreign earnings , ( ii ) a $ 25 million reduction in our deferred tax liability for undistributed foreign earnings primarily due to changes in permanent reinvestment assertions , and ( iii ) a $ 9 million tax benefit for r & d tax credits . 29 our effective tax rate will change from period to period based on non-recurring events , such as the settlement of income tax audits , changes in valuation allowances and the tax impact of significant unusual or extraordinary items , as well as recurring factors including changes in the geographic mix of income and effects of various global income tax strategies . earnings ( loss ) from continuing operations attributable to motorola solutions , inc. we had a net loss from continuing operations attributable to motorola solutions , inc. of $ 697 million , or $ 2.84 per diluted share , in 2014 , compared to net earnings from continuing operations attributable to motorola solutions , inc. of $ 933 million , or $ 3.45 per diluted share , in 2013 . the decrease in net earnings ( loss ) from continuing operations attributable to motorola solutions , inc. in 2014 , as compared to 2013 , was primarily driven by : ( i ) a $ 1.9 billion charge related to the settlement of a u.s. pension plan and ( ii ) a $ 278 million decrease in gross margin primarily due to sales declines and a change in sales mix , partially offset by : ( i ) a $ 146 million decrease in sg & a and ( ii ) an $ 80 million decrease in r & d . the decrease in earnings ( loss ) per diluted share from continuing operations was driven by lower net earnings , partially offset by a reduction in shares outstanding as a result of our share repurchase program . earnings from discontinued operations in 2014 , we had $ 2.0 billion in earnings from discontinued operations , net of tax , or $ 8.13 per diluted share , compared to $ 166 million of earnings from discontinued operations , net of tax , or $ 0.61 per diluted share , in 2013 . the earnings from discontinued operations in both 2014 and 2013 were related to the enterprise business . the increase in 2014 , as compared to 2013 is primarily related to the gain from the sale of the enterprise business of $ 1.9 billion . results of operations— 2013 compared to 2012 net sales net sales were $ 6.2 billion in 2013 compared to $ 6.3 billion in 2012. the slight decrease in net sales reflects a $ 127 million , or 3 % , decrease in the products segment driven by declines in : ( i ) north america , reflecting lower devices sales , ( ii ) apme , as a result of lower devices and systems sales , and ( iii ) latin america , reflecting lower systems sales , partially offset by double-digit growth in ea as a result of higher systems sales . the decrease in net sales was offset by an $ 85 million , or 4 % , increase in net sales relating to the services segment driven by increases in : ( i ) north america , as a result of higher net sales in lifecycle support services and integration services and ( ii ) ea , reflecting higher integration services sales , partially offset by a decline in apme as a result of lower integration and managed services sales . gross margin gross margin was $ 3.1 billion , or 49.9 % of net sales in 2013 , compared to $ 3.2 billion , or 50.9 % of net sales , in 2012. the decrease in gross margin percentage is driven primarily by : ( i ) a decline in gross margin as a percentage of sales in north america , as a result of sales mix between the products and services segments , ( ii ) a decline in gross margin as a percentage of sales in apme , relating to lower gross margin as a percentage of sales in devices and systems , and ( iii ) a decline in gross margin as a percentage of sales in ea , as a result of lower gross margin as a percentage of sales in integration services . selling , general and administrative expenses sg & a expenses decreased 10 % to $ 1.3 billion , or 21.4 % of net sales in 2013 , compared to $ 1.5 billion , or 23.5 % of net sales in 2012. the decrease in sg & a is primarily driven by : ( i ) a number of structural cost improvements , including defined benefit expenses , and ( ii ) decreases in variable compensation expenses . research and development expenditures r & d expenditures decreased 4 % to $ 761 million , or 12.2 % of net sales in 2013 , compared to $ 790 million , or 12.6 % of net sales in 2012. the decrease in r & d expenditures is primarily due to : ( i ) reduced compensation expenses and ( ii ) reduced spending in certain development programs , such as iden .
| results of operations replace_table_token_3_th * amounts attributable to motorola solutions , inc. common shareholders . * * percentages may not add due to rounding . geographic market sales by locale of end customer replace_table_token_4_th results of operations— 2014 compared to 2013 net sales net sales were $ 5.9 billion in 2014 , down $ 346 million , or 6 % , compared to $ 6.2 billion in 2013 . the decrease in net sales reflects a $ 302 million , or 7 % , decrease in the products segment driven by declines in : ( i ) north america and apme , reflecting lower devices and systems sales and ( ii ) latin america , reflecting lower devices sales , partially offset by single-digit growth in ea 28 as a result of higher devices sales . in addition , the decrease in net sales includes a $ 44 million , or 2 % , decrease in net sales relating to the services segment driven by declines in : ( i ) north america , as a result of declines in iden services and integration services , ( ii ) apme , reflecting lower sales in lifecycle support services and integration services , and ( iii ) latin america , reflecting a decrease in iden services , partially offset by an increase in ea , as a result of increased integration and managed services sales . sales in 2014 were positively impacted in the fourth quarter by increased order activity and faster-than-expected conversion of certain orders . gross margin gross margin was $ 2.8 billion , or 48.1 % of net sales in 2014 , compared to $ 3.1 billion , or 49.9 % of net sales , in 2013 .
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the oil and gas segment explores for , develops and produces oil and condensate , natural gas liquids ( ngls ) and natural gas . the chemical segment ( oxychem ) mainly manufactures and markets basic chemicals and vinyls . the midstream , marketing and other segment ( midstream and marketing ) gathers , processes , transports , stores , purchases and markets oil , condensate , ngls , natural gas , carbon dioxide ( co 2 ) and power . it also trades around its assets , including transportation and storage capacity , and trades oil , ngls , gas and power . additionally , the midstream and marketing segment invests in entities that conduct similar activities . 12 strategy general through its operations , occidental aims to maximize total returns to stockholders using the following strategies : ø increase oil and gas segment production through development programs focused on large , long-lived conventional and unconventional oil and gas assets with long-term growth potential , and acquisitions ; ø focus on lowering finding and developing , production and maintenance costs ; ø allocate and deploy capital with a focus on achieving returns well in excess of its cost of capital ; ø maintain financial discipline and a strong balance sheet ; and ø provide consistent dividend growth . in conducting its business , occidental accepts commodity , engineering and limited exploration risks . capital is employed to operate all assets in a safe and environmentally sound manner . occidental seeks to limit its financial and political risks . the fourth quarter of 2014 saw a sharp decline in oil and ngls prices . price volatility is inherent in the oil and gas business , and in order to manage this risk , occidental maintains a low debt to capitalization ratio and retains sufficient cash on hand . occidental will focus on lowering its costs which over time management believes will correlate to increasing and decreasing oil prices . with respect to the strategic initiatives announced last year , occidental has : ø completed the separation of its california assets , leading to the creation of california resources corporation ( california resources ) , an independent , publicly traded company ; ø sold its interests in the hugoton field , resulting in proceeds of $ 1.3 billion ; ø sold a portion of its interest in plains gp holdings ( plains pipeline ) for proceeds of $ 1.7 billion while continuing to hold an approximate 13 percent interest ; and ø sold its interest in the bridgetex pipeline , resulting in proceeds of $ 1.1 billion while maintaining access to united states gulf markets through this pipeline . as a result of these strategic initiatives , occidental ended the year with $ 7.8 billion in total cash , cash equivalents and restricted cash , which exceeds its long-term debt of $ 6.8 billion . the following describes the application of occidental 's overall strategy to each of its operating segments : oil and gas the oil and gas business implements occidental 's strategy primarily by : ø operating and developing areas where reserves are known to exist and to increase production from core areas , primarily in the permian basin and parts of the middle east ; ø using enhanced oil recovery techniques , such as co 2 , water and steam floods , in mature fields ; ø focusing a sizable portion of occidental 's drilling activities on unconventional opportunities , primarily in the permian basin ; and ø maintaining a disciplined approach towards domestic acquisitions and divestitures and the execution of international contracts , with an emphasis on creating value and further enhancing occidental 's existing positions . over the past several years , occidental built a large portfolio of growth-oriented assets in the united states . in 2014 , occidental spent a much larger portion of its investment capital on the development of this portfolio . acquisitions in 2014 were approximately $ 1.6 billion , and comprised mainly of permian basin properties . this acquisition activity reflects occidental 's strategy to capitalize on the opportunities presented by its existing portfolio of assets and strong balance sheet . management believes occidental 's oil and gas segment growth will occur primarily through exploitation and development opportunities in the permian basin and focused international projects in the middle east . chemical the primary objective of oxychem is to generate cash flow in excess of its normal capital expenditure requirements and achieve above-cost-of-capital returns . the chemical segment 's strategy is to be a low-cost producer in order to maximize its cash flow generation . oxychem concentrates on the chlorovinyls chain beginning with chlorine , which is co-produced with caustic soda , and markets both to third parties . in addition , chlorine , together with ethylene , is converted through a series of intermediate products into pvc . oxychem 's focus on chlorovinyls allows it to maximize the benefits of integration and take advantage of economies of scale . capital is employed to sustain production capacity and to focus on projects and developments designed to improve the competitiveness of segment assets . acquisitions and plant development opportunities may be pursued when they are expected to enhance the existing core chlor-alkali and pvc businesses or take advantage of other specific opportunities . in early 2014 , oxychem completed construction and began operating a 182,500 ton-per-year membrane chlor-alkali plant in tennessee and , through a 50/50 joint venture with mexichem s.a.b . de c.v. , broke ground on a 1.2 billion pound-per-year ethylene cracker at the oxychem ingleside facility . the joint venture provides an opportunity to capitalize on the advantage that u.s. shale gas development has presented to u.s. chemical producers by providing low-cost ethane as a raw material 13 and is expected to begin operating in 2017. in the third quarter , oxychem completed construction and began operating a 162,000 tons per year hydrochloric acid synthesis unit at its existing niagara falls , n.y. facility . story_separator_special_tag due to deteriorating market conditions , occidental has recorded a pre-tax impairment charge of $ 801 million for its investments in bahrain . iraq in 2010 , occidental and other consortium members signed a 20-year contract with the south oil company of iraq to develop the zubair field . in 2013 , the terms were improved reflecting a reduction in the targeted production level to 850,000 boe per day and a five-year extension to 2035. occidental 's interest in this contract entitles occidental to receive oil for cost recovery and a remuneration fee . delays in implementation of development plans have limited the amount of production from iraq . occidental does not know when development activities will reach desired levels . occidental 's share of production from iraq was approximately 13,000 boe per day in 2014 . libya occidental participates with the libyan national oil company in the sirte basin producing operations . these agreements continue through 2032. in 2014 , occidental suspended exploration activities due to civil unrest in the country . production disruptions continued throughout 2014 due to oil field and export terminal strikes and closures . occidental does not know when operations will return to normal levels . the 2014 production volumes were insignificant . oman in oman , occidental is the operator of block 9 and block 27 , with a 65-percent working interest in each block ; block 53 , with a 45-percent working interest ; and block 62 , with a 48-percent working interest . the term for block 9 continues through december 2015 , with a 10-year extension right for certain areas , subject to government approval . the term for block 27 expires in 2035. a 30-year psc for the mukhaizna field ( block 53 ) was signed with the government of oman in 2005 , pursuant to which occidental assumed operation of the field . by the end of 2014 , occidental had drilled more than 2,400 new wells and continued implementation of a major steamflood project . in 2014 , the average gross daily production was 122,000 boe per day , which was over 15 times higher than the production rate in september 2005 when occidental assumed operations . in 2008 , occidental was awarded a 20-year contract for block 62 , subject to declaration of commerciality , where it is pursuing development and exploration opportunities targeting gas and condensate resources . in 2014 , occidental signed a five year extension for the initial phase for the discovered non associated gas area ( natural gas not in contact with crude oil in a reservoir ) for block 62. occidental 's share of production from oman was approximately 76,000 boe per day in 2014 . qatar in qatar , occidental is the operator at idd el shargi north dome ( isnd ) and idd el shargi south dome ( issd ) , with a 100-percent working interest in each , and al rayyan ( block 12 ) , with a 92.5-percent working interest . the terms for isnd , issd and block 12 expire in 2019 , 2022 and 2017 , respectively . in 2014 , occidental continued to develop the isnd field to improve ultimate recovery in all existing contract reservoirs . occidental 's dolphin investment comprises two separate economic interests through which occidental owns : ( i ) a 24.5-percent undivided interest in the upstream operations under a dpsa with the government of qatar to develop and produce natural gas and ngls in qatar 's north field through mid-2032 , with a provision to request a five-year extension ; and ( ii ) a 24.5-percent interest in the stock of dolphin energy limited ( dolphin energy ) , which operates a pipeline and is discussed further in `` midstream and marketing segment - pipeline transportation . '' occidental 's share of production from qatar was approximately 107,000 boe per day in 2014. united arab emirates in 2011 , occidental acquired a 40-percent participating interest in the al hosn gas project , joining with the abu dhabi national oil company ( adnoc ) in a 30-year joint venture agreement . once fully operational , the project is anticipated to produce over 450 mmcf per day of natural gas and 75,000 barrels per day of ngls and condensate , of which occidental 's net share would be over 180 mmcf per day and 30,000 barrels per day , respectively . initial start up of production from this project commenced in january 2015 and is proceeding as planned . additionally , the al hosn gas project includes gas processing facilities which are discussed further in `` midstream and marketing segment - gas processing plants and co 2 fields and facilities '' . occidental conducts a majority of its middle east business development activities through its office in abu dhabi , which also provides various support functions for occidental 's middle east/north africa oil and gas operations . yemen in yemen , occidental owns interests in block 10 east shabwa field , which extends through december 2015 with a 40.4-percent interest that includes an 11.8-percent interest held in an unconsolidated entity , and block s-1 an nagyah field , which is an occidental-operated block with a 75-percent working interest that extends into 2023. given the political instability and civil unrest in yemen , production levels may be unpredictable for the remainder of the block 10 contract term and it is unlikely the contract will be extended . occidental 's share of production from the yemen properties was approximately 10,000 boe per day in 2014 . 17 latin america assets latin america 1. bolivia 2. colombia bolivia occidental holds working interests in the tarija , chuquisaca and santa cruz regions of bolivia , which produce gas . occidental 's share of production from bolivia was 2,000 boe per day in 2014. colombia occidental has a working interest in the la cira-infantas area and has operations within the llanos norte basin .
| business review the following chart shows occidental 's total volumes for the last five years : worldwide production volumes ( thousands boe/day ) notes : excludes volumes from the argentine operations sold in 2011 and california resources which was separated on november 30 , 2014 into a separate publicly traded company . both operations have been reflected as discontinued operations for all applicable periods . includes hugoton ( sold in april 2014 ) average daily production volumes of 6mboe , 18mboe , 19mboe , 20mboe and 22mboe for 2014 , 2013 , 2012 , 2011 and 2010 , respectively . includes average daily production of 5mboe for 2010 related to a noncontrolling interest in a colombian subsidiary . united states assets united states 1. permian basin 2. midcontinent and other interests permian basin occidental 's permian basin production is diversified across a large number of producing areas . the basin extends throughout southwest texas and southeast new mexico and is one of the largest and most active oil basins in the united states , accounting for approximately 16 percent of the total united states oil production . occidental is the largest operator and the largest producer of oil in the permian basin with an approximate 13 percent net share of the total oil production in the basin . occidental also produces and processes natural gas and ngls in the basin . occidental manages its permian basin operations through two business units : permian resources , which includes growth-oriented unconventional opportunities and permian eor ( enhanced oil recovery ) , which utilizes enhanced oil recovery techniques such as ; co 2 floods and waterfloods . during 2014 , capital efficiency efforts reduced drilling costs per well by 8 percent for the permian basin operations . in addition , management began transitioning to a horizontal drilling program to take advantage of shale and other unconventional opportunities .
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for the year ended december 31 , 2015 , the company excluded 14,336,083 anti-dilutive shares resulting from exercise of stock options , warrants and shares issuable in connection with convertible debentures , and for the year ended december 31 , 2014 , the f-10 american dg energy inc. company excluded 15,763,083 anti-dilutive shares resulting from exercise of stock options , warrants and unvested restricted stock . all shares issuable for both years were anti-dilutive because of the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review “ item 1a . risk factors ” beginning on page 12 of this annual report , for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we sell energy in the form of electricity , heat , hot water and cooling to our customers under long-term energy sales agreements ( with a standard term of 10 to 15 years ) . our typical sales model is to own and install energy systems in our customers ' buildings and sell the energy produced by those systems back to the customers at a cost set by a negotiated formula in our customer contracts . each month we obtain readings from our energy meters to determine the amount of energy produced for each customer . we use a contractually defined formula to multiply these readings by the appropriate published price of energy ( electricity , natural gas or oil ) from each customer 's local energy utility , to derive the value of our monthly energy sale , which includes a negotiated discount . our revenues per customer on a monthly basis vary based on the amount of energy produced by our energy systems and the published price of energy ( electricity , natural gas or oil ) from our customers ' local energy utility that month . our revenues commence as new energy systems become operational . as of december 31 , 2015 , we had 121 energy systems operational . some of our customers choose to purchase the energy system from us rather than have it owned by american dg energy . in this case , we account for revenue and costs using the percentage-of-completion method of accounting . under the percentage-of-completion method of accounting , revenues are recognized by applying percentages of completion to the total estimated revenues for the respective contracts . costs are recognized as incurred . the percentages of completion are determined by relating the actual cost of work performed to date to the current estimated total cost at completion of the 16 american dg energy inc. respective contracts . when the estimate on a contract indicates a loss , the company 's policy is to record the entire expected loss , regardless of the percentage of completion . the excess of contract costs and profit recognized to date on the percentage-of-completion accounting method in excess of billings is recorded as unbilled revenue . billings in excess of related costs and estimated earnings is recorded as deferred revenue . customers may buy out their long-term obligation under energy contracts and purchase the underlying equipment from the company . any resulting gain on these transactions is recognized over the payment period in the accompanying consolidated statements of operations . revenues from operation and maintenance services , including shared savings are recorded when provided and verified . we have experienced total net losses since inception of approximately $ 40.7 million . for the foreseeable future , we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan . the cash and cash equivalents available at december 31 , 2015 will , we believe , provide sufficient working capital to meet our anticipated expenditures including installations of new equipment for the next twelve months ; however , as we continue to grow our business by adding more energy systems , the cash requirements will increase . we believe that our cash and cash equivalents available at december 31 , 2015 and our ability to control certain costs , including those related to general and administrative expenses , will enable us to meet our anticipated cash expenditures through march 30 , 2017 . beyond march 30 , 2017 . we may need to raise additional capital through a debt financing or equity offering to meet our operating and capital needs . there can be no assurance , however , that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms , if at all . the company 's operations are comprised of one business segment . our business is selling energy in the form of electricity , heat , hot water and cooling to our customers under long-term sales agreements . in 2015 , the company began executing the initiative . the initiative is focused on effectively investing the company 's capital by increasing the performance of its existing sites . the goal of the initiative is to make strategic capital improvements aimed at increasing productivity of the existing portfolio while optimizing the company 's margins and increasing cash flow . the company expects that the initiative will provide a strong foundation of high performing assets that may be used to fund future growth . see `` item 1 business '' for a description of the initiative . related party transactions see `` note 10 - related parties '' to the consolidated financial statements contained herein . story_separator_special_tag partially offset by lower operating expenses . story_separator_special_tag in such case , the company might need to suspend new installation of energy systems and significantly reduce its operating costs until market conditions improve . summary of financial transactions the company has raised the majority of its funds through convertible debentures , its subsidiaries convertible debentures , unregistered private placements and public offerings of its common stock . on may 23 , 2011 and november 30 , 2011 , the company issued $ 19,400,000 aggregate principal amount of debentures to john hatsopoulos , the company 's chief executive officer and a principal owner of the company . see financial statements , note 6 `` convertible debentures '' for the details and a full history of these convertible debentures . on august 6 , 2014 , in a public offering , the company issued ; 2,650,000 shares of its common stock , three-year warrants to purchase up to 2,829,732 shares and five-year warrants to purchase an additional 112,538 to the underwriters with an exercise price of $ 1.8875 per share for net proceeds of $ 0 . on october 3 , 2014 , the company consummated a series of transactions whereby , under an agreement with the holders of the company 's existing 6 % senior unsecured convertible debentures due 2018 , or the convertible debentures , it paid the interest due under the convertible debentures through the next semiannual payment date of november 25 , 2014 by 19 american dg energy inc. delivering to the holders of the convertible debentures 1,164,000 shares of common stock of its subsidiary eurosite power , which were owned by the company . the company also delivered 8,245,000 additional shares of eurosite power it owned to the holders of the convertible debentures for prepayment of all interest which would become due under the convertible debentures through the maturity date of may 25 , 2018. following the payment of all current and future interest under the convertible debentures , the company exchanged the convertible debentures which bore interest at an annual rate of 6 % for non-interest bearing convertible debentures with all other terms including the principal amount , maturity date , and conversion terms and privileges remaining unchanged.the face amount of the convertible debentures at december 31 , 2014 was $ 19,400,000. on june 14 , 2013 , eurosite power entered into subscription agreements with certain investors , including the company , for a private placement of an aggregate principal amount of $ 4,000,000 of 4 % senior convertible notes due 2015. in connection with the private placement , the company exchanged certain notes it held , which had a principal balance of $ 1,100,000 , for a like principal amount of the 4 % senior convertible notes due 2015 and paid in cash any accrued but unpaid interest on those notes . effective april 15 , 2014 and april 24 , 2014 eurosite power , entered into subscription agreements with john n. hatsopoulos , the co-chief executive officer , certain other investors , and a principal owner of the company for the sale of a $ 1,450,000 , 4 % senior convertible note due 2018. on september 19 , 2014 , john hatsopoulos loaned eurosite power $ 3,000,000 without interest pursuant to a promissory note ( the `` loan '' ) . the loan matures upon a substantial capital raise or on september 19 , 2019. prepayment of principal may be made at any time without penalty . the proceeds of the loan will be used in connection with the development and installation of current and new energy systems in the united kingdom and europe . on december 30 , 2014 , the eurosite power amended and restated the existing promissory note to provide for interest at a rate of 1.85 % . during 2015 the eurosite made a prepayment of $ 1,000,000 on this note . as of december 31 , 2015 , the outstanding balance on this loan is $ 2,000,000 . on september 19 , 2014 , the board of directors of the company approved a common stock repurchase program that shall not exceed 1,000,000 shares of common stock and shall not exceed $ 1,100,000 of cost . the approval allows for purchases over a 24 month period at prices not to exceed $ 1.30 per share . on october 3 , 2014 , eurosite power , entered into convertible note amendment agreements , or the note amendment agreements , with the company , john n. hatsopoulos and a principal owner of the company , as well as certain separate convertible note conversion agreements , or the note conversion agreements , with certain other investors , whereby $ 3,050,000 of eurosite power 's convertible notes were converted into 6,100,000 shares of eurosite power common stock at a conversion price of $ 0.50 per share . on october 8 , 2014 , eurosite power entered into a subscription agreement with an offshore individual investor , pursuant to which the investor purchased 2,000,000 shares of eurosite power 's common stock and a three-year warrant to purchase up to 2,000,000 shares of eurosite power 's common stock with an exercise price of $ 0.60 per share for an aggregate purchase price of $ 1,000,000. on november 12 , 2014 , eurosite power entered into a subscription agreement with a european investor , pursuant to which the investor purchased 1,000,000 shares of eurosite power 's common stock and a three-year warrant to purchase up to 1,000,000 shares of eurosite power 's common stock with an exercise price of $ 0.60 per share for an aggregate purchase price of $ 500,000. on january 29 , 2015 , the company entered into an exchange agreement , or the exchange agreement , with in holdings corp. , or in holdings . in part , the exchange agreement provided that in holdings agreed to transfer to the company 1,320,000 shares of the company 's common stock , or the adge shares , and that in exchange , the company agreed to transfer to in holdings 1,320,000 shares of the common stock of eurosite power .
| results of operations fiscal year ended december 31 , 2015 compared with fiscal year ended december 31 , 2014 revenues revenues in 2015 were $ 8,556,917 compared to $ 8,567,553 for the same period in 2014 , a decrease of $ 10,636 or 0.1 % . while energy production in 2015 increased mainly due to increased energy system performance under the initiative , revenues decreased primarily due to the loss of revenue from eight energy sites under the restructuring of the company 's joint venture , adgny . our on-site utility energy revenues in 2015 increased to $ 7,829,022 compared to $ 7,808,933 for the same period in 2014 , an increase of $ 20,089 or 0.3 % . as part of our on-site utility energy revenue , the revenue recognized from demand response activity was $ 137,896 and $ 247,518 , for the years ended december 31 , 2015 and 2014 , respectively . our turnkey and other revenues in 2015 decreased to $ 727,895 compared to $ 758,620 for the same period in 2014 . the revenue from our turnkey projects can vary substantially per period . during 2015 , we operated 121 energy systems , at 69 locations , representing 8,323 kw of installed electricity plus thermal energy , compared to 123 energy systems at 69 locations , representing 8,186 kw of installed electricity plus thermal energy for the same period in 2014 . the revenue per customer on a monthly basis is based on the sum of the amount of energy produced by our energy systems and a contractually negotiated formula , which takes into account the monthly published price of energy ( electricity , natural gas or oil ) from each customer 's local utility , less an applicable discount . our revenues commence as new energy systems become operational .
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level 2 significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities ; quoted prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data . level 3 significant unobservable inputs that reflect a reporting entity 's own assumptions about the assumptions that market participants would use in pricing story_separator_special_tag the following presents a discussion and analysis of farmers ' financial condition and results of operations by its management . the review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2011 , 2010 and 2009. financial information for prior years is presented when appropriate . the objective of this financial review is to enhance the reader 's understanding of the accompanying tables and charts , the consolidated financial statements , notes to financial statements , and financial statistics appearing elsewhere in this annual report on form 10-k. where applicable , this discussion also reflects management 's insights of known events and trends that have or may reasonably be expected to have a material effect on farmers ' business , financial condition or results of operations . cautionary note regarding forward looking statements discussions in this annual report on form 10-k that are not statements of historical fact ( including statements that include terms such as will , may , should , believe , expect , anticipate , estimate , project , intend , and plan ) are forward-looking statements that involve risks and uncertainties . any forward-looking statement is not a guarantee of future performance , and actual future results could differ materially from those contained in forward-looking information . factors that could cause or contribute to such differences include , without limitation , risks and uncertainties detailed from time to time in farmers ' filings with the securities and exchange commission , including without limitation the risk factors disclosed in item 1a , risk factors of this annual report on form 10-k. 27 many of these factors are beyond the company 's ability to control or predict , and readers are cautioned not to put undue reliance on those forward-looking statements . the following list , which is not intended to be an all-encompassing list of risks and uncertainties affecting the company , summarizes several factors that could cause the company 's actual results to differ materially from those anticipated or expected in these forward-looking statements : general economic conditions in market areas where farmers conducts business , which could materially impact credit quality trends ; business conditions in the banking industry ; the regulatory environment ; fluctuations in interest rates ; demand for loans in the market areas where farmers conducts business ; rapidly changing technology and evolving banking industry standards ; competitive factors , including increased competition with regional and national financial institutions ; new service and product offerings by competitors and price pressures ; and other similar items . other factors not currently anticipated may also materially and adversely affect farmers ' business , financial condition , results of operations or cash flows . there can be no assurance that future results will meet expectations . while the company believes that the forward-looking statements in this annual report on form 10-k are reasonable , the reader should not place undue reliance on any forward-looking statement . in addition , these statements speak only as of the date made . farmers does not undertake , and expressly disclaims , any obligation to update or alter any statements whether as a result of new information , future events or otherwise , except as may be required by applicable law . story_separator_special_tag enhanced by bank owned life insurance income from death benefit proceeds of $ 510 thousand , compared to $ 46 thousand in 2011. the efficiency ratio is calculated as follows : non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income , excluding security gains and losses and intangible amortization . this ratio is a measure of the expense incurred to generate a dollar of revenue . management will continue to closely monitor and keep the increases in other expenses to a minimum . income taxes income tax expense totaled $ 2.5 million for 2011 and 2010. income taxes are computed using the appropriate effective tax rates for each period . the effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income . the effective income tax rate was 21.6 % for 2011 and 22.1 % for 2010. refer to note 14 to the consolidated financial statements for additional information regarding the effective tax rate . comparison of operating results for the years ended december 31 , 2010 and 2009. the company 's net income totaled $ 9.0 million during 2010 , compared to $ 5.8 million for 2009. on a per share basis , diluted earnings per share were $ 0.66 for 2010 , as compared to $ 0.44 for 2009. for 2010 , the return on average equity was 10.46 % , as compared to 7.32 % for 2009. the return on average assets was 0.87 % for 2010 and 0.60 % for 2009. net interest income for 2010 , taxable equivalent net interest income increased $ 4.0 million , or 11.5 % , more than 2009. interest-earning assets averaged $ 950.9 million during 2010 , increasing $ 50.7 million , or 5.63 % , compared to 2009. for 2010 , the net interest margin , measured on a fully taxable equivalent basis , was 4.10 % , in comparison to 3.88 % for 2009. total taxable equivalent interest income was $ 50.0 million for 2010 , which was $ 1.5 million less than the $ 51.5 million reported in 2009. this decrease was primarily the result of a decline on the yield of earning assets , offset by growth in the level of average earning assets . average loan balances increased $ 17.3 story_separator_special_tag deposits increased $ 79.1 million in 2011 , compared to a $ 16.5 million decrease in 2010. in addition , $ 13.8 million of the change in cash from financing activities is a result of the issuance of farmers ' common and treasury shares during the public offering during the first quarter of 2011. also , short-term borrowings decreased $ 7.5 million in 2011 , compared to a $ 20.3 million decrease in 2010. loan portfolio maturities and sensitivities of loans to interest rates the following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated . balances include unamortized loan origination fees and costs . replace_table_token_9_th the following schedule sets forth maturities based on remaining scheduled repayments of principal for commercial and commercial real estate loans listed above as of december 31 , 2011 : replace_table_token_10_th the amounts of commercial and commercial real estate loans as of december 31 , 2011 , based on remaining scheduled repayments of principal , are shown in the following table : replace_table_token_11_th total loans were $ 571.8 million at year-end 2011 , compared to $ 590.4 million at year-end 2010. this represents a decrease of 3.14 % . the decline in loans , particularly in the first quarter of 2011 , was related to slow economic growth . farmers believes its demand experience for business and consumer credit is consistent with the experience of other banks in the federal reserve 's fourth district and banks nationally per the federal reserve beige book . loans comprised 58.6 % of the bank 's average earning assets in 2011 , compared to 63.0 % in 2010. the product mix in the loan portfolio includes commercial loans comprising 13.1 % , residential real estate loans 29.2 % , commercial real estate loans 34.6 % and consumer loans 23.1 % at december 31 , 2011 compared with 13.0 % , 30.0 % , 34.5 % and 22.5 % , respectively , at december 31 , 2010. loans contributed 72.4 % of total taxable equivalent interest income in 2011 and 74.5 % in 2010. loan yield was 5.97 % in 2011 , 114 basis points greater than the average rate for total earning assets . management recognizes that while the loan portfolio holds some of the bank 's ' highest yielding assets , it is inherently the most risky portfolio . accordingly , management attempts to balance credit risk versus return with conservative credit standards . management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process . to minimize risks associated with changes in the borrower 's future repayment capacity , the bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral . 32 consumer loans decreased from $ 132.8 million on december 31 , 2010 to $ 131.9 million on december 31 , 2011 , representing a 0.69 % decrease . management continues to target the automobile dealer network to purchase indirect installment loans . dealer paper was purchased using strict underwriting guidelines with an emphasis on quality . indirect loans comprise 90 % of the consumer loan portfolio . net loan losses in the consumer loan portfolio have decreased to $ 276 thousand in 2011 , as compared to $ 639 thousand in 2010. residential real estate mortgage loans decreased 5.67 % to $ 167.0 million at december 31 , 2011 , compared to $ 177.1 million in 2010. commercial real estate loans decreased 2.87 % from $ 203.9 million in 2010 to $ 198.0 million in 2011. farmers originated both fixed rate and adjustable rate mortgages during 2011. fixed rate terms are generally limited to fifteen year terms while adjustable rate products are offered with maturities up to thirty years . commercial loans at december 31 , 2011 decreased 2.30 % from year-end 2010 with outstanding balances of $ 74.9 million . the bank 's commercial loans are granted to customers within the immediate trade area of the bank . the mix is diverse , covering a wide range of borrowers , business types and local municipalities . the bank monitors and controls concentrations within a particular industry or segment of the economy . these loans are made for purposes such as equipment purchases , capital and leasehold improvements , the purchase of inventory , general working capital and small business lines of credit . summary of loan loss experience the following is an analysis of the allowance for loan losses for the periods indicated : replace_table_token_12_th 33 provisions charged to operations amounted to $ 3.7 million in 2011 , compared to $ 8.1 million in 2010 , a decrease of $ 4.4 million . this decrease is primarily due to fewer charge-offs and a lower level of total delinquencies from the year ago period , which are factors considered in management 's estimate of loan loss provisions and the adequacy of the allowance for loan losses . offsetting these improvements in credit quality , the ratio of nonperforming loans to total loans increased from 1.51 % at december 31 , 2010 to 1.93 % at december 31 , 2011. the change in this ratio was the result of an increase in nonperforming loans of $ 2.1 million from december 31 , 2010 and a decline in loan balances from $ 590.4 million at december 31 , 2010 to $ 571.8 million at december 31 , 2011. the provision for loan losses charged to operating expense is based on management 's judgment after taking into consideration all factors connected with the collectibility of the existing loan portfolio . management evaluates the loan portfolio in light of economic conditions , changes in the nature and volume of the loan portfolio , industry standards and other relevant factors .
| results of operations comparison of operating results for the years ended december 31 , 2011 and 2010. the company 's net income totaled $ 9.2 million during 2011 , compared to $ 9.0 million for 2010. on a per share basis , diluted earnings per share were $ 0.50 as compared to $ 0.66 diluted earnings per share for 2010. common comparative ratios for results of operations include the return on average assets and return on average stockholders ' equity . for 2011 , the return on average equity was 8.76 % , compared to 10.46 % for 2010. the return on average assets was 0.89 % for 2011 and 0.87 % for 2010. the results for 2011 included $ 1.8 million in gains on sales of securities , compared to $ 2.7 million in 2010. net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . for 2011 , taxable equivalent net interest income decreased $ 508 thousand , or 1.3 % , from 2010. interest-earning assets averaged $ 959.2 million during 2011 , increasing $ 8.2 million , or 0.87 % , compared to 2010. the company 's interest-bearing liabilities decreased 3.25 % from $ 868.1 million in 2010 to $ 839.9 million in 2011 . 28 the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicatorsnet interest spread and net interest margin .
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we believe the efficiency ratio provides investors with information that is useful in understanding our financial performance . we define our efficiency ratio as the ratio of our noninterest expense to our net gross income ( which equals our tax-equivalent net interest income plus noninterest income , as adjusted ) . 5. for the current quarter , all of the regulatory capital ratios in the table above , as well as the total risk-weighted assets and common equity tier 1 capital amounts listed in the table below , are estimates based on , and calculated in accordance with bank regulatory capital rules . all prior quarters reflect actual results . the december 31 , 2018 cet1 ratio listed in the tables ( i.e. , 12.89 % ) exceeds the sum of the required minimum cet1 ratio plus the fully phased-in capital conservation buffer ( i.e. , 7.00 % ) . 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 total risk weighted assets 2,046,495 1,999,849 1,934,890 1,889,719 1,856,242 common equity tier 1 capital 283,913 257,852 259,488 265,066 259,378 common equity tier 1 ratio 12.89 % 12.89 % 13.01 % 12.97 % 12.89 % # 26 critical accounting estimates the significant accounting policies , as described in note 2 - summary of significant accounting policies to the notes to the consolidated financial statements are essential in understanding the management discussion and analysis . many of the significant accounting policies require complex judgments to estimate the values of assets and liabilities . the company has procedures and processes in place to facilitate making these judgments . the more judgmental estimates are summarized in the following discussion . in many cases , there are numerous alternative judgments that could be used in the process of determining the inputs to the models . where alternatives exist , the company has used the factors that are believed to represent the most reasonable value in developing the inputs . actual performance that differs from our estimates of the key variables could impact the results of operations . allowance for loan losses : the allowance for loan losses represents management 's estimate of probable losses inherent in the company 's loan portfolio . the process for determining the allowance for loan losses is discussed in note 2 , summary of significant accounting policies and note 5 , loans , to the notes to the consolidated financial statements . the company evaluates the allowance at the portfolio segment level and the portfolio segments are commercial , commercial real estate , residential real estate , and consumer loans . due to the variability in the drivers of the assumptions used in this process , estimates of the portfolio 's inherent risks and overall collectability change with changes in the economy , individual industries , and borrowers ' ability and willingness to repay their obligations . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . key judgments used in determining the allowance for loan losses for individual commercial loans include credit quality indicators , collateral values and estimated cash flows for impaired loans . for pools of loans the company considers the historical net loss experience , and as necessary , adjustments to address current events and conditions , considerations regarding economic uncertainty , and overall credit conditions . the historical loss factors incorporate a rolling twelve quarter look-back period for each loan segment in order to reduce the volatility associated with improperly weighting short-term fluctuations . the process of determining the level of the allowance for loan losses requires a high degree of judgment . any downward trend in the economy , regional or national , may require the company to increase the allowance for loan losses resulting in a negative impact on the results of operations and financial condition . # 27 a. overview the following discussion and analysis focuses on and reviews our results of operations for each of the years in the three-year period ended december 31 , 2018 and our financial condition as of december 31 , 2018 and 2017 . the discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the consolidated financial statements and other financial data presented elsewhere in this report . when necessary , prior-year financial information has been reclassified to conform to the current-year presentation . summary of 2018 financial results : net income for 2018 of $ 36.3 million increased 23.7 % over the results for 2017 . diluted earnings per share ( `` eps '' ) for 2018 was $ 2.50 , an increase of $ 0.46 , or 22.5 % from eps in 2017 . financial performance ratios were strong for 2018 , including the return on average equity ( `` roe '' ) of 13.96 % , compared to 12.14 % for 2017 year , and return on average assets ( `` roa '' ) for 2018 of 1.27 % compared to 1.09 % for 2017 . factors contributing to the positive results for the current year compared to the comparable year are as follows : net interest income on a gaap basis increased 8.2 % to $ 84.0 million primarily due to the increase in total interest and dividend income of $ 11.8 million . net interest margin on a gaap basis improved to 3.07 % for 2018 as compared to 3.02 % for 2017 . interest and fees on loans increased $ 11.4 million for 2018 mainly due to strong loan growth and higher market rates . story_separator_special_tag # 28 economic trends and loan quality : economic growth has continued at a modest pace in the company 's market area , while labor markets remained exceptionally tight . residential real estate revealed mixed results , with the growth in the median sales price slower than the national average . nonperforming loans were $ 5.5 million at december 31 , 2018 , a decrease of $ 0.4 million , or 7.2 % , from year-end 2017 . the ratio of nonperforming loans to period-end loans at december 31 , 2018 was .25 % , a decrease f rom 0.31 % at december 31 , 2017 and less than the company 's peer group ratio of 0.61 % at september 30 , 2018 . loans charged-off ( net of recoveries ) against the allowance for loan losses was $ 1.0 million for 2018 , a decrease of $ 165 thousand from 2017 . the ratio of net charge-offs to average loans was 0.05 % for 2018 , compared to the peer group ratio of 0.08 % for the period ended september 30 , 2018 . at december 31 , 2018 , the allowance for loan losses was $ 20.2 million , representing 0.92 % of total loans , a decrease of 3 basis points from the december 31 , 2017 ratio . the company 's major loan segments are : ◦ commercial loans : these loans comprised approximately 6 % of the total loan portfolio at period-end . the business sector in the company 's service area , including small- and mid-sized businesses with headquarters in the area , continued to be in reasonably good financial condition at 2018 year-end . ◦ commercial real estate loans : these loans comprised approximately 22 % of the total loan portfolio at period-end . commercial property values in the company 's region have remained stable in recent periods . appraisals on nonperforming and watched cre properties are updated as deemed necessary , usually when the loan was downgraded or when there has been significant market deterioration since the last appraisal . ◦ residential real estate loans : these loans , including home equity loans , comprised approximately 39 % of the total loan portfolio at period-end . the residential real estate market in the company 's service area has been stable in recent periods . the company originated nearly all of the residential real estate loans currently held in the loan portfolio and applied conservative underwriting standards to loan originations . the company typically sells a portion of residential real estate mortgage originations into the secondary market . the ratio of the sales of originations to total originations tends to fluctuate from period to period , although this ratio has generally declined somewhat in recent periods . ◦ consumer loans ( primarily indirect automobile loans ) : these loans comprise approximately 33 % of the total loan portfolio at period-end . throughout the past three years , the company did not experience any significant increase in the delinquency rate or in the percentage of nonperforming loans in this segment . liquidity and access to credit markets : the company did not experience any liquidity problems or special concerns during 2018 , nor during the prior two years . the terms of the lines of credit with three correspondent banks , the federal home loan bank of new york ( `` fhlbny '' ) and the federal reserve bank have not changed ( see the general liquidity discussion on page 47 ) . in general , the company principally relies on asset-based liquidity ( i.e. , funds in overnight investments and cash flow from maturing investments and loans ) with liability-based liquidity as a secondary source . the main liability-based sources are overnight borrowing arrangements with three correspondent banks , an arrangement for overnight borrowing and term credit advances from the fhlbny , and an additional arrangement for short-term advances at the federal reserve bank discount window . regular liquidity stress tests are performed and the company periodically tests the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises , including a severe crisis . visa class b common stock : arrow 's subsidiary bank , glens falls national , like other visa member banks , bears some indirect contingent liability for visa 's direct liability arising out of certain antitrust claims involving merchant discounts to the extent that visa 's liability might exceed the amount funded in their litigation escrow account . on september 18 , 2018 , visa issued a press release announcing that they and other defendants entered into a settlement agreement with class plaintiffs in the related litigation case , and they expect the damage class plaintiffs to file a motion for preliminary approval of the settlement with the court . if the settlement is approved and the balance in the litigation escrow account is sufficient to cover the litigation claims and related expenses , arrow could potentially realize a gain on the receipt of visa class a common stock . at december 31 , 2018 , glens falls national held 27,771 shares of visa class b common stock , and utilizing the conversion ratio to class a common stock at that time , these class b shares would convert to 45,000 shares of visa class a common stock . since the litigation settlement is not certain , the company has not recognized any economic value for these shares .
| summary of significant accounting policies , and 5 , loans , to the notes to our consolidated financial statements . summary of the allowance and provision for loan losses ( dollars in thousands ) ( loans , net of unearned income ) replace_table_token_17_th # 35 allocation of the allowance for loan losses ( dollars in thousands ) replace_table_token_18_th the allowance for loan losses increased to $ 20.2 million at year-end 2018 from $ 18.6 million at year-end 2017 , an increase of 8.7 % . however , the loan portfolio increased at an even faster rate during 2018 ( the portfolio at year-end 2018 was up by 12.6 % compared to year-end 2017 ) , with the result that the allowance for loan losses as a percentage of period-end total loans declined to 0.92 % at year-end 2018 from 0.95 % at year-end 2017 , a decrease of 3.16 % . a variety of factors were considered in evaluating the adequacy of the allowance for loan losses at december 31 , 2018 and the provision for loan losses for the year , including : factors leading to an increase in the provision for loan losses : loan growth in all portfolio segments an increase in classified commercial and commercial real estate loans factors leading to a decrease in the provision for loan losses : a slight decrease in the qualitative loss factor for consumer loans a decrease in the qualitative and historical loss factors for residential real estate loans see note 5 , loans , to the notes to our consolidated financial statements for a complete list of all the factors used to calculate the provision for loan losses , including the factors that did not change during the year .
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we estimate economic lives as follows : building and improvements—fifteen to thirty five years machinery and laboratory equipment—five to fifteen years computer hardware and software—three to seven years furniture and office equipment— five to story_separator_special_tag ( amounts in thousands , except percentages and per share data ) in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a “ risk factors ” , and the “ note regarding forward-looking statements ” , included at the beginning of this annual report on form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends . the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. overview we are a biopharmaceutical company focused on serving patients with devastating and ultra-rare disorders through the innovation , development and commercialization of life-transforming therapeutic products . in our complement franchise , soliris is the first and only therapeutic approved for patients with either pnh , a life-threatening and ultra-rare genetic blood disorder defined by chronic uncontrolled complement activation leading to destruction of red blood cells , and ahus , a life-threatening and ultra-rare genetic disease characterized by chronic , uncontrolled complement activation and thrombotic microangiopathy . pnh and ahus are two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system . in our metabolic franchise , we market strensiq for the treatment of patients with hpp and kanuma for the treatment of patients with lal-d. hpp is a genetic ultra-rare disease characterized by defective bone mineralization that can lead to deformity of bones and other skeletal abnormalities . lal-d is a serious , life threatening ultra-rare disease in which genetic 50 mutations result in decreased activity of the lal enzyme leading to marked accumulation of lipids in vital organs , blood vessels and other tissues . we are also evaluating additional potential indications for eculizumab in other severe and devastating diseases in which uncontrolled complement activation is the underlying mechanism , and we are progressing in various stages of development with additional product candidates as potential treatments for patients with severe and life-threatening rare disorders . business highlights in june 2015 , we acquired all of the outstanding shares of common stock of synageva biopharma corp. ( synageva ) , a publicly-held clinical-stage biotechnology company , in a transaction accounted for under the acquisition method of accounting for business combinations . the merger consideration consisted of shares of our common stock and cash , which we financed with existing cash and proceeds from a new credit facility . in 2015 , the fda approved strensiq for patients with perinatal- , infantile- and juvenile-onset hpp , the ec granted marketing authorization for strensiq for the treatment of patients with pediatric-onset hpp and japan 's mhlw approved strensiq for the treatment of patients with hpp . in 2015 , the fda approved kanuma for the treatment of patients of all ages with lal-d and ec granted marketing authorization of kanuma for long-term enzyme replacement therapy in patients of all ages with lal-d. critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , “ business overview and summary of significant accounting policies ” of the consolidated financial statements included in this annual report on form 10-k. under accounting principles generally accepted in the united states , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; inventories ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . revenue recognition net product sales our principal source of revenue is product sales . we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , and we have no further performance obligations . depending on these criteria , revenue is usually recorded upon receipt of the product by the end customer , which is typically a hospital , physician 's office , private or government pharmacy or other health care facility . on a regular basis , we review revenue arrangements , such as distributor relationships , to determine whether changes in these criteria have an impact on revenue recognition . amounts collected from customers and remitted to governmental authorities , such as value-added taxes ( vat ) in foreign jurisdictions , are presented on a net basis in our consolidated statements of operations and do not impact net product sales . our customers are primarily comprised of distributors , pharmacies , hospitals , hospital buying groups , and other health care providers . in some cases , we may also sell product to governments and government agencies . because of factors such as the price of our products , the limited number of patients , the short period from product sale to patient infusion and the lack of contractual return rights , customers often carry limited inventory . story_separator_special_tag if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adjustment to our operating results and liquidity . inventories inventories are stated at the lower of cost or estimated realizable value . we determine the cost of inventory using the weighted-average cost method . we capitalize inventory produced for commercial sale , which may include costs incurred for certain products awaiting regulatory approval . we capitalize inventory produced in preparation of product launches sufficient to support estimated initial market demand . capitalization of such inventory begins when we have ( i ) obtained positive results in clinical trials that we believe are necessary to support regulatory approval , ( ii ) concluded that uncertainties regarding regulatory approval have been sufficiently reduced , and ( iii ) determined that the inventory has probable future economic benefit . in evaluating whether these conditions have been met , we consider clinical trial results for the underlying product candidate , results from meetings with regulatory authorities , and the compilation of the regulatory application . if we are aware of any material risks or contingencies outside of the standard regulatory review and approval process , or if there are any specific negative issues identified relating to the safety , efficacy , manufacturing , marketing or labeling of the product that would have a significant negative impact on its future economic benefits , the related inventory would not be capitalized . products that have been approved by the fda or other regulatory authorities , are also used in clinical programs to assess the safety and efficacy of the products for usage in diseases that have not been approved by the fda or other regulatory authorities . the form of product utilized for both commercial and clinical programs is identical and , as a result , the inventory has an `` alternative future use '' as defined in authoritative guidance . raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and , therefore , does not have an `` alternative future use '' . for products which are under development and have not yet been approved by regulatory authorities , purchased drug product is charged to research and development expense when the inventory passes quality inspection and ownership transfers 53 to us . nonrefundable advance payments for research and development activities , including production of purchased drug product , are deferred and capitalized until the goods are delivered . we also recognize expense for raw materials purchased when the raw materials pass quality inspection , and we have an obligation to pay for the materials . we analyze our inventory levels to identify inventory that may expire prior to sale , inventory that has a cost basis in excess of its estimated realizable value , or inventory in excess of expected sales requirements . although the manufacturing of our product is subject to strict quality control , certain batches or units of product may no longer meet quality specifications or may expire , which would require adjustments to our inventory values . we also apply judgment related to the results of quality tests that we perform throughout the production process , as well as our understanding of regulatory guidelines , to determine if it is probable that inventory will be saleable . these quality tests are performed throughout the pre- and post-production process , and we continually gather information regarding product quality for periods after the manufacturing date . our products currently have a maximum estimated life range of 36 to 48 months and , based on our sales forecasts , we expect to realize the carrying value of the product inventory . in the future , reduced demand , quality issues or excess supply beyond those anticipated by management may result in a material adjustment to inventory levels , which would be recorded as an increase to cost of sales . the determination of whether or not inventory costs will be realizable requires estimates by our management . a critical input in this determination is future expected inventory requirements based on internal sales forecasts . we then compare these requirements to the expiry dates of inventory on hand . for inventories that are capitalized in preparation of product launch , we also consider the expected approval date in assessing realizability . to the extent that inventory is expected to expire prior to being sold , we will write down the value of inventory . if actual results differ from those estimates , additional inventory write-offs may be required . share-based compensation we have two share-based compensation plans pursuant to which awards are currently being made : ( i ) the amended and restated 2004 incentive plan ( 2004 plan ) and ( ii ) the 2015 employee stock purchase plan ( espp ) . under the 2004 plan , restricted stock , restricted stock units , stock options and other stock-related awards may be granted to our directors , officers , employees and consultants or advisors of the company or any subsidiary . under the espp , eligible employees can purchase shares of common stock at a discount semi-annually through payroll deductions .
| results of operations the following table sets forth consolidated statements of operations data for the periods indicated . this information has been derived from the consolidated financial statements included elsewhere in this annual report on form 10-k. replace_table_token_6_th 57 comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 net product sales net product sales by significant geographic region are as follows : replace_table_token_7_th net product sales by product are as follows : year ended december 31 , 2015 2014 % change net product sales : soliris ( 1 ) 2,590,197 2,233,733 16 % strensiq 11,969 — n/a kanuma 366 — n/a $ 2,602,532 $ 2,233,733 17 % ( 1 ) in march 2014 , we entered into an agreement with the french government which positively impacts prospective reimbursement of soliris and also provides for reimbursement for shipments made in years prior to january 1 , 2014. as a result of the agreement , in the first quarter of 2014 , we recognized $ 87,830 of net product sales from soliris in france relating to years prior to january 1 , 2014. exclusive of the $ 87,830 , net product sales in europe increased 12 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the components of the increase in net product sales for the year ended december 31 , 2015 , exclusive of the $ 87,830 recognized in 2014 related to prior years , are as follows : year ended december 31 , 2015 components of change : price — % volume 29 % foreign exchange ( 8 ) % total change in net product sales 21 % the increase in net product sales for fiscal year 2015 as compared to the same period in 2014 , was primarily due to an increase in unit volumes of 29 % due to increased demand globally for soliris therapy for
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saas revenue decreased by $ 14.6 million primarily due to the merger of certain carrier customers resulting in lower overall contract prices with these customers as well as a loss of total subscribers under management . in addition , revenue from system integration , a business that we have de-emphasized since 2008 , decreased by $ 3.5 million . gross margin decreased primarily due to lower saas contract prices with no corresponding decreases in cost of revenue . operating expenses decreased by $ 52.3 million primarily due to impairments of long lived assets and goodwill of $ 50.5 million in 2009 , with no similar impairments in 2010. emerging products the emerging products segment primarily generates revenue and incurs costs from sales of the realplayer and its related products , such as revenue from distribution of third party software products , advertising on realplayer websites and sales of realplayer plus software licenses to consumers . also included within the emerging products segment are the costs to build and develop new product offerings for consumers and corporate customers . emerging products segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_8_th 22 2011 compared with 2010 revenue increased by $ 4.8 million , or 12 % . higher unit sales of our realplayer plus software contributed approximately $ 3.9 million to the increase during the period , due to increased marketing efforts . cost of revenue increased $ 4.8 million mainly due to increases related to certain advertising agreements and increased support costs for the distribution of realplayer and other products . operating expenses increased by $ 8.0 million primarily due to increased marketing expense to drive the distribution of realplayer and related third-party software . 2010 compared with 2009 revenue decreased by $ 3.4 million , or 8 % . lower unit distribution of third-party software products , primarily due to increased market saturation of the software products we distribute , accounted for the majority of the decline . gross margin did not change materially . operating expenses declined by $ 45.2 million primarily due to impairments of long lived assets and goodwill of $ 46.8 million in 2009 , with no similar impairments in 2010. games the games segment primarily generates revenue and incurs costs from the creation , distribution and sales of games licenses , online games subscription services , advertising on game sites and social network sites , games syndication services and microtransactions from online and social games and sales of mobile games . games segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_9_th 2011 compared with 2010 revenue decreased by $ 13.5 million , or 12 % . the decline was due to lower license revenue of $ 4.8 million primarily due to a decrease in the number of games sold through our games syndication services . further contributing to the decline was lower revenue from our subscription products of $ 4.8 million as a result of fewer subscribers . in addition , distribution of third party software declined by $ 3.7 million due to reduced traffic for our games properties . cost of revenue increased by $ 1.6 million , or 5 % . the increase was due primarily to higher costs associated with distribution of third party games as well as increased delivery costs for our games products and services . gross margins decreased due to lower subscription revenue and lower distribution of third party software , both of which are higher-margin revenues . operating expenses decreased by $ 17.6 million , or 23 % . the decrease was primarily due to reductions in personnel and related costs of approximately $ 8.7 million . further , we reduced our spending on marketing and related activities by approximately $ 3.4 million during the year . in addition , depreciation expense related to our games technology platform decreased by $ 3.1 million . 2010 compared with 2009 revenue decreased by $ 11.4 million , or 9 % . the decrease was primarily due to a decline in the number of games units sold combined with lower average selling prices due to continued competitive pressures , resulting in a decrease of $ 9.1 million . in addition , lower unit distribution of third party software products contributed $ 1.3 million of the decrease . gross margin did not change materially . operating expenses decreased by $ 49.6 million primarily due to impairment of long lived assets and goodwill of $ 41.2 million in 2009 , with no similar impairments in 2010. further contributing to the decline were reductions in personnel and related costs of $ 7.5 million and in marketing expenses of $ 1.9 million as part of our restructuring efforts in 2010 . 23 music music segment results of operations for the years ended december 31 , 2011 , 2010 and 2009 are as follows ( dollars in thousands ) : replace_table_token_10_th on march 31 , 2010 , we completed the restructuring of rhapsody , which resulted in our ownership interest of rhapsody decreasing to approximately 47 % and the loss of our operating control over rhapsody . our revenue and operating results for the first quarter of 2010 includes results from rhapsody 's operations . beginning with the second quarter of 2010 , rhapsody 's revenue and other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our music segment . we now report our share of rhapsody 's income or losses as equity in net loss of rhapsody and other equity method investments in other income. our share of rhapsody 's losses for the year ended december 31 , 2011 was $ 7.9 million . our share of rhapsody 's losses for the nine-month period from april 1 , 2010 , to december 31 , 2010 , was $ 14.2 million . story_separator_special_tag sales and marketing sales and marketing expenses consist primarily of salaries and related costs for sales and marketing personnel , sales commissions , amortization of certain intangible assets capitalized in our acquisitions , credit card fees , subscriber acquisition costs , consulting fees , trade show expenses , advertising costs and costs of marketing collateral . sales and marketing costs and year-over-year changes are as follows ( dollars in thousands ) : replace_table_token_13_th 2011 compared with 2010 sales and marketing expenses , including non-cash stock-based compensation , decreased by $ 7.2 million , or 6 % . the decrease was due primarily to the removal of rhapsody 's operating expenses of $ 8.8 million from our consolidated financial results beginning 25 april 1 , 2010. also contributing to the overall decrease of sales and marketing expenses was a decrease in personnel and related costs of approximately $ 5.7 million due to our restructuring activities and reduced third-party sales commissions of $ 1.6 million . these decreases in sales and marketing costs were partially offset by an increase in marketing expenses for realplayer of $ 8.1 million , as well as higher professional services expense of $ 2.4 million . 2010 compared with 2009 sales and marketing expenses , including non-cash stock-based compensation , decreased by $ 47.3 million , or 29 % . the decrease was primarily due to the deconsolidation of rhapsody on march 31 , 2010 , accounting for $ 31.9 million of the decrease . a reduction in personnel and related costs , including non-cash stock-based compensation , resulted in a decline of approximately $ 7.3 million , and a decrease in marketing and other professional services expenses reduced costs by an additional $ 7.1 million . no other single factor contributed materially to the decrease during the periods . advertising with related party during 2010 , and 2009 , rhapsody spent $ 1.1 million , and $ 33.3 million , respectively , in advertising with mtvn . the 2010 expense reflects advertising rhapsody spent with mtvn during the quarter ended march 31 , 2010 , prior to the restructuring of rhapsody and the deconsolidation . general and administrative general and administrative expenses consist primarily of salaries and related personnel costs , fees for professional and temporary services and contractor costs , stock-based compensation , and other general corporate costs . general and administrative costs and year-over-year changes are as follows ( dollars in thousands ) : replace_table_token_14_th 2011 compared with 2010 general and administrative expenses , including non-cash stock-based compensation , decreased by $ 14.0 million , or 27 % . the decrease was due primarily to a reduction in personnel and related costs of $ 7.7 million and an insurance reimbursement of $ 6.4 million related to settlement costs associated with previously-settled litigation . 2010 compared with 2009 general and administrative expenses , including non-cash stock-based compensation , decreased by $ 27.9 million , or 35 % . the deconsolidation of rhapsody on march 31 , 2010 accounted for $ 4.7 million of the decrease . the remaining decrease was due to reduction in legal and other professional services expenses of approximately $ 15.0 million , the majority of which related to litigation and settlement costs associated with the realdvd litigation and an arbitration proceeding in 2009 , and a reduction in personnel and headcount-related costs , including non-cash stock-based compensation , from our continued cost cutting efforts of $ 6.4 million . no other single factor contributed materially to the decrease during the period . impairment of deferred costs we assess the recoverability of all deferred project costs on a quarterly basis . as of december 31 , 2011 , we determined that the total estimated costs associated with certain carrier customer projects exceeded the total estimated revenues expected to be recognized on those projects . as a result , we recorded a charge of approximately $ 20.0 million , which included $ 16.7 million in deferred project costs and an additional $ 3.3 million of equipment and software that related solely to those projects . see note 7 of notes to consolidated financial statements included in item 8 of this report for more information . no such charges existed in 2010 or 2009. impairment of goodwill during the quarter ended june 30 , 2009 , we concluded that the implied fair value of goodwill was zero for each of our reporting units . as a result , we recorded impairments of $ 175.6 million , during the quarter ended june 30 , 2009. no other impairments of goodwill were recorded in 2009. no goodwill impairments were recognized in either 2011 or 2010 . 26 restructuring and other charges during the years ended december 31 , 2011 , 2010 , and 2009 , we recorded restructuring and other charges associated with the realignment and reorganization of our business totaling $ 8.7 million , $ 12.4 million , and $ 4.0 million , respectively . the majority of these charges in all three years were severance charges resulting from workforce reductions and other employee separations costs . loss on excess office facilities as part of our efforts to reorganize our business and operational structure , including the restructuring of rhapsody , we reduced the use of our current office space in our headquarters in seattle , as well as other offices in europe and asia . for the year ended december 31 , 2010 , the estimated loss on excess office facilities including the write-down of leasehold improvements was approximately $ 7.4 million . our estimates are based upon many factors including projections of sublease rates and the time period required to locate tenants . for the year ended december 31 , 2011 we recorded an expense reduction of $ 0.6 million resulting from our change in estimate for sublease rental income . although we believe our estimates are reasonable , additional adjustments may result if our actual experience differs from our projections .
| overview we manage our business and report segment revenue and profit ( loss ) in three segments : ( 1 ) core products , ( 2 ) emerging products and ( 3 ) games . within core products , our revenue is primarily from the sale of our software as a service ( saas ) offerings , and within emerging products , our revenue is primarily from the sale of our realplayer media player software and from the associated distribution of third-party products . we also report financial results from our former music segment , which primarily includes financial results and operating performance of our rhapsody joint venture , on a historical basis only . in addition , we report common 20 corporate overhead expenses , including but not limited to finance , legal , headquarters facilities and stock compensation costs , in the aggregate as corporate results . our most significant expenses relate to cost of revenue , compensating employees and selling and marketing our products and services . in the years ended december 31 , 2011 and 2010 , we also incurred significant charges relating to restructuring activities . in 2011 , our operating results were impacted by revenue declines in our core products and games segments , operational restructuring activities that continued from 2010 into 2011 and impairment of certain deferred costs . approximately half of our total revenue decline of $ 66.0 million for the year ended december 31 , 2011 , was due to declines in revenue in our core products and games segments . the remaining portion of the decline was primarily due to the deconsolidation of the operating results of our rhapsody joint venture from our consolidated financial statements as of march 31 , 2010. our saas business within core products is experiencing competitive pricing pressure from carriers and the proliferation of smartphone applications and services , which do not depend on our carrier customers for distribution to consumers .
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as a financial holding company , the company is generally permitted to engage in certain otherwise prohibited nonbanking activities and certain other broader securities , insurance , merchant banking and other activities that the board of governors of the federal reserve system ( the “ frb ” ) has determined to be “ financial in nature , ” or are incidental or complementary to activities that are financial in nature , without prior approval from the frb ( subject to certain exceptions ) . upon becoming a financial holding company , the company began operating gabc risk management , inc. , a wholly-owned subsidiary , as a pooled captive insurance company subsidiary to provide additional insurance coverage for the company and its subsidiaries related to the operations of the company for which insurance may not be economically feasible . throughout this management 's discussion and analysis , as elsewhere in this report , when we use the term “ company ” , we will usually be referring to the business and affairs ( financial and otherwise ) of the company and its subsidiaries and affiliates as a whole . occasionally , we will refer to the term “ parent company ” or “ holding company ” when we mean to refer to only german american bancorp , inc. , and the term “ bank ” when we mean to refer to only the company 's bank subsidiary . this management 's discussion and analysis includes an analysis of the major components of the company 's operations for the years 2017 through 2019 and its financial condition as of december 31 , 2018 and 2019. this information should be read in conjunction with the accompanying consolidated financial statements and footnotes contained elsewhere in this report and with the description of business included in item 1 of this report ( including the cautionary disclosure regarding “ forward looking statements and associated risks ” ) . financial and other information by segment is included in note 16 ( segment information ) of the notes to the consolidated financial statements included in item 8 of this report and is incorporated into this item 7 by reference . the statements of management 's expectations and goals concerning the company 's future operations and performance that are set forth in the following management overview and in other sections of this item 7 are forward-looking statements , and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks , uncertainties , and other factors . actual results may differ materially from the expectations of the company that is expressed or implied by any forward-looking statement . this item 7 , as well as the discussions in item 1 ( “ business ” ) entitled “ forward-looking statements and associated risks ” and in item 1a ( “ risk factors ” ) ( which discussions are incorporated in this item 7 by reference ) list some of the factors that could cause the company 's actual results to vary materially from those expressed or implied by any such forward-looking statements . any statements of management 's expectations and goals concerning the company 's future operations and performance , and future financial condition , liquidity and capital resources that are set forth in the following management overview and in other sections of this item 7 are forward-looking statements , and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks , uncertainties , and other factors . actual results may differ materially from the expectations of the company that is expressed or implied by any forward-looking statement . this item 7 , as well as the discussions in item 1 ( “ business ” ) entitled “ forward-looking statements and associated risks ” and in item 1a ( “ risk factors ” ) ( which discussions are incorporated in this item 7 by reference ) list some of the factors that could cause the company 's actual results to vary materially from those expressed or implied by any such forward-looking statements . management overview net income for the year ended december 31 , 2019 totaled $ 59,222,000 , or $ 2.29 per share , an increase of $ 12,693,000 , or approximately 15 % on a per share basis , from the year ended december 31 , 2018 net income of $ 46,529,000 , or $ 1.99 per share . net income for the year ended december 31 , 2018 totaled $ 46,529,000 or $ 1.99 per share , an increase of $ 5,853,000 , or approximately 12 % on a per share basis , from the year ended december 31 , 2017 net income of $ 40,676,000 or $ 1.77 per share . 26 net income for 2018 was positively impacted by lower federal income tax rates that became effective january 1 , 2018 , as a result of the tax cuts and jobs act of 2017 ( the “ tax act ” ) . the lower federal income tax rates had a positive impact of approximately $ 0.26 per share for the year ended december 31 , 2018. net income for both 2018 and 2019 was impacted by merger and acquisition activity . the year ended december 31 , 2019 included acquisition-related expenses of approximately $ 3,360,000 ( approximately $ 2,594,000 or $ 0.10 per share , on an after tax basis ) . the year ended december 31 , 2018 included acquisition-related expenses of approximately $ 4,592,000 ( approximately $ 3,526,000 or $ 0.15 per share , on an after tax basis ) . on july 1 , 2019 , the company completed the acquisition of citizens first corporation ( “ citizens first ” ) through the merger of citizens first with and into the company . immediately following completion of the citizens first holding company merger , citizens first 's subsidiary bank , citizen first bank , inc. , was merged with and into the company 's subsidiary bank , german american bank . story_separator_special_tag the need for specific reserves is considered for credits identified as impaired when : ( a ) the customer 's cash flow or net worth appears insufficient to repay the loan ; ( b ) the loan has been criticized in a regulatory examination ; ( c ) the loan is on non-accrual ; or ( d ) other reasons where the ultimate collectability of the loan is in question , or the loan characteristics require special monitoring . specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that we believe indicates the loan is impaired . specific allocations on impaired loans are determined by comparing the loan balance to the present value of expected cash flows or expected collateral proceeds . allocations are also applied to categories of loans not considered individually impaired but for which the rate of loss is expected to be greater than historical averages , including non-performing consumer or residential real estate loans . such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values . general allocations are made for commercial and agricultural loans that are graded as substandard and special mention based on migration analysis techniques to determine historical average losses for similar types of loans . the migration analysis factors are calculated using a transition matrix to determine the likelihood of a customer 's asset quality rating migrating from its current rating to any other rating . general allocations are also made for other pools of loans , including non-classified loans , homogeneous portfolios of consumer and residential real estate loans , and loans within certain industry categories believed to present unique risk of loss . general allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios , judgmentally adjusted for economic , external and internal factors and portfolio trends . economic factors include evaluating changes in international , national , regional and local economic and business conditions that affect the collectability of the loan portfolio . internal factors include evaluating changes in lending policies and procedures ; changes in the nature and volume of the loan portfolio ; and changes in experience , ability and depth of lending management and staff . in setting our external and internal factors we also consider the overall level of the allowance for loan losses to total loans ; our allowance coverage as compared to similar size bank holding companies ; and regulatory requirements . due to the imprecise nature of estimating the allowance for loan losses , the company 's allowance for loan losses includes a minor unallocated component . the unallocated component of the allowance for loan losses incorporates the company 's judgmental determination of inherent losses that may not be fully reflected in other allocations , including factors such as economic uncertainties , lending staff quality , industry trends impacting specific portfolio segments , and broad portfolio quality trends . therefore , the ratio of allocated to unallocated components within the total allowance may fluctuate from period to period . in june 2016 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments , to replace the incurred loss model with an expected loss model , which is referred to as the current expected credit loss ( “ cecl ” ) model . the cecl model is applicable to the measurement of credit losses on financial assets measured at amortized cost , including loan receivables , held-to-maturity debt securities , and reinsurance receivables . it also applies to off-balance sheet credit exposures not accounted for as insurance ( loan commitments , standby letters of credit , financial guarantees , and other similar instruments ) and net investments in leases recognized by a lessor . this standard became effective for public business entities for fiscal years beginning after december 15 , 2019 , including interim periods within that reporting period . asu 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience , current conditions , and reasonable and supportable forecasts . as of the beginning of the first reporting period in which the new standard is effective , the company expects to recognize a one-time cumulative effect adjustment increasing the allowance for loan losses , since this asu covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions . the company currently estimates an increase to the allowance for credit losses of approximately $ 12 million to $ 20 million upon adoption , which is primarily related to the company 's acquired loan portfolio . this estimate and the ongoing impact of adopting this asu are dependent on various factors , including credit quality , macroeconomic forecasts and conditions , composition of the company 's loans and securities portfolios , and other management judgements . the transition 28 adjustment to record the allowance for credit losses , which remains subject to further review and analysis by the company 's management team , may fall outside of the estimated increase based on material changes in these factors . securities valuation securities available-for-sale are carried at fair value , with unrealized holding gains and losses reported separately in accumulated other comprehensive income ( loss ) , net of tax . the company obtains market values from a third party on a monthly basis in order to adjust the securities to fair value . equity securities that do not have readily determinable fair values are carried at cost . additionally , when securities are deemed to be other than temporarily impaired , a charge will be recorded through earnings ; therefore , future changes in the fair value of securities could have a significant impact on the company 's operating results .
| results of operations net income net income for the year ended december 31 , 2019 totaled $ 59,222,000 , or $ 2.29 per share , an increase of $ 12,693,000 , or approximately 15 % on a per share basis , from the year ended december 31 , 2018 net income of $ 46,529,000 , or $ 1.99 per share . net income for the year ended december 31 , 2018 totaled $ 46,529,000 or $ 1.99 per share , an increase of $ 5,853,000 , or approximately 12 % on a per share basis , from the year ended december 31 , 2017 net income of $ 40,676,000 or $ 1.77 per share . net income for 2018 was positively impacted by lower federal income tax rates that became effective january 1 , 2018 , as a result of the tax cuts and jobs act of 2017 ( the “ tax act ” ) . the lower federal income tax rates had a positive impact of approximately $ 0.26 per share for the year ended december 31 , 2018. net income for both 2018 and 2019 was impacted by merger and acquisition activity ( see discussion above under `` introduction - management overview '' for additional information ) . the year ended december 31 , 2019 included acquisition-related expenses of approximately $ 3,360,000 ( approximately $ 2,594,000 or $ 0.10 per share , on an after tax basis ) . the year ended december 31 , 29 2018 included acquisition-related expenses of approximately $ 4,592,000 ( approximately $ 3,526,000 or $ 0.15 per share , on an after tax basis ) . net interest income net interest income is the company 's single largest source of earnings , and represents the difference between interest and fees realized on earning assets , less interest paid on deposits and borrowed funds .
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