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revenue recognition and deferred revenue the company derives product revenues primarily from four sources : ( i ) long-term sales contracts to end user hospitals in which the company may provide up front monitoring equipment at no charge in exchange for a multi-year sensor purchase commitment ; ( ii ) direct sales of pulse oximetry and related story_separator_special_tag you should read this discussion together with the financial statements , related notes and other financial information included in this form 10-k. the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1a— “ risk factors ” and elsewhere in this form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . executive overview we are a global medical technology company that develops , manufactures , and markets noninvasive patient monitoring products . our mission is to improve patient outcomes and reduce cost of care by taking noninvasive monitoring to new sites and applications . we invented masimo set ® which provides the capabilities of measure-through motion and low perfusion pulse oximetry to address the primary limitations of conventional pulse oximetry . pulse oximetry is the noninvasive measurement of the oxygen saturation level of arterial blood , or the blood that delivers oxygen to the body 's tissues , and pulse rate . pulse oximetry is one of the most common measurements made in and out of hospitals around the world . masimo set ® has been validated in over 100 independent clinical studies and is the only pulse oximetry technology we are aware of that has been proven to help clinicians detect critical congenital heart disease in newborns , reduce retinopathy of prematurity in neonates , and decrease intensive care unit transfers and rapid response activations on the general floor . our products consist of a monitor or circuit board , and a “ board-in-cable ” solution , for use with our proprietary single-patient use and reusable sensors and cables . we sell our products to end-users through our direct sales force and certain distributors , and also sell some of our products to our oem partners , for incorporation into their products . as of december 28 , 2013 , we estimate that the worldwide installed base of our pulse oximeters and oem monitors that incorporate masimo set ® and rainbow ® set was more than 1.2 million units . our installed base is the primary driver for the recurring sales of our sensors , most notably , single-patient adhesive sensors . based on industry reports , we estimate that the worldwide pulse oximetry market is nearly $ 1.5 billion in 2014 , the largest component of which is the sale of sensors . after introducing masimo set ® , we have continued to innovate by introducing breakthrough noninvasive measurements beyond arterial blood oxygen saturation level and pulse rate , which create new market opportunities in both the hospital and non-hospital care settings . we believe our masimo rainbow ® set platform , that utilizes both masimo set ® and licensed rainbow ® technology , includes the first devices cleared by the fda to noninvasively and continuously monitor multiple measurements that previously required invasive or complicated procedures . spco ® , our noninvasive carboxyhemoglobin sensor , allows measurement of carbon monoxide levels in the blood . carbon monoxide is the most common cause of poisoning in the world . spmet ® , our noninvasive methemoglobin sensor , allows for the measurement of methemoglobin levels in the blood . methemoglobin in the blood leads to a dangerous condition known as methemoglobinemia , which occurs as a reaction to some common drugs used in hospitals and outpatient procedures . masimo pvi ® monitors fluid administration , which is critical to optimizing fluid status in surgery and critical care where traditional invasive methods to guide fluid administration often fail to predict fluid responsiveness and newer methods are complicated and costly . our noninvasive hemoglobin sensor , sphb ® , monitors hemoglobin , the oxygen-carrying component of red blood cells . hemoglobin measurement is one of the most frequent invasive laboratory measurements in the world , often measured as part of a complete blood count . a low hemoglobin status is called anemia , which is generally caused by bleeding or the inability of the body to produce red blood cells . rra allows for the continuous and noninvasive monitoring of respiration rate , via rainbow acoustic monitoring . respiration rate is the number of breaths per minute . a low respiration rate is indicative of respiratory depression and high respiration rate is indicative of patient distress . traditional methods used to measure respiration rate are often considered inaccurate or are not tolerated well by patients . our halo index sensor allows continuous global trending and assessment of multiple physiological measurements of a patient with a single number displayed on the patient safetynet screen . halo index is ce marked , but not currently available for sale in the u.s. in july 2010 , we began selling the sedline ® monitor , which measures the brain 's electrical activity and provides information about a patient 's response to anesthesia . in january 2012 , we received fda clearance for the pronto-7 ® , a product designed specifically for spot-checking hemoglobin , along with oxygen saturation and pulse rate . in december 2012 , we released ispo 2 , a pulse oximeter cable and sensor with measure-through motion and low perfusion masimo set ® technology for use with an iphone , ipad or ipod touch . we also offer a remote monitoring and clinician notification solution called patient safetynet , which includes our masimo set ® or rainbow ® set monitors at the patient 's bedside along with a central assignment station and wired or wireless server . patient safetynet wirelessly notifies clinicians who are taking care of multiple patients in different rooms when one of their patients has an alarm , allowing them to intervene sooner and provide potentially life-saving support . story_separator_special_tag we exclusively license from cercacor the right to make and distribute products in the professional medical caregiver markets , referred to as the masimo market , that utilize rainbow ® technology for the measurement of carbon monoxide , methemoglobin , fractional arterial oxygen saturation hemoglobin , which includes hematocrit . in december 2013 , we exercised our option to license five additional parameters at the pre-established price of $ 0.5 million per parameter . the license is currently subject to certain specific annual minimum aggregate royalty payment obligations in the amount of $ 5.0 million per year . to date , we have developed and commercially released devices that measure carbon monoxide , methemoglobin and hemoglobin using licensed rainbow ® technology . we also have the option to obtain exclusive licenses to make and distribute products that utilize rainbow ® technology for the monitoring of other measurements , including blood glucose , in product markets where the product 62 is intended to be used by a professional medical caregiver . in february 2009 , in order to accelerate the product development of an improved hemoglobin spot-check measurement device , pronto-7 ® , we agreed to fund additional cercacor 's engineering expenses . specifically , these expenses included third-party engineering materials and supplies expense , as well as 50 % of total cercacor 's engineering and engineering related payroll expenses from april 2009 through june 2010 , the original anticipated completion date of this product development effort . since july 2010 , cercacor has continued to assist us with product development efforts and charged us accordingly . beginning in 2012 , due to a revised estimate of the support required by us to complete the various pronto-7 ® related projects , our board of directors approved an increase in the percentage of cercacor 's total engineering and engineering related payroll expenses funded by us from 50 % to 60 % . during the year ended december 28 , 2013 , and until both parties agree to end these services , cercacor has and will continue to assist us with continuing productization efforts of the new handheld noninvasive multiparameter testing device , that provides spot-check hemoglobin testing . during the year ended december 28 , 2013 , the total expenses for these additional services , material and supplies totaled $ 4.1 million . pursuant to authoritative accounting guidance , cercacor is consolidated within our financial statements for all periods presented . this determination is based on our ability to direct the activities that most significantly impact cercacor 's economic performance , and our obligation to absorb cercacor 's expected losses . for the foreseeable future , we anticipate that we will continue to consolidate cercacor pursuant to the current authoritative accounting guidance ; however , in the event that cercacor is no longer considered a variable interest entity ( vie ) , or in the event that we are no longer the primary beneficiary of cercacor , we may discontinue consolidating the entity . for additional discussion of cercacor , see note 3 to our accompanying consolidated financial statements . business combinations on march 9 , 2012 , we acquired substantially all of the assets of spire semiconductor , llc , a maker of advanced light emitting diode and other advanced component-level technologies . masimo semiconductor , inc. ( masimo semiconductor ) , our wholly-owned subsidiary , operates the business . this acquisition provided us an advanced ability to develop custom components , accelerate development cycles , and optimize future product costs . masimo semiconductor specializes in wafer epitaxy , foundry services , and device fabrication for biomedical , telecommunications , consumer products and other markets . for additional information , see note 4 to our accompanying consolidated financial statements . on july 27 , 2012 , we acquired phasein ab ( phasein ) , a developer and manufacturer of ultra-compact mainstream and sidestream capnography and gas monitoring technologies . the acquisition of phasein 's technologies complements our breakthrough innovations for patient monitoring with a portfolio of products ranging from oem solutions for external “ plug-in-and-measure ” capnography and gas analyzers and integrated modules to handheld capnometer devices . with multiple measurements delivered through either mainstream or sidestream options , our customers can benefit from co 2 , n 2 o , o 2 , and anesthetic agent monitoring in many hospital environments , such as operating rooms , procedural sedation and intensive care units . for additional information , see note 4 to our accompanying consolidated financial statements . 63 story_separator_special_tag act ) . the tax act extended the research tax credit retroactively to 2012 and prospectively through the end of 2013. the effects of the change in the tax law were recognized in the first quarter of fiscal 2013 , which is the quarter when the law was enacted , and resulted in a rate benefit of approximately 1.4 % for the year ended december 28 , 2013. our effective tax rate was lower than the u.s. federal statutory rate primarily due to research and development tax credits and a portion of our earnings being generated from countries other than the u.s. , where such earnings are generally subject to lower tax rates than the u.s. we expect this trend to continue in the future . we have made no provision for u.s. income taxes or foreign withholding taxes on the earnings of our foreign subsidiaries as these amounts are intended to be indefinitely reinvested in operations outside the u.s. comparison of the year ended december 29 , 2012 to the year ended december 31 , 2011 revenue .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts and as a percentage of revenue . replace_table_token_3_th comparison of the year ended december 28 , 2013 to the year ended december 29 , 2012 revenue . total revenue increased $ 54.0 million , or 11.0 % to $ 547.2 million for the year ended december 28 , 2013 , from $ 493.2 million for the year ended december 29 , 2012. product revenues increased $ 52.5 million , or 11.3 % , to $ 517.4 million in the year ended december 28 , 2013 from $ 464.9 million in the year ended december 29 , 2012. this increase was primarily due to higher consumable sales resulting from an increase in our installed base of circuit boards and pulse oximeters which we estimate totaled 1,205,000 units at december 28 , 2013 , up from 1,088,000 units at december 29 , 2012. contributing to the increase in our product revenue was our rainbow ® technology product revenues , which increased $ 8.5 million , or 21.3 % , to $ 48.8 million in the year ended december 28 , 2013 from $ 40.3 million in the year ended december 29 , 2012. product revenue related to our acquisition of phasein and masimo semiconductor businesses approximated $ 12.8 million and $ 3.8 million , respectively for the year ended december 28 , 2013 , compared to $ 4.4 million and $ 3.1 million , respectively , for the year ended december 29 , 2012. revenue generated through our direct and distribution sales channels increased $ 42.6 million , or 10.8 % , to $ 438.8 million for the year ended december 28 , 2013 , compared to $ 396.2 million for the year ended december 29 , 2012. during the year ended december 28 , 2013 , revenues from our oem channel increased $ 9.9 million , or 14.4 % , to $ 78.6 million from $ 68.7 million in the year
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the company recognized a net pre-tax gain on the sale of its 85 % equity interest story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements as of december 31 , 2016 and december 26 , 2015 and for each of the three years in the period ended december 31 , 2016 and related notes , which are included in this annual report on form 10-k as well as with the other sections of this annual report on form 10-k , including “ part i , item 1 : business , ” “ part ii , item 6 : selected financial data ” and “ part ii , item 8 : financial statements and supplementary data. ” introduction we are a global semiconductor company primarily offering : ( i ) x86 microprocessors , as standalone devices or as incorporated into an accelerated processing unit ( apu ) , chipsets , discrete graphics processing units ( gpus ) and professional graphics ; and ( ii ) server and embedded processors , semi-custom system-on-chip ( soc ) products and technology for game consoles . we also license portions of our intellectual property portfolio . in this md & a , we will describe the results of operations and the financial condition for us and our consolidated subsidiaries , including a discussion of our results of operations for 2016 compared to 2015 and 2015 compared to 2014 , an analysis of changes in our financial condition and a discussion of our contractual obligations and off balance sheet arrangements . overview as we continued to focus on our strategy to improve our business , we made progress towards strengthening our competitive position and improving our financial performance in 2016. net revenue for 2016 was $ 4.3 billion , an increase of 7 % compared to 2015 net revenue of $ 4.0 billion . the increase in net revenue from 2015 was due to a 9 % increase in computing and graphics segment revenue and a 5 % increase in enterprise , embedded and semi-custom segment revenue . computing and graphics segment revenue increased year-over-year primarily due to higher gpu sales , offset by lower microprocessor sales . embedded and semi-custom segment revenue increased year-over-year primarily due to higher semi-custom soc sales . gross margin , as a percentage of net revenue for 2016 , was 23 % compared to 27 % in 2015. the decrease in gross margin in 2016 as compared to 2015 was primarily due to a $ 340 million charge taken in the third quarter of 2016 ( the wsa charge ) related to the sixth amendment to the wafer supply agreement ( the sixth amendment ) with globalfoundries inc. ( gf ) . operating loss for 2016 was $ 372 million compared to a $ 481 million for 2015. this improvement in operating performance in 2016 compared to 2015 was due to an increase in net revenue described above , a reduction in restructuring and other special charges , net and a licensing gain related to an intellectual property license agreement in connection with the joint ventures in china that we formed with tianjin haiguang advanced technology investment co. ltd. ( thatic ) , partially offset by an increase in cost of sales due to the wsa charge . during 2016 , we continued to closely manage our operating expenses . our operating expenses in 2016 decreased to $ 1.5 billion , compared to $ 1.6 billion in 2015 , due to the absence of restructuring charges in 2016 , partially offset by increased r & d expenses . in 2016 , we continued to improve our balance sheet by reducing our debt and extending our debt maturities . during the third quarter of 2016 , we issued $ 690 million of common stock and $ 805 million aggregate principal amount of 2.125 % convertible senior notes due 2026 ( 2.125 % notes ) . we used the net proceeds from the issuance of our common stock and the 2.125 % notes to pay $ 230 million of our secured revolving line of credit and repurchase an aggregate principal amount of $ 796 million of our outstanding 6.75 % senior notes due 2019 ( 6.75 % notes ) , 7.75 % senior notes due 2020 ( 7.75 % notes ) , 7.50 % senior notes due 2022 ( 7.50 % notes ) and 7.00 % senior notes due 2024 ( 7.00 % notes ) . in the fourth quarter of 2016 , we redeemed the remaining $ 208 million in aggregate principal amount of our 7.75 % notes and as a result , we no longer have any 7.75 % notes outstanding . total debt as of the end of the fourth quarter of 2016 was $ 1.4 billion , compared to $ 2.2 billion at the end of the fourth quarter of 2015. our cash and cash equivalents as of december 31 , 2016 were $ 1.3 billion compared to $ 785 million at december 26 , 2015. during 2016 , we continued to execute our roadmap by delivering a number of new products and technologies across our two business segments . in march 2016 , we announced new additions to our desktop processor family , with the amd a10-7890k apu designed to help enable smooth play of online games and the amd athlon x4 880k apu that features our `` excavator '' x86 architecture . also in march , we introduced the radeon pro duo gpu with the liquidvr sdk platform designed for many aspects of vr content creation : from entertainment to education , journalism , medicine and cinema . in may 2016 , we introduced our mobile 7th generation a-series processors . our 7 th generation a-series processors are designed to provide productivity and entertainment performance with maximum mobility for consumers . also in may , we introduced an amd multiuser gpu ( mxgpu ) for blade servers , the amd firepro s7100x gpu , designed to provide a “ workstation-class ” experience for up to 16 users . story_separator_special_tag as a result of these transactions , we no longer owned any gf capital stock as of march 4 , 2012. gf continues to be a related party of us because mubadala development company pjsc ( mubadala ) and mubadala tech are affiliated with wch , our largest stockholder . wch and mubadala tech are wholly-owned subsidiaries of mubadala . wafer supply agreement 36 the wsa governs the terms by which we purchase products manufactured by gf . pursuant to the wsa , we are required to purchase all of our microprocessor and apu product requirements , and a certain portion of our gpu product requirements from gf with limited exceptions . if we acquire a third-party business that manufactures microprocessor and apu products , we will have up to two years to transition the manufacture of such microprocessor and apu products to gf . the wsa terminates no later than march 2 , 2024. gf has agreed to use commercially reasonable efforts to assist us to transition the supply of products to another provider and to continue to fulfill purchase orders for up to two years following the termination or expiration of the wsa . during the transition period , pricing for microprocessor and apu products will remain as set forth in the wsa , but our purchase commitments to gf will no longer apply . sixth amendment to wafer supply agreement . on august 30 , 2016 , we entered into a sixth amendment ( the sixth amendment ) to the wsa . the sixth amendment modifies certain terms of the wsa applicable to wafers for our microprocessor , graphics processor and semi-custom products for a five-year period from january 1 , 2016 to december 31 , 2020. amd and gf agreed to establish a comprehensive framework for technology collaboration for the 7nm technology node . the sixth amendment also provides us a limited waiver with rights to contract with another wafer foundry with respect to certain products in the 14nm and 7nm technology nodes and gives us greater flexibility in sourcing foundry services across our product portfolio . in consideration for these rights , we agreed to pay gf $ 100 million in installments starting in the fourth fiscal quarter of 2016 through the third fiscal quarter of 2017. during the fourth quarter of fiscal 2016 , we paid gf $ 25 million . starting in 2017 and continuing through 2020 , we also agreed to make quarterly payments to gf based on the volume of certain wafers purchased from another wafer foundry . further , for each calendar year during the term of the sixth amendment , amd and gf agreed to annual wafer purchase targets that increase from 2016 through 2020. if we do not meet the annual wafer purchase target for any calendar year , we will be required to pay to gf a portion of the difference between our actual wafer purchases and the wafer purchase target for that year . the annual targets were established based on our current business and market expectations and take into account the limited waiver we have received for certain products . amd and gf also agreed on fixed pricing for wafers purchased during 2016 and established a framework to agree on annual wafer pricing for the years 2017 to 2020. our total purchases from gf related to wafer manufacturing and research and development activities were approximately $ 0.7 billion for 2016 , $ 0.9 billion for 2015 and $ 1.0 billion for 2014 . warrant agreement . also on august 30 , 2016 , in consideration of the limited waiver and rights under the sixth amendment , we entered into a warrant agreement ( the warrant agreement ) with wch , a wholly-owned subsidiary of mubadala . under the warrant agreement , wch and its permitted assigns are entitled to purchase 75 million shares of our common stock ( the warrant shares ) at a purchase price of $ 5.98 per share . the warrant under the warrant agreement is exercisable in whole or in part until february 29 , 2020 , provided that the maximum number of warrant shares that may be exercised prior to the one-year anniversary of the warrant agreement shall not exceed 50 million . notwithstanding the foregoing , the warrant agreement will only be exercisable to the extent that mubadala does not beneficially own , either directly through any other entities directly and indirectly owned by mubadala or its subsidiaries , an aggregate of more than 19.99 % of our outstanding capital stock after any such exercise . during 2016 , we recorded a charge of $ 340 million , consisting of the $ 100 million payment under the sixth amendment and the $ 240 million value of the warrant under the warrant agreement issued in consideration of the sixth amendment . equity interest purchase agreement - atmp joint venture on april 29 , 2016 , we and certain of our subsidiaries completed the sale of a majority of the equity interests in suzhou tf-amd semiconductor co. , ltd. ( formerly , amd technologies ( china ) co. , ltd. ) , and tf amd microelectronics ( penang ) sdn . bhd . ( formerly , advanced micro devices export sdn . bhd . ) , to affiliates of tongfu microelectronics co. , ltd. ( formerly , nantong fujitsu microelectronics co. , ltd. ) ( tfme ) , a chinese joint stock company , to form two joint ventures ( collectively , the atmp jv ) . as a result of the sale , tfme 's affiliates own 85 % of the equity interests in the atmp jv while certain of our subsidiaries own the remaining 15 % . we have no obligations to fund the atmp jv . as a result of the transaction , we received approximately $ 342 million , including purchase price adjustments , in net cash proceeds for selling 85 % of the equity interest in each of suzhou tf-amd semiconductor co. , ltd. and tf amd microelectronics ( penang ) sdn . bhd .
| results of operations management , including the chief operating decision maker , who is our chief executive officer , reviews and assesses our operating performance using segment net revenue and operating income ( loss ) before interest , other income ( expense ) , net , income taxes and equity in income ( loss ) of atmp jv . these performance measures include the allocation of expenses to the operating segments based on management 's judgment . we have the following two reportable segments : the computing and graphics segment , which primarily includes desktop and notebook processors and chipsets , discrete gpus and professional graphics ; and the enterprise , embedded and semi-custom segment , which primarily includes server and embedded processors , semi-custom soc products , development services , technology for game consoles and licensing portions of our intellectual property portfolio . in addition to these reportable segments , we have an all other category , which is not a reportable segment . this category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because management does not consider these expenses and credits in evaluating the performance of the reportable segments . included in this category are employee stock-based compensation expense , the charge related to the sixth amendment to the wsa with gf , restructuring and other special charges , net , amortization of acquired intangible assets , workforce rebalancing severance charges , goodwill impairment charge and significant or unusual lower of cost or market inventory adjustments . we also reported the results of former businesses in the all other category because the operating results were not material .
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the company accounts for sac as an equity method 55 investment . the company 's investment in sac , which was classified as other assets in the consolidated balance sheets , was $ 8.0 million as of december 31 , 2020 and $ 8.2 million as of december 29 , 2019. the company also guarantees a portion of sac 's debt ; see note 21 for additional information . the company receives story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of the company should be read in conjunction with the consolidated financial statements of the company and the accompanying notes to the consolidated financial statements . during the fourth quarter of 2020 , the company 's board of directors approved a change in the company 's fiscal year so that each fiscal year will end on december 31 of the applicable calendar year . this change was not considered a change in fiscal year under the rules of the sec as the new fiscal year commenced within seven days of the prior fiscal year-end and the new fiscal year commenced with the end of the prior fiscal year . previously , the company 's fiscal year generally ended on the sunday closest to december 31 of each year . the fiscal years discussed in this management 's discussion and analysis are the fiscal years ended december 31 , 2020 ( “ 2020 ” ) and december 29 , 2019 ( “ 2019 ” ) . information concerning the fiscal year ended december 30 , 2018 ( “ 2018 ” ) and a comparison of 2019 and 2018 may be found under “ 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 2019 , filed with the sec on february 25 , 2020. the consolidated financial statements include the consolidated operations of the company and its majority-owned subsidiaries , including piedmont coca-cola bottling partnership ( “ piedmont ” ) , the company 's only subsidiary that had a significant noncontrolling interest in 2020. the company and the coca‑cola company formed piedmont in 1993 to distribute and market nonalcoholic beverages primarily in portions of north carolina and south carolina . on december 9 , 2020 , an indirect wholly owned subsidiary of the company purchased the remaining 22.7 % general partnership interest in piedmont from an indirect wholly owned subsidiary of the coca‑cola company , and piedmont became an indirect wholly owned subsidiary of the company . piedmont was subsequently merged with and into ccbcc operations , llc , a wholly owned subsidiary of the company , effective december 28 , 2020. the company manages its business on the basis of three operating segments . nonalcoholic beverages represents the vast majority of the company 's consolidated revenues and income from operations . the additional two operating segments do not meet the quantitative thresholds for separate reporting , either individually or in the aggregate , and therefore have been combined into “ all other. ” covid-19 impact on consumer , customer , teammate and community safety the company continues to diligently monitor and manage through the impact of the covid-19 pandemic on all aspects of its business , including the impact on its teammates and customers . our industry and business have been designated by the united states department of homeland security and state and local governments in the communities in which we operate as “ essential , ” as all our teammates support beverage manufacturing and distribution . the company has taken the following actions to protect and promote the health and safety of its consumers , customers , teammates and communities , while it continues to manufacture and distribute products : we continue to execute our infectious disease response plan and incident management crisis response protocols as the macro environment moves through the response , reopen , recovery and vaccine administration and deployment phases of the covid-19 pandemic . we have established a cross-functional health & wellness task force to manage and monitor all risk mitigation and safety activities related to covid-19 . in addition , a subset of leaders from the health & wellness task force conducts case management activities that follow prescribed company and other accepted standards ( e.g. , centers for disease control and prevention ( “ cdc ” ) and local health authorities ) . we have established a process for the reporting of covid-19 symptoms , exposures and positive test results of teammates and of incidents in customer accounts that our teammates have serviced . this reporting process enables the company to follow appropriate quarantine protocols and to communicate to its workforce in a timely and appropriate manner . we have increased our communications with teammates through podcasts , meetings , videos , secure , online company app postings and emails about safety protocols , personal protective equipment ( “ ppe ” ) , such as disposable gloves and masks , state and local guidance and cdc requirements and recommendations . we have increased sanitation protocols to sanitize equipment and common areas multiple times per day in order to mitigate risk and exposure situations . we have promoted hygiene practices recommended by the cdc , including social distancing requiring six or more feet between teammates where possible , and staggered work start and stop times and lunch breaks . we have utilized daily health and wellness monitoring , ppe and other measures to promote workplace safety and remain in compliance with local or state regulatory requirements . we have restricted access to our facilities for non-essential visitors , vendors and contractors . for essential visitors , vendors and contractors , we require health and wellness certifications to be completed and the use of ppe as the company determines appropriate . we have restricted business travel to “ essential travel ” to curtail exposure risk for all teammates . 24 we have provided sanitation solution and supplies for our front-line teammates who interact with our products , customers and communities . story_separator_special_tag our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results . we are focused on execution at every step in our supply chain , including raw material and finished products procurement , manufacturing conversion , transportation , warehousing and distribution , to ensure in-store execution can occur . we are investing in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and drive value in our business for the long term . revenue management : our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels , creating effective working relationships with our customers and making disciplined fact-based decisions . pricing decisions are made considering a variety of factors , including brand strength , competitive environment , input costs , the roles certain brands play in our product portfolio and other market conditions . supply chain optimization : in october 2017 , we completed a multi-year series of transactions through which we acquired and exchanged distribution territories and manufacturing plants ( the “ system transformation ” ) . we are focused on optimizing our supply chain as we continue to integrate the acquired territories and facilities into our operations . we are in the process of integrating our memphis , tennessee manufacturing plant with our west memphis , arkansas operations , which is expected to greatly expand our west memphis production capabilities and to reduce our overall production costs . additionally , we are planning to open a new , automated distribution center in whitestown , indiana by the spring of 2021 , which will allow us to consolidate our anderson , bloomington , lafayette , shelbyville and speedway , indiana warehousing and distribution operations into this one new facility . the increased capacity and automation in whitestown will allow us to optimize our supply chain and to better serve our customers and consumers in indiana and the surrounding areas . we will continue to look for opportunities to invest in our supply chain to optimize our costs . cash flow generation : we have several initiatives in place to optimize cash flow , improve profitability and prudently manage capital expenditures , as we continue to prioritize debt repayment and to focus on strengthening our balance sheet . results of operations the company 's results of operations for 2020 and 2019 are highlighted in the table below and discussed in the following paragraphs . replace_table_token_5_th 26 net sales net sales increased $ 180.8 million , or 3.7 % , to $ 5.01 billion in 2020 , as compared to $ 4.83 billion in 2019. the increase in net sales was primarily attributable to the following ( in millions ) : 2020 attributable to : $ 191.2 increase in net sales related to increased sales volume 74.3 increase in net sales related to an increase in average bottle/can sales price per unit to retail customers ( 70.7 ) decrease in net sales related to the decrease in fountain syrup sales mainly sold in on-premise locations , which were impacted by covid-19 ( 12.5 ) decrease in sales volume to other coca-cola bottlers ( 1.5 ) other $ 180.8 total increase in net sales net sales by product category were as follows : replace_table_token_6_th product category sales volume of physical cases as a percentage of total bottle/can sales volume and the percentage change by product category were as follows : replace_table_token_7_th as the company introduces new products , it reassesses the category assigned to its products at the sku level , therefore categorization could differ from previously presented results to conform with current period categorization . any differences are not material . the following table summarizes the percentage of the company 's total bottle/can sales volume to its largest customers , as well as the percentage of the company 's total net sales that such volume represents : replace_table_token_8_th 27 cost of sales inputs representing a substantial portion of the company 's cost of sales include : ( i ) purchases of finished products , ( ii ) raw material costs , including aluminum cans , plastic bottles and sweetener , ( iii ) concentrate costs and ( iv ) manufacturing costs , including labor , overhead and warehouse costs . in addition , cost of sales includes shipping , handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers , amortization expense of distribution rights , distribution fees of certain products and marketing credits from brand companies . raw material costs represent approximately 20 % of total cost of sales on an annual basis . cost of sales increased $ 82.4 million , or 2.6 % , to $ 3.24 billion in 2020 , as compared to $ 3.16 billion in 2019. the increase in cost of sales was primarily attributable to the following ( in millions ) : 2020 attributable to : $ 100.8 increase in cost of sales related to increased sales volume ( 48.1 ) decrease in cost of sales related to the decrease in fountain syrup sales mainly sold in on-premise locations , which were impacted by covid-19 45.5 increase in cost of sales primarily related to the change in product mix to meet consumer preferences ( 13.2 ) decrease in sales volume to other coca-cola bottlers ( 2.6 ) other $ 82.4 total increase in cost of sales the company relies extensively on advertising and sales promotions in the marketing of its products . the coca‑cola company and other beverage companies that supply concentrates , syrups and finished products to the company make substantial marketing and advertising expenditures to develop their brand identities and promote sales in the company 's territories . certain of the marketing expenditures by the coca‑cola company and other beverage companies are made pursuant to annual arrangements . the company also benefits from national advertising programs conducted by the coca‑cola company and other beverage companies .
| segment operating results the company evaluates segment reporting in accordance with the financial accounting standards board ( the “ fasb ” ) accounting standards codification topic 280 , segment reporting , each reporting period , including evaluating the reporting package reviewed by the chief operating decision maker ( the “ codm ” ) . the company has concluded the chief executive officer , the chief operating officer and the chief financial officer , as a group , represent the codm . asset information is not provided to the codm . the company believes three operating segments exist . nonalcoholic beverages represents the vast majority of the company 's consolidated net sales and income from operations . the additional two operating segments do not meet the quantitative thresholds for separate reporting , either individually or in the aggregate , and , therefore , have been combined into “ all other. ” 29 the company 's segment results are as follows : replace_table_token_10_th ( 1 ) the entire net sales elimination represents net sales from the all other segment to the nonalcoholic beverages segment . sales between these segments are recognized at either fair market value or cost depending on the nature of the transaction . comparable and adjusted non-gaap results the company reports its financial results in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . however , management believes certain non-gaap financial measures provide users of the financial statements with additional , meaningful financial information that should be considered when assessing the company 's ongoing performance . management also uses these non-gaap financial measures in making financial , operating and planning decisions and in evaluating the company 's performance . non-gaap financial measures should be viewed in addition to , and not as an alternative for , the company 's reported results prepared in accordance with gaap . the company 's non-gaap financial information does not represent a comprehensive basis of accounting .
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if the estimated undiscounted cash flows are not sufficient to recover the carrying value of the asset or asset group , we measure an impairment loss as the amount by which the carrying amount of the asset exceeds its fair value . the loss is recorded in the consolidated story_separator_special_tag you should read the following discussion in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in item 8 of this form 10-k. this discussion may contain forward-looking statements that anticipate results that are subject to uncertainty . we discuss in more detail various factors that could cause actual results to differ from expectations in item 1a , risk factors in this form 10-k. overview we are the second largest provider of services in the domestic non-hazardous solid waste industry , as measured by revenue . as of december 31 , 2014 , we operate in 39 states and puerto rico . we provide non-hazardous solid waste collection services for commercial , industrial , municipal and residential customers through 340 collection operations . we own or operate 198 transfer stations , 189 active solid waste landfills and 60 recycling centers . we also operate 72 landfill gas and renewable energy projects . revenue for the year ended december 31 , 2014 increased by 4.4 % to $ 8,788.3 million compared to $ 8,417.2 million in 2013 . this change in revenue is due to increases in average yield of 1.4 % , fuel recovery fees of 0.1 % , volume of 2.0 % , recycled commodities of 0.1 % and acquisitions , net of divestitures of 0.8 % . the following table summarizes our revenue , costs and expenses for the years ended december 31 , 2014 , 2013 and 2012 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_7_th our pre-tax income was $ 885.3 million , $ 851.2 million and $ 823.9 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . our net income attributable to republic services , inc. was $ 547.6 million , or $ 1.53 per diluted share for the year ended december 31 , 2014 , compared to $ 588.9 million , or $ 1.62 per diluted share , for the year ended december 31 , 2013 , and $ 571.8 million , or $ 1.55 per diluted share , for the year ended december 31 , 2012 . during each of the three years ended december 31 , 2014 , 2013 and 2012 , we recorded a number of charges and other expenses and benefits that impacted our pre-tax income , net income attributable to republic services , inc. ( net income – republic ) and diluted earnings per share as noted in the following table ( in millions , except per share data ) . additionally , see our “ cost of operations , ” “ selling , general and administrative expenses ” and “ income taxes ” discussions contained in the results of operations section of this management 's discussion and analysis of financial condition and results of operations for a discussion of other items that impacted our earnings . 26 replace_table_token_8_th ( 1 ) the aggregate impact of these items noted to adjusted diluted earnings per share totals to $ 0.01 for the year ended december 31 , 2014. we believe that presenting adjusted pre-tax income , adjusted net income attributable to republic services , inc. , and adjusted diluted earnings per share , which are not measures determined in accordance with accounting principles generally accepted in the united states ( u.s. gaap ) , provides an understanding of operational activities before the financial impact of certain items . we use these measures , and believe investors will find them helpful , in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period . we have incurred comparable charges and costs in prior periods , and similar types of adjustments can reasonably be expected to be recorded in future periods . in the case of the bridgeton remediation charges , we are adjusting such amounts due to their significant effect on our operating results ; however , in the ordinary course of our business , we often incur remediation adjustments that we do not adjust from our operating results . our definition of adjusted pre-tax income , adjusted net income attributable to republic services inc. , and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies . negotiation and withdrawal costs - central states pension and other funds . during the year ended december 31 , 2014 , we recorded charges to earnings of $ 1.5 million , primarily related to costs associated with our 2013 withdrawal from the central states , southeast and southwest areas pension fund ( the fund ) . during the years ended december 31 , 2013 and 2012 , we recorded charges to earnings of $ 157.7 million and $ 35.8 million , respectively , primarily related to our negotiation and withdrawal liability from the fund . restructuring charges . during the fourth quarter of 2012 , we announced a restructuring of our field and corporate operations to create a more efficient and competitive company . these changes included consolidating our field regions from four to three and our areas from 28 to 20 , relocating office space , and reducing administrative staffing levels . during the year ended december 31 , 2014 , we incurred costs of $ 1.8 million due to a change in estimate of amounts recoverable from sublet income associated with abandoned office space with non-cancellable lease terms . during the years ended december 31 , 2013 and 2012 , we incurred $ 8.6 million and $ 11.1 million , respectively , of restructuring charges , which consisted of severance and other employee termination benefits , relocation benefits , and the closure of offices with lease agreements with non-cancelable terms . story_separator_special_tag diluted earnings per share we expect 2015 diluted earnings per share to be in the range of $ 1.98 to $ 2.04. property and equipment , net in 2015 , we anticipate receiving approximately $ 885 million of property and equipment , net of proceeds from sales of property and equipment , as follows : replace_table_token_9_th story_separator_special_tag > 2013 our cost of operations increased $ 393.4 million or , as a percentage of revenue , 1.8 % for the year ended december 31 , 2014 compared to 2013 , primarily as a result of the following : labor and related benefits increased due to increased hourly and salaried wages as a result of merit increases and higher collection volumes . the central and east regions experienced unfavorable weather conditions during the first quarter of 2014 , which contributed to increases in labor expense , resulting from lower labor productivity . transfer and disposal costs increased primarily due to higher collection volumes . during each of 2014 and 2013 , approximately 68 % of the total waste volume we collected was disposed at landfill sites that we own or operate ( internalization ) . maintenance and repairs expense increased due to higher collection volume , cost of parts , internal labor , third party truck repairs , vehicle complexity and costs associated with our fleet maintenance initiative . transportation and subcontract costs increased primarily due to new national accounts contracts and subcontracted work resulting from growth in landfill special waste volume . our fuel costs decreased due to our continued conversion to lower cost cng , lower prices of diesel fuel , and higher alternative fuel tax credits recognized in 2014. the national average fuel cost per gallon for 2014 was $ 3.83 compared to $ 3.92 for 2013 , a decrease of $ 0.09 or approximately 2 % . at current consumption levels , we believe a twenty-cent per gallon change in the price of diesel fuel would change our fuel costs by approximately $ 26 million per year . offsetting these changes in fuel expense would be changes in our fuel recovery fee charged to our customers . at current participation rates , we believe a twenty-cent per gallon change in the price of diesel fuel changes our fuel recovery fee by approximately $ 25 million per year . franchise fees and taxes increased due primarily to volume increases in our landfill line of business . landfill operating expenses increased due to volume increases in our landfill line of business . additionally , during 2013 , we recorded favorable remediation adjustments of $ 17.1 million , of which $ 15.0 million relates to changes in the estimated timing of payments for our remediation obligations , which did not recur in 2014. risk management expenses increased primarily due to unfavorable actuarial development in our vehicle liability program in 2014 , compared to favorable actuarial development in our workers ' compensation , vehicle liability and general liability insurance programs in 2013. during 2014 , we continued to see favorable development in our workers ' compensation program . 32 cost of goods sold relates to rebates paid for volumes delivered to our recycling facilities . cost of goods sold in aggregate dollars increased primarily due to an increase in brokering and production of recycled commodity volumes . other expenses increased primarily due to higher facility operating costs , including property taxes related to infrastructure investments . other expenses also increased due to higher utility costs associated with the unfavorable weather conditions experienced in our central and east regions during the first quarter of 2014 , as well as $ 4.8 million of 2012 alternative fuel tax credits recognized during the first quarter of 2013 , which did not recur in 2014. during 2014 , we updated our cost and timeline estimates to build and operate a leachate management facility and related infrastructure , manage the remediation area and monitor our closed bridgeton landfill in missouri . accordingly , we recorded environmental remediation charges of $ 210.6 million . additionally , we recorded certain remediation charges for the superfund site . during 2013 , we recorded environmental remediation charges in the amount of $ 108.7 million to manage the remediation area and monitor the site . cost of operations – 2013 compared to 2012 our cost of operations increased $ 229.0 million or , as a percentage of revenue , an increase of 0.5 % for the year ended december 31 , 2013 compared to 2012 , primarily as a result of the following : labor and related benefits increased due to increased hourly and salaried wages as a result of merit increases , health care costs and collection volumes . transfer and disposal costs increased primarily due to higher prices and volumes disposed at third party sites . during 2013 , approximately 68 % of the total waste volume we collected was disposed at landfill sites that we own or operate ( internalization ) compared to 67 % for 2012. maintenance and repairs expense increased due to higher collection volume , cost of parts , internal labor , third party truck repairs and costs associated with our fleet maintenance initiative . container and compactor maintenance had an unfavorable impact on maintenance and repairs expense due primarily to increased container repairs resulting from unit growth in our commercial and industrial lines of business . subcontract costs increased primarily due to new national accounts contracts and subcontracted work . transportation costs increased due to an increase in transfer station volumes and increased fuel surcharges . our fuel costs in aggregate dollars and as a percentage of revenue decreased $ 13.4 million and 0.4 % , respectively , due to our continued conversion to lower cost cng and alternative fuel tax credits . average fuel costs per gallon for 2013 were $ 3.92 compared to $ 3.97 for 2012 , a decrease of 1 % . franchise fees and taxes increased due to increased collection revenue in franchised markets as well as increased host fees and taxes due to increased landfill volumes .
| results of operations revenue we generate revenue primarily from our solid waste collection operations . our remaining revenue is from other services , including transfer station services , landfill disposal and recycling . our residential and commercial collection operations in some markets are based on long-term contracts with municipalities . certain of our municipal contracts have annual price escalation clauses that are tied to changes in an underlying base index such as the consumer price index . we generally provide commercial and industrial collection services to customers under contracts with terms up to three years . our transfer stations , landfills and , to a lesser extent , our recycling facilities generate revenue from disposal or tipping fees charged to third parties . in general , we integrate our recycling operations with our collection operations and obtain revenue from the sale of recycled commodities . other non-core revenue consists primarily of revenue from national accounts , which represents the portion of revenue generated from nationwide contracts in markets outside our operating areas where the associated waste handling services are subcontracted to local operators . consequently , substantially all of this revenue is offset with related subcontract costs , which are recorded in cost of operations . 29 the following table reflects our revenue by service line for the years ended december 31 , 2014 , 2013 and 2012 ( in millions of dollars and as a percentage of revenue ) : replace_table_token_10_th the following table reflects changes in our revenue for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_11_th revenue – 2014 compared to 2013 during the year ended december 31 , 2014 , we experienced the following changes in our revenue as compared to 2013 : average yield increased revenue by 1.4 % due to positive pricing in all lines of business .
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overview resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 60,700 residential , commercial and industrial customers in roanoke , virginia , and the surrounding localities , through its roanoke gas subsidiary . roanoke gas also provides certain unregulated services . as a wholly-owned subsidiary of resources , midstream is a 1 % member in the mountain valley pipeline , llc . more information regarding the investment in mvp is provided under the equity investment in mountain valley pipeline section below . the unregulated operations represent less than 2 % of revenues and margins of resources . the utility operations of roanoke gas are regulated by the scc , which oversees the terms , conditions , and rates to be charged to customers for natural gas service , safety standards , extension of service , accounting and depreciation . roanoke gas is also subject to federal regulation from the department of transportation in regard to the construction , operation , maintenance , safety and integrity of its transmission and distribution pipelines . ferc regulates prices for the transportation and delivery of natural gas to the company 's distribution system and underground storage services . roanoke gas is also subject to other regulations which are not necessarily industry specific . more than 98 % of the company 's revenues , excluding equity in earnings of mvp , are derived from the sale and delivery of natural gas to roanoke gas customers . the scc authorizes the rates and fees the company charges its customers for these services . these rates are designed to provide the company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather . the company has completed the transition to the 21 % federal statutory income tax rate as a result of the tcja that was signed into law in december 2017. since the implementation of the new tax rates , the company has recorded a provision for refund related to estimated excess revenues collected from customers under approved billing rates designed to recover expenses and provide a rate of return based on a federal tax rate of 34 % . beginning january 1 , 2019 , roanoke gas incorporated the effect of the 21 % federal tax rate with the implementation of new non-gas base rates , as filed in its current rate application , and began refunding the excess revenues associated with the change in the tax rate over the subsequent 12-month period . the company also recorded a regulatory liability related to the excess deferred income taxes on the regulated operations of roanoke gas . these excess deferred income taxes are being 16 refunded to customers over a 28-year period . the scc staff report issued , as part of the audit of the company 's non-gas rate application , indicated no changes to the amounts for excess revenue collected and the excess deferred taxes to be refunded to customers . the company expects to complete the refund of the excess revenues by december and will continue to refund the excess deferred taxes over time . additional information regarding the tcja and non-gas base rate application is provided under the regulatory and tax reform section below . as mentioned above , the company currently has a non-gas base rate application pending before the scc . roanoke gas implemented the non-gas rates contained in its rate application for natural gas service rendered to customers on or after january 1 , 2019. these non-gas rates are subject to refund pending audit , hearing and a final order issued by the scc . on june 28 , 2019 , the scc staff issued its report and findings from the audit of the rate application . in its report , the scc staff recommended a lower non-gas base rate increase than was requested in the rate application , which is normal and expected . in addition , the scc staff recommended a change in rate design between customer base charge and volumetric rates , shifting much of the increase in non-gas base rates from customer base charges to the volumetric components . at the hearing held in august 2019 , management provided additional testimony and rebuttal to certain proposed adjustments in response to the scc staff report . after evaluating the adjustments proposed by the scc staff and the testimony provided at the hearing , management updated its assumptions used in estimating the refund amount included in the financial statements . the hearing examiner 's report and final order from the scc is not expected until december 2019 or early 2020. upon receipt of the final order , the company will adjust the interim rates to the those approved in the rate order and finalize the rate refund based on the approved rates . subsequent to year end , the company received the hearing examiner 's reports . see note 15 and the regulatory and tax reform section below for additional information . the company is committed to the safe and reliable delivery of natural gas to its customers . since 1991 , the company has placed an emphasis on the modernization of its distribution system through the renewal and replacement of its cast iron and bare steel natural gas distribution pipelines and other system improvements . in 2017 , the company completed the replacement of all cast iron and bare steel pipe and is continuing its renewal program with other qualified infrastructure replacement programs including the renewal of first generation , pre-1973 plastic pipe . the company is also dedicated to the safeguarding of its information technology systems . these systems contain confidential customer , vendor and employee information as well as important financial data . there is risk associated with the unauthorized access of this information with a malicious intent to corrupt data , cause operational disruptions , or compromise information . story_separator_special_tag the combination of a 10 % reduction in the average cost of gas in storage during fiscal 2019 and a 5 % reduction in the icc factor , resulted in a decline in icc revenues of approximately $ 92,000 from fiscal 2018. this compares to a decline of $ 35,000 in icc revenues for fiscal 2018 compared to fiscal 2017. based on current storage balances and natural gas futures , the average dollar balance of gas in storage should remain stable and , with a more consistent icc factor , should result in less volatility in icc revenues . the company 's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers . the cost of natural gas is considered a pass-through cost and is independent of the non-gas rates of the company . this rate component , referred to as the pga , allows the company to pass along to its customers increases and decreases in natural gas costs incurred by its regulated operations . on at least a quarterly basis , the company files a pga rate adjustment request with the scc to adjust the gas cost component of its rates up or down depending on projected price and activity . once administrative approval is received , the company adjusts the gas cost component of its rates to reflect the approved amount . as actual costs will differ from the projections used in establishing the pga rate , the company will either over-recover or under-recover its actual gas costs during the period . the difference between actual costs incurred and costs recovered through the application of the pga is recorded as a regulatory asset or liability . at the end of the annual deferral period , the balance is amortized over an ensuing 12-month period as amounts are reflected in customer billings . the economic environment has a direct correlation with business and industrial production , customer growth and natural gas utilization . currently , the local economy continues to show modest growth and should continue to improve absent a major economic setback on a local , regional or national level . story_separator_special_tag summarized below : replace_table_token_9_th operations and maintenance expense - operations and maintenance expense increase d by $ 1,617,591 , or 13 % , from last year primarily due to higher compensation costs , amortization of regulatory assets , corporate insurance costs , lower capitalized overheads , maintenance activities and higher bad debt expense . total compensation costs increased by $ 647,000 due to higher staffing levels in regulatory and operations support combined with wage increases . beginning in january 2019 , concurrent with the implementation of new non-gas rates , the company began amortizing certain regulatory assets for which recovery was included in the rate application . a total of $ 372,000 was charged to expense related to the amortization of these assets . most of the regulatory assets have a 5-year amortization period . corporate insurance expense increased by $ 125,000 due to higher premiums related to increased liability limits and higher deductible reserves . capitalized overheads declined by $ 255,000 due to lower overall capital expenditures and reduced lng production related to timing of facility upgrades at the plant . contracted maintenance related to work on the lng plant and brush clearing along the company 's transmission right of way increased maintenance costs by $ 186,000. bad debt expense increased by $ 55,000 associated with increased customer billings . general taxes - general taxes increased $ 188,784 , or 10 % , primarily due to higher property taxes associated with increases in utility property and higher payroll taxes . 20 depreciation - depreciation expense increased by $ 497,930 , or 7 % , corresponding to a 6 % increase in utility plant investment . equity in earnings of unconsolidated affiliate - the equity in earnings of the mvp investment increased by $ 2,081,817 due to afudc related to increased investment in the project . total cash investment in fiscal 2019 was nearly $ 21 million . the investment in mountain valley pipeline and the related afudc earnings are discussed further under the equity investment in mountain valley pipeline section below . other income ( expense ) , net - other income increased by $ 107,014 primarily due to a full year of revenue sharing received by the company under the gas supply asset management agreement and the adoption of asu 2017-07. revenue sharing fees increased by $ 313,000 as the incentive mechanism was only in effect for a portion of last year . asu 2017-07 requires that net periodic benefit costs , other than service cost , be presented outside of income from operations . as a result of the adoption of this asu , the prior years financial statements have been adjusted retrospectively with the reclassification of $ 123,000 in net expense reduction from operations and maintenance to other income for fiscal 2018. current year net expense reductions related to other benefit costs were less than $ 2,000. the remaining difference is attributable to pipeline assessments and charitable contributions . see the regulatory and tax reform section below for more information on revenue sharing and note 1 for information on the adoption of asu 2017-07. interest expense - total interest expense increased by $ 1,156,986 , or 47 % , due to a 41 % increase in the average total debt outstanding during the year attributed to the investment in mvp and financing expenditures in support of roanoke gas ' capital budget . the company contributed nearly $ 21 million to its investment in mvp during the year as midstream 's borrowing increased by more than $ 22 million with a corresponding increase in interest expense of $ 832,000. roanoke gas ' total borrowing increased by more than $ 10 million related to the issuance of an unsecured note to refinance a portion of the line-of-credit , which accounted for the remaining increase in interest expense .
| results of operations the analysis on the results of operations is based on the consolidated operations of the company , which is primarily associated with the utility segment . additional segment analysis is provided in areas where the investment in affiliates segment ( investment in mvp and southgate ) represent a significant component of the expense comparison . 18 fiscal year 2019 compared with fiscal year 2018 the table below reflects operating revenues , volume activity and heating degree days . replace_table_token_6_th replace_table_token_7_th total gas utility operating revenues for the year ended september 30 , 2019 increased by 5 % from the year ended september 30 , 2018 primarily due to the implementation of higher non-gas rates and slightly higher gas costs . the company implemented new non-gas base rates effective for natural gas service rendered on or after january 1 , 2019 , subject to refund . the revenues have been reduced by management 's estimate of a rate refund pending final resolution of the rate application and order by the scc . total natural gas deliveries decreased by less than 1 % from last year primarily due to warmer weather , offset by increased industrial consumption . industrial consumption , as reflected in the transportation and interruptible volumes , increased due to a significant increase in usage by one customer and a large commercial customer that transferred to firm transportation during fiscal 2019. residential and commercial customers ' natural gas usage tends to be more weather sensitive as reflected by a 3 % decline in volumes on 4 % fewer heating degree days . after adjusting for wna and the transfer of the large commercial customer to firm transportation , total residential and commercial volumes reflect an increase of more than 1 % .
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any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity . we have the power , with the approval of our board of directors , to provide such indemnification and advancement story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes included in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our current expectations , estimates , forecasts and projections . overview we are a maryland corporation that is focused on investing in , financing and managing a portfolio of commercial real estate debt investments . in january 2020 , we entered into a series of transactions with subsidiaries of orix corporation usa ( `` orix usa '' ) , a diversified financial company with the ability to provide investment capital and asset management services to clients in the corporate , real estate and municipal finance sectors . we entered into a new management agreement with orec investment management , llc doing business as lument investment management ( the `` manager '' or `` lument im '' ) , while another affiliate of orix usa purchased an ownership stake of approximately 5.0 % through a privately-placed stock issuance . the transactions are expected to enhance the scale of lft and generate shareholder value through leveraging orix usa 's expansive originations , asset management and servicing platform . lument im is an affiliate of lument , a nationally recognized leader in multifamily and seniors housing and care finance . the company leverages lument 's broad platform and significant expertise when originating and underwriting investments . we invest primarily in transitional floating rate cre mortgage loans with an emphasis on middle market multifamily assets . we may also invest in other cre-related investments including mezzanine loans , preferred equity , commercial mortgage-backed securities , fixed rate loans , construction loans and other cre debt instruments . we finance our current investments in transitional multifamily and other cre loans primarily through match term non-recourse cre clos . we may utilize warehouse repurchase agreements or other forms of financing in the future . our primary sources of income are net interest from our investment portfolio and non-interest income from our mortgage loan-related activities . net interest income represents the interest income we earn on investments less the expense of funding these investments . our investments typically have the following characteristics : sponsors with experience in particular real estate sectors and geographic markets ; located in u.s. markets with multiple demand drivers , such as growth in employment and household formation ; fully funded principal balance greater than $ 5 million ; loan to value ratio up to 85 % of as-is value and up to 75 % of as stabilized value ; floating rate loans tied to one-month u.s. denominated libor or any index replacement ; three-year term with two one-year extension options . we believe that our current investment strategy provides significant opportunities to achieve attractive risk-adjusted returns for our stockholders over time . however , to capitalize on the investment opportunities at different points in the economic and real estate investment cycle , we may modify or expand our investment strategy . we believe that the flexibility of our strategy , which is supported by significant cre experience of lument 's investment team , and the extensive resources of orix usa , will allow us to take advantage of changing market conditions to maximize risk-adjusted returns to our stockholders . we have elected to be taxed as a reit and comply with the provisions of the internal revenue code with respect thereto . accordingly , we are generally not subject to federal income tax on our reit taxable income that we currently distribute to our stockholders so long as we maintain our qualification as a reit . our continued qualification as a reit depends on our ability to meet , on a continuing basis , various complex requirements under the internal revenue code relating to , among other things , the source of our gross income , the composition and values of our assets , our distribution levels and the concentration of ownership of our capital stock . even if we maintain our qualification as a reit , we may become subject to some federal , state and local taxes on our income generated in our wholly owned taxable reit subsidiary ( `` trs '' ) , five oaks acquisition corp. ( `` foac '' ) . recent developments as of december 31 , 2020 , there is an ongoing global outbreak of a novel coronavirus , or covid-19 . on march 11 , 2020 , the who declared covid-19 a global pandemic , and numerous countries , including the united states , declared national emergencies with respect to covid-19 . the united states and other countries reacted to the covid-19 outbreak with unprecedented government intervention , including interest rate cuts and economic stimulus . the global impact of the outbreak rapidly evolved ( and continues to do so ) , and many countries reacted by instituting , or strongly encouraging , quarantines and restrictions on travel , closing financial markets and or restricting trading , limiting operations of non-essential offices , retail centers , hotels , and other businesses , and taking other restrictive measures to help slow the spread of covid-19 . businesses also implemented similar precautionary measures . such measures , as well as the general uncertainty surrounding the dangers and impact of covid-19 , have created disruption in global supply chains , increasing rates of unemployment and adversely impacting many industries , including industries related to the collateral underlying certain of our loans . moreover , with the continued spread of covid-19 , governments and businesses are likely to continue to take aggressive measures to help slow its spread . story_separator_special_tag as a result of this share purchase , an affiliate of orix usa owns approximately 5.0 % of lft 's outstanding common shares . also , in connection with the transaction , james c. hunt resigned as the company 's chairman of the board , but continues to serve as a member of the board . in addition , the board appointed interim chief financial officer james a. briggs as chief financial officer of the company . factors impacting our operating results market conditions . the results of our operations are and will continue to be affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets and the supply of , and demand for , our target assets in the marketplace . our net interest income , will vary primarily as a result of changes in market interest rates and prepayment speeds , and by the ability of the borrowers underlying our commercial mortgage loans to continue making payments in accordance with the contractual terms of their loans , which may be impacted by unanticipated credit events experienced by such borrowers , particularly in light of the ongoing covid-19 pandemic . interest rates vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty , and have most recently been impacted by the ongoing covid-19 pandemic . our operating results will also be affected by general u.s. real estate fundamentals and the overall u.s. economic environment , including the pace and degree of recovery from the ongoing covid-19 pandemic . in particular , our strategy is influenced by the specific characteristics of the underlying real estate markets , including prepayment rates , credit market conditions and interest rate levels . changes in market interest rates . generally , our business model is such that rising interest rates will generally increase our net interest income , while declining rates will generally decrease our net interest income . substantially all of our investments and all of our collateralized loan obligations are indexed to 30-day libor , and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes . additionally , we benefit from 100 % of our commercial loan portfolio having libor floors as a further mitigant to interest variability , with a weighted average libor floor of 1.64 % as of december 31 , 2020. as of december 31 , 2020 , 100 % of the loans in our commercial loan portfolio had a libor floor greater than the current spot libor rate . while we expect low libor rates to persist amidst the current covid-19 pandemic , no assurance can be made that our current portfolio profile , including its libor floor will be maintained . a decrease to the weighted average libor floor would result in a decrease to net interest income if the prevailing spot libor rate is less than the weighted average libor floor . libor is expected to be discontinued after 2021. as of december 31 , 2020 , 100 % of commercial mortgage loans by principal balance earned a floating rate of interest indexed to libor , and 100 % of our outstanding collateralized loan obligations bear interest indexed to libor . all of these arrangements provide procedures for determining an alternative base rate in the event that libor is discontinued . regardless , there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than libor and any other unforeseen impacts of the potential discontinuation of libor . we intend to monitor the developments with respect to the potential phasing out of libor after 2021 and to work with our borrowers to minimize the impact of any libor transition on our financial condition and results of operations , but can provide no assurances regarding the impact of the discontinuation of libor . we finance a portion of our commercial loan portfolio with equity , and as such , decreases in interest rates may reduce our net interest income and may impact the competition for and supply of new investment opportunities . in addition to the risk related to fluctuations in cash flows associated with movements in interest rates , there is also the risk of non-performance 32 on floating rate assets . in the case of significant increase in interest rates , the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying the mortgages and , potentially , contribute to non-performance or , in severe cases , default . credit risk . our commercial mortgage loans and other investments are also subject to credit risk . the performance and value of our loans and other investments depend upon the sponsor 's ability to operate properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us . to monitor this risk , the manager 's asset management team reviews our portfolio and maintains regular contact with borrowers , co-lenders and local market experts to monitor the performance of the underlying collateral , anticipate borrower , property and market issues and , to the extent necessary or appropriate , enforce our rights as lender . the market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors , including , but not limited to , national , regional and local economic conditions ( which may be adversely affected by industry slowdowns and other factors ) ; local real estate conditions ; changes or continued weakness in specific industry segments ; construction quality , age and design ; demographic factors ; and retroactive changes to building or similar codes .
| results of operations as of december 31 , 2020 , we no longer consolidated the assets and liabilities of the fremf 2012-kf01 trust , which repaid in full in january 2019 , and no longer consolidate the interest and expenses of the trust . as of december 31 , 2020 , we consolidated the assets and liabilities of two commercial real estate collateralized loan obligations , hunt cre 2017-fl1 , ltd. and hunt cre 2018-fl2 , ltd. our results of operations were impacted in part by ( i ) the repayment in full of the fremf 2012-kf01 trust in the first quarter of 2019 ; ( ii ) the redemption of preferred stock in the first quarter of 2019 ; and ( iii ) the draw of secured term loan in the first quarter of 2019. consequently , our results of operations for the periods ended december 31 , 2020 and december 31 , 2019 are not directly comparable . additionally , although the covid-19 pandemic did not significantly impact our operating results for the period ended december 31 , 2020 , other than previously deferred debt costs of $ 624,816 expensed in the second quarter of 2020 , should the pandemic and resulting economic deterioration persist , we expect it may further affect our business , financial condition , results of operations and cash flows going forward , including but not limited to , interest income , credit losses and commercial loan reinvestment , in ways that may vary widely depending on the duration and magnitude of the covid-19 pandemic and ensuing economic turmoil , as well as numerous factors , many of which are out of our control .
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if we had not extended the term of the a & r employment agreement and or dr. barry 's employment were not extended beyond december 31 , 2020 , dr. barry would have been entitled to the payments and benefits set forth in ( i ) - ( vi ) above ; however , if we had offered to extend the a & r employment agreement beyond december 31 , 2020 on terms no less favorable than the terms of the a & r employment agreement and dr. barry did not agree to such extension , the one-time lump sum severance payment story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. overview we are a medical device company focusing on the development and commercialization of our proprietary micronet stent platform technology for the treatment of complex vascular and coronary disease . a stent is an expandable “ scaffold-like ” device , usually constructed of a metallic material , that is inserted into an artery to expand the inside passage and improve blood flow . our micronet , a micron mesh sleeve , is wrapped over a stent to provide embolic protection in stenting procedures . our cguard carotid embolic prevention system ( “ cguard eps ” ) combines micronet and a self-expandable nitinol stent in a single device for use in carotid artery applications . our cguard eps received ce mark approval in the european union in march 2013 , and we launched its release on a limited basis in october 2014. in january 2015 , a new version of cguard , with a rapid exchange delivery system , received ce mark approval in europe and in september 2015 , we announced the full market launch of cguard eps in europe . subsequently , we launched cguard eps in russia and certain countries in latin america and asia , including india . we expect to receive approval to launch cguard eps in brazil , and we are seeking strategic partners for potential launch of cguard eps in japan and china . in april 2017 , we had a pre-investigational device exemption ( “ ide ” ) submission meeting with the u.s. food and drug administration ( “ fda ” ) regarding cguard eps where we presented materials that we believed would support a formal ide submission seeking approval to conduct a human clinical trial in the united states which included our draft synopsis for the clinical trial design . the fda agreed to our pre-clinical test plan and clinical trial design . on july 26 , 2019 , we submitted an ide application for cguard eps . in connection with such application , on august 23 , 2019 , we received a request for additional information from the fda in support of our application . we continue to work closely with the fda to address fda 's information and testing requests in support of our pending ide application , as the initiation of clinical testing in the u.s. is our current highest priority . following resolution of all comments from the fda , we plan to re-submit the ide application , as ide approval by the fda would be a critical step toward the commencement of a human clinical trial using cguard eps in the united states . additionally we intend to continue to evaluate potential product enhancements and manufacturing enhancements for cguard eps that are expected to reduce cost of goods and or provide the best-in-class performing delivery system . in furtherance of our strategy focusing on establishing cguard eps as a viable alternative to vascular surgery , we are exploring adding a procedural protection device to our portfolio incorporating the principal of reverse flow of the carotid artery as an adjunctive alternative to femoral access . we can not give any assurance that we will receive sufficient ( or any ) proceeds from future financings or the timing of such financings , if ever for potential product enhancements and manufacturing enhancements . in addition , such additional financings may be costly or difficult to complete . even if we receive sufficient proceeds from future financings , there is no assurance that we will be able to timely apply for ce mark approval following our receipt of such proceeds . we believe these improvements may allow us to reduce cost of goods and increase penetration in our existing geographies and better position us for entry into new markets . we consider the addressable market for our cguard eps consists of individuals with diagnosed , symptomatic high-grade carotid artery stenosis ( hgcs , ≥70 % occlusion ) for whom an intervention is preferable to medical ( drug ) therapy . this group includes not only carotid artery stenting patients but also individuals undergoing carotid endarterectomy , as the two approaches compete for the same patient population . assuming full penetration of the intervention caseload by cguard eps , we estimate that the addressable market for cguard eps was approximately $ 1.0 billion in 2017 . ( source : health research international 2017 results of update report on global carotid stenting procedures and markets by major geography and addressable markets ) . 53 our mguard prime embolic protection system ( “ mguard prime eps ” ) is marketed for use in patients with acute coronary syndromes , notably acute myocardial infarction ( heart attack ) and saphenous vein graft coronary interventions ( bypass surgery ) . mguard prime eps combines micronet with a bare-metal cobalt-chromium based stent . mguard prime eps received ce mark approval in the european union in october 2010 for improving luminal diameter and providing embolic protection . however , as a result of a shift in industry preferences away from bare-metal stents in favor of drug-eluting ( drug-coated ) stents , in 2014 we decided to curtail further development of this product in order to focus on the development of a drug-eluting stent product , mguard des . story_separator_special_tag we elected the short-term lease recognition exemption for all leases that qualify . this means , for those leases that qualify , we will not recognize 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 . instead , we will continue to recognize the lease payments for those leases in profit or loss on a straight-line basis over the lease term . 55 the new standard had a material effect on our financial statements . the most significant effects of adoption relate to ( 1 ) the recognition of new operating lease rou assets and operating lease liabilities on its balance sheet for real estate operating ; and ( 2 ) providing significant new disclosures about its leasing activities . upon adoption , we recognized additional operating lease liabilities , of approximately $ 1.2 million based on the present value of the remaining lease payments under current leasing standards for existing operating leases . we also recognized corresponding rou assets of approximately $ 1.2 million . lease terms may include options to extend or terminate the lease when we are reasonably certain that the option will be exercised . lease expense is recognized on a straight-line basis over the lease term . our leases may include variable payments based on measures that include changes in price index which are expensed as incurred and presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments . revenue recognition a contract with a customer exists only when : 1 ) the parties to the contract have approved it and are committed to perform their respective obligations , 2 ) we can identify each party 's rights regarding the distinct goods or services to be transferred ( “ performance obligations ” ) , 3 ) we can determine the transaction price for the goods or services to be transferred , 4 ) the contract has commercial substance and 5 ) it is probable that we will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer . revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the customer , excluding sales taxes . revenue from sales of goods , including sales to distributors , is recognized when the customer obtains control of the product , once we have a present right to payment , legal title , and risk and rewards of ownership are obtained by the customer . this occurs when products are shipped . we recognize the incremental costs of obtaining contracts as an expense since the amortization period of the assets that we otherwise would have recognized is one year or less . the costs are recorded under selling and marketing expenses . we recognize revenue net of value added tax ( vat ) . research and development costs research and development costs are charged to the statement of operations as incurred . share-based compensation employee option awards are classified as equity awards and accounted for using the grant-date fair value method . the fair value of share-based awards is estimated using the black-scholes valuation model and expensed over the requisite service period , net of estimated forfeitures . we elected to account for forfeitures as they occur . we elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach . in addition , certain of our share-based awards are market- and performance-based and dependent upon achieving certain goals . with respect to performance-based awards , we estimate the expected pre-vesting award probability that the performance conditions will be achieved . we only recognize expense for those shares that are expected to vest . fair value measurement we measure fair value and disclose fair value measurements for financial assets and liabilities . fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels , which are described below : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . the fair value hierarchy gives the highest priority to level 1 inputs . level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . the fair value hierarchy gives the lowest priority to level 3 inputs . in determining fair value , we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value . 56 story_separator_special_tag decrease of $ 11,000 in miscellaneous expenses during the twelve months ended december 31 , 2019. tax expenses ( income ) . for the twelve months ended december 31 , 2019 , tax expenses increased by $ 24,000 compared to the twelve months ended december 31 , 2018. net loss . our net loss increased by $ 2,800,000 , or 38.7 % , to $ 10,040,000 , for the twelve months ended december 31 , 2019 , from $ 7,240,000 during the twelve months ended december 31 , 2018. the increase in net loss resulted primarily from an increase of $ 1,966,000 in operating expenses , an increase of $ 571,000 in financial expenses and a decrease of $ 239,000 in gross profit .
| results of operations twelve months ended december 31 , 2019 compared to the twelve months ended december 31 , 2018 revenues . for the twelve months ended december 31 , 2019 , revenue increased by $ 120,000 , or 3.3 % , to $ 3,721,000 , from $ 3,601,000 during the twelve months ended december 31 , 2018. this increase was predominantly driven by a 10.0 % increase in sales volume of cguard eps from $ 2,970,000 during the twelve months ended december 31 , 2018 , to $ 3,265,000 during the twelve months ended december 31 , 2019. this increase was primarily due to our continued focus on expanding existing markets such as poland , switzerland , italy , and spain and expansion into new geographies such as australia and south africa . this increase was offset by a 27.7 % decrease in sales volume of mguard prime eps from $ 631,000 during the twelve months ended december 31 , 2018 , to $ 456,000 during the twelve months ended december 31 , 2019 , largely driven by the predominant industry preferences favoring drug-eluting stents rather than bare metal stents such as mguard prime eps in stemi patients . in addition , the overall increase mentioned above was offset across the board by shipment delays in the three months ended march 31 , 2019 associated with our then third-party sterilizer 's equipment failure and us having to switch to a new sterilizer . the transition to our new sterilization company was completed in early april 2019 and we do not currently anticipate any future disruptions in fulfilling new orders .
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common stock warrants issued to participants in offering of the company 's common stock on november 8 , 2017 , the company issued a total of 4,657,500 detachable common stock warrants issued with the second public offering of 5,860,000 shares of its common stock at $ 1.00 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. ” 25 overview since our inception in 2004 , we have devoted substantially all of our resources to organizing and staffing our company , conducting research and development activities for our product candidates , business planning , raising capital and acquiring and developing product and technology rights . until august 2016 , we did not have any products approved for sale , and we have generated minimal revenue from product sales to date . we have primarily funded our operations to date with proceeds from the sale of common stock and preferred stock , the issuance of convertible and other promissory notes and , to a lesser extent , payments received in connection with research grants and licensing fees . through december 31 , 2017 , we had received net proceeds of $ 47.2 million from our sales of common stock , preferred stock and issuance of convertible and other promissory notes and an aggregate of $ 1.6 million from research grants and licensing fees . we have incurred significant operating losses every year since our inception . our net losses were $ 12.3 million and $ 11.0 million for the years ended december 31 , 2017 and 2016 respectively . as of december 31 , 2017 , we had an accumulated deficit of $ 73.6 million . we expect to continue to incur significant expenses and generate operating losses for at least the next 12 months . we have historically utilized , and intend to continue to utilize , various forms of stock-based awards in order to hire , retain and motivate talented employees , consultants and directors and encourage them to devote their best efforts to our business and financial success . in addition , we believe that our ability to grant stock-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees , consultants and directors with the financial interests of our stockholders . as a result , a significant portion of our operating expenses includes stock-based compensation expense . stock-based compensation expense has been , and will continue to be for the foreseeable future , a significant recurring expense in our business and an important part of our compensation strategy . specifically , our stock-based compensation expense for the year ended december 31 , 2017 and december 31 , 2016 was $ 3.7 million and $ 3.4. million , respectively , which represented 30.0 % and 31.4 % , respectively , of our total operating expenses for those periods . story_separator_special_tag tax basis of assets and liabilities , as well as a consideration of net operating loss and credit carry forwards , using enacted tax rates in effect for the period in which the differences are expected to impact taxable income . a valuation allowance is established , when necessary , to reduce deferred tax assets to the amount that is more likely than not to be realized . the company 's effective tax rate for the three and six months ended december 31 , 2017 has been effected by the valuation allowance on the company 's deferred tax assets . since our inception , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2017 , we had federal net operating loss carryforwards of $ 44.1 million which begin to expire in 2023 and state net operating loss carryforwards of $ 44.1 million which began to expire in 2016 , unless utilized . comparison of the years december 31 , 2017 to 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_2_th 27 revenue revenue was $ 52,000 for the year ended december 31 , 2017 , compared to $ 318,000 for the year ended december 31 , 2016. the $ 52,000 of revenue recognized for the year ended december 31 , 2017 represented sales of our product contrapest . we currently sell to end-user customers through a network of distributors . none of these end-user customers comprise a significant percentage of our gross sales . we recognized revenue of $ 132,000 for the year ended december 31 , 2016 for services performed under nih grants and $ 186,000 of licensing fees under our former license agreement with neogen . we do not anticipate additional grant revenue under the nih grants or additional revenue from our former license agreement with neogen . story_separator_special_tag the company has funded its operations to date through the sale of convertible preferred stock and common stock , including an initial public offering of 1,875,000 shares of our common stock on december 8 , 2016 with warrants to purchase an additional 187,500 shares issued to roth capital partners , llc as underwriter , a second offering on november 21 , 2017 of 5,860,000 shares of our common stock at $ 1 per share with warrants issued to investors to purchase an additional 4,657,500 shares of our common stock at $ 1.50 per share , and warrants issued to roth capital partners , llc , as underwriter , to purchase an additional 945,000 shares at $ 1.50 per share , debt financing , consisting primarily of convertible notes and , to a lesser extent , payments received in connection with research grants and licensing fees . at december 31 , 2017 , we had an accumulated deficit of $ 73.6 million and cash and cash equivalents and highly liquid investments of $ 7.1 million . based upon its current operating plan , the company expects that cash and cash equivalents and highly liquid , short term investments at december 31 , 2017 , in combination with anticipated revenue , will be sufficient to fund its current operations for the near future . however , if anticipated revenue targets are not achieved , the company may seek to reduce operating expenses and is likely to require additional capital in order to fund its operating losses and research and development activities by issuing additional debt and equity instruments , until such time as the company is profitable . if such equity or debt financing is not available at adequate levels or on acceptable terms , the company may need to delay , limit or terminate development and commercialization efforts . funding requirements we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we advance field studies of our product candidates in development . in addition , we incur additional costs associated with operating as a public company . in particular , we expect to incur substantial and increased expenses as we : ● continue the research and development of contrapest and our other product candidates , including engaging in any necessary field studies ; ● seek regulatory approvals for contrapest and our other product candidates ; ● scale up manufacturing processes and quantities to prepare for the commercialization of contrapest and any other product candidates for which we receive regulatory approval ; ● establish an infrastructure for the sales , marketing and distribution of contrapest and any other product candidates for which we may receive regulatory approval ; ● attempt to achieve market acceptance for our products ; ● expand our research and development activities and advance the discovery and development programs for other product candidates ; 29 ● maintain , expand and protect our intellectual property portfolio ; and ● add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . cash flows the following table summarizes our sources and uses of cash for each of the years presented : replace_table_token_4_th operating activities . during the year ended december 31 , 2017 , operating activities used $ 9.3 million of cash , primarily resulting from our net loss of $ 12.3 million and changes in our operating assets and liabilities of $ 1.0 million , partially offset by non-cash charges of $ 4.0 million . our net loss was primarily attributed to research and development activities and our selling , general and administrative expenses , as we generated limited product sales , research grant and licensing revenue during the period . net cash used by changes in our operating assets and liabilities for the year ended december 31 , 2017 consisted primarily of a $ 742,000 decrease in accrued expenses and accounts payable , an increase in inventories of $ 483,000 and an increase in accounts receivable and deposits of $ 14,000 , partially offset by a decrease in prepaid expenses of $ 167,000. the decrease in accrued expenses and accounts payable was primarily a result of a $ 1.0 million payment to neogen in fulfillment of our settlement agreement in january 2017 , offset by decreased payments of accrued expenses and accounts payable as a result of negotiation of better payable terms and management of payment timing . during the year ended december 31 , 2016 , operating activities used $ 6.7 million of cash , primarily resulting from our net loss of $ 10.8 million , partially offset by non-cash charges of $ 3.8 million and by changes in our operating assets and liabilities of $ 342,000. our net loss was primarily attributed to research and development activities and our selling , general and administrative expenses , as we generated limited research grant and licensing revenue during the period . net cash used by changes in our operating assets and liabilities for the year ended december 31 , 2016 consisted primarily of an increase in prepaid expenses of $ 301,000 , a $ 221,000 decrease in deferred revenue related to our former license agreement with neogen , an increase in inventories of $ 57,000 and an increase in deposits of $ 3,000 , partially offset by a $ 916,000 increase in accrued expenses and accounts payable and an increase in deferred rent and accounts receivable of $ 8,000. the increase in accrued expenses and accounts payable was due to increased accrual of $ 1 million related to our settlement agreement with neogen . investing activities . during the year ended december 31 , 2017 , we used $ 5.9 million of cash in investing activities , which consisted of $ 5 million in the purchase of short term , highly liquid investments and $ 898,000 used in the purchases of property and equipment .
| components of our results of operations revenue for the years ended december 31 , 2017 and 2016 , we generated revenue from product sales of $ 52,000 and less than $ 1,000 , respectively . except for the product sales noted above , all of our revenue to date has been derived from payments received in connection with research grants and licensing fees received under the former license agreement with neogen . we recognized revenue of $ 0 and $ 132,000 for the years ended december 31 , 2017 and 2016 respectively for services performed under nih grants and $ 0 and $ 186,000 for the years ended december 31 , 2017 and 2016 , respectively , in licensing fees under our former license agreement with neogen . we do not anticipate additional grant revenue under the nih grants or additional revenue from our former license agreement with neogen . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates , which include : ● employee related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; ● expenses incurred in connection with the development of our product candidates ; and ● facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and supplies . we expense research and development costs as incurred . at this time , we can not reasonably estimate the costs for further development of contrapest or the cost associated with the development of any of our other product candidates . we plan to continue to hire employees to support our research and development efforts and anticipate that we will continue to utilize various forms of stock-based compensation awards in order to attract and retain employees for our research and development efforts .
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our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors , including those discussed in “ risk factors ” and elsewhere in this annual report . see the discussion under “ forward looking statements ” beginning on page 1 of this annual report . overview we are engaged in the design , manufacture , marketing and sale of augmented reality wearable display devices also referred to as head mounted displays ( or hmds , but also known as video eyewear or near-eye displays ) , in the form of smart glasses and augmented reality ( ar ) glasses . our ar wearable display devices are worn like eyeglasses or attach to a head worn mount . these devices typically include cameras , sensors , and a computer that enable the user to view , record and interact with video and digital content , such as computer data , the internet , social media or entertainment applications . our wearable display products integrate micro-display technology with our advanced optics to produce compact high-resolution display engines , less than half an inch diagonally , which when viewed through our smart glasses products create virtual images that appear comparable in size to that of a computer monitor or a large-screen television . with respect to our smart glasses and ar products , we are focused on the enterprise , industrial , commercial , and to a lesser degree the consumer markets . all of the mobile display and mobile electronics markets in which we compete have been subject to rapid technological change over the last decade including the rapid adoption of tablets , larger screen sizes and display resolutions along with declining prices on mobile phones and other computing devices , and as a result we must continue to improve our products ' performance and lower our costs . we believe our intellectual property portfolio gives us a leadership position in micro-display projection engines , waveguides , ergonomics , packaging , and optical systems . critical accounting policies and significant developments and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements and related notes appearing elsewhere in this annual report . the preparation of these statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies , many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements , including the statement of operations , balance sheet , cash flow and related notes . we continually evaluate our estimates used in the preparation of our consolidated financial statements , including those related to revenue recognition , bad debts , inventories , warranty reserves , product warranty , carrying value of long-lived assets , derivatives , valuation of stock compensation awards , and income taxes . 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 carrying values of assets and liabilities that are not apparent from other sources . since we can not determine future events and their impact with certainty , the actual results may differ from our estimates . such differences could be material to the consolidated financial statements . we believe that our application of accounting policies , and the estimates inherently required therein , are reasonable . we periodically reevaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate a change . historically , we have found our application of accounting policies to be appropriate , and actual results have not differed materially from those determined using necessary estimates . our accounting policies are more fully described in the notes to our consolidated financial statements included in this annual report on form 10-k. the critical accounting policies , judgments and estimates that we believe have the most significant effect on our financial statements are : · valuation of inventories ; · carrying value of long-lived assets ; · going concern 38 · software development costs ; · revenue recognition ; · product warranty ; · derivatives and fair value measurements ; · stock-based compensation ; and · income taxes . valuation of inventories inventory is stated at the lower of cost or net realizable value , with cost determined on a weighted average first-in , first-out method . inventory includes purchased parts and components , work in process and finished goods . provisions for excess , obsolete or slow-moving inventory are recorded after periodic evaluation of historical sales , current economic trends , forecasted sales , estimated product life cycles and estimated inventory levels . purchasing practices , electronic component obsolescence , accuracy of sales and production forecasts , introduction of new products , product life cycles , product support and foreign regulations governing hazardous materials are factors that contribute to inventory valuation risks . exposure to inventory valuation risks is managed by maintaining safety stocks , minimum purchase lots , managing product and end-of-life issues brought on by aging components or new product introductions , and by utilizing certain inventory minimization strategies such as vendor-managed inventories . the accounting estimate related to valuation of inventories is considered a “ critical accounting estimate ” because it is susceptible to changes from period-to-period due to the requirement for management to make estimates relative to each of the underlying factors , ranging from purchasing to sales , production , and after-sale support . if actual demand , market conditions or product life cycles differ from estimates , inventory adjustments to lower market values would result in a reduction to the carrying value of inventory , an increase in inventory write-offs and a decrease to gross margins . story_separator_special_tag the company uses the black-scholes merton option pricing model to estimate the fair value of stock options granted pursuant to asc topic 718. the application of this pricing model involves assumptions that are judgmental and sensitive in the determination of compensation expense . the fair market value of our common stock on the date of each option grant is determined based on the most recent quoted sales price on our primary trading stock exchange , currently the nasdaq capital market . income taxes we have historically incurred domestic operating losses from both a financial reporting and tax return standpoint . accordingly , we provide deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based upon currently enacted tax laws . any future recorded value of our deferred tax assets will be dependent upon our ability to generate taxable income in the jurisdictions in which we operate . these assets consist primarily of credit carry-forwards and net operating loss carry-forwards and the future tax effects of temporary differences between balances recorded for financial statement purposes and for tax return purposes . a valuation allowance is established for deferred tax assets in amounts for which realization is not considered more likely than not to occur . the accounting estimate related to income taxes is considered a “ critical accounting estimate ” because judgment is exercised in estimating future taxable income , including prudent and feasible tax planning strategies , and in assessing the need for any valuation allowance . to date , we have determined a 100 % valuation allowance is required and accordingly no deferred tax asset has been reflected in our consolidated financial statements . in the event that it should be determined that all or part of a deferred tax asset in the future is more likely than not to be realized , an adjustment ( reduction ) of the valuation allowance would increase income to be recognized in the period such determination was made . in addition , the calculation of our deferred taxes involves dealing with uncertainties in the application of complex tax regulations . as a result , we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement . it is inherently difficult and subjective to estimate such amounts , as this requires us to determine the probability of various possible outcomes . we re-evaluate these uncertain tax positions on a quarterly basis . this evaluation is based on factors including , but not limited to , changes in facts or circumstances , changes in tax law , effectively settled issues under audit and new audit activity . such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period . the company currently has no uncertain tax positions . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are reasonably likely to have , an effect on our financial condition , financial statements , revenues or expenses . 41 recent accounting pronouncements refer to note 1 results of operations for fiscal years ended december 31 , 2019 and december 31 , 2018 the following table compares the company 's consolidated statements of operations data for the years ended december 31 , 2019 and 2018. replace_table_token_3_th 42 sales . there was an overall decrease in product sales for the year ended december 31 , 2019 from those in 2018 of $ 1,694,649 or 22 % . the following table reflects the major components of our sales : replace_table_token_4_th sales of smart glasses decreased to $ 4,798,910 , or a 19 % decline , as compared to 2018. the decrease was driven by reduced sales of our enterprise smart glasses products caused by ( i ) large deliveries of approximately $ 859,000 to ama xperteye inc. in june 2018 and $ 573,000 to sats ltd. in september 2018 as compared to 2019 when we had no such large single customer shipments ; ( ii ) price reductions in the third quarter of 30 % and 33 % on our existing blade and m300xl products commencing in june 2019 , respectively ; ( iii ) with the launch of the m400 early adaptors program ( eap ) , vuzix customers received an m300xl upon initial order and payment and were shipped a m400 as they became available , both at a 28 % reduced retail price ; and ( iv ) customer order deferrals of follow-on orders while they await the production and delivery of the new and more powerful m400 smart glasses for enterprise , which were first made available in late september 2019. offsetting these decreases were sales of the new blade smart glasses which represented approximately 38 % of smart glasses revenues for the year ended december 31 , 2019 , despite a summer sale with a 30 % reduced retail price for the months of july and august supplanted by a 20 % price decrease for the balance of 2019. there were no sales of video eyewear in the 2019 period as the product was discontinued in september 2018. sales of waveguides and display engines for the year ended december 31 , 2019 were $ 152,499 versus $ 185,400 in 2018. sales of engineering services for the year ended december 31 , 2019 increased $ 270,885 to $ 673,151 as compared to $ 402,266 in 2018. the revenue recognized in 2019 for engineering services was a result of two waveguide development projects which commenced
| general and administrative . general and administrative costs include professional fees , investor relations ( ir ) costs including shares and warrants issued for ir services , salaries and related stock compensation , travel costs , office and rental costs . 2018 % of sales 2017 % of sales dollar change % increase ( decrease ) general and administrative $ 6,973,238 86 % $ 6,126,335 111 % $ 846,903 14 % general and administrative costs rose by 14 % or $ 846,903 for the year ended december 31 , 2018 versus the 2017 period primarily because of : increased salary , separation and stock compensation costs of $ 960,100 due to the hiring of new staff as compared to the prior year 's period and separation costs related to the company 's former coo ; an increase of $ 210,862 in legal fees ; an increase in travel expenses of $ 106,174 ; and increased bank , website , insurance , and office equipment and supplies totaling $ 245,435 ; a $ 650,372 decrease in external ir and shareholder related costs ; and a $ 55,393 decrease in audit and sox consultancy costs from the 2017 period when we had been making significant investments in these areas . depreciation and amortization . depreciation and amortization expense for the year ended december 31 , 2018 was $ 1,469,664 as compared to $ 998,528 in the same period in 2017 , an increase of $ 471,136. the increase in depreciation and amortization expense is due to new investments in depreciable assets and investment in an intangible asset ( note 9 ) . ( gain ) loss on inventory revaluation and product discontinuance .
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this asu will have an impact on the company 's disclosures . in august 2018 , the fasb issued asu no . 2018-15 , intangibles - goodwill and other - internal-use software customer 's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract . this asu requires companies to defer specified implementation costs in a cloud computing arrangement that are often expensed under current us gaap story_separator_special_tag ) . net cash provided by operating activities was $ 13.9 million during 2017 compared to $ 8.8 million during 2016. this increase was due to higher net income , after adjusting for non-cash items , offset by unfavorable changes in certain operating assets and liabilities , primarily resulting from higher inventory purchases in 2017. cash flows used in investing activities net cash used in investing activities was $ 17.4 million during 2018 compared to $ 20.8 million during 2017 . this decrease was driven by lower second-generation network additions in 2018 as we substantially completed the deployment of our next-generation ground infrastructure . this decrease was offset partially by higher property and equipment additions during 2018 as we incurred costs to bring our newly developed products into production , including software and other back-office efforts . net cash used in investing activities was $ 20.8 million during 2017 compared to $ 24.6 million during 2016. this decrease was driven by higher property and equipment and second-generation network additions in the prior year , offset partially by an increase in intangible assets in 2017 related to our domestic and international spectrum efforts . cash flows provided ( used in ) by financing activities net cash used in financing activities was $ 18.2 million in 2018 compared to cash provided by financing activities of $ 63.8 million in 2017 . the change in financing activities was driven primarily by lower cash proceeds from equity financings in 2018 , resulting in a decline of cash provided to us of $ 100.9 million , offset partially by lower debt service payments due primarily by the payment of a $ 20.8 million debt restructuring fee in 2017 that did not recur in 2018 . 44 net cash provided by financing activities was $ 63.8 million in 2017 compared to $ 18.5 million in 2016. this increase was due primarily to higher proceeds from equity financings , including primarily the public offering of our common stock in october 2017 of $ 115.0 million , offset by higher debt service payments of $ 63.7 million . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 45 our indebtedness under the facility agreement bears interest at a floating rate of libor plus 3.75 % through june 2019 , increasing by an additional 0.5 % each year thereafter to a maximum rate of libor plus 5.75 % . interest on the facility agreement is payable semi-annual in arrears in june and december of each calendar year . ninety-five percent of our obligations under the facility agreement are guaranteed by bpifrance assurance export s.a.s . ( `` bpifae '' ) ( formerly coface ) . our obligations under the facility agreement are guaranteed on a senior secured basis by all of our domestic subsidiaries and are secured by a first priority lien on substantially all of our assets and our domestic subsidiaries ( other than their fcc licenses ) , including patents and trademarks , 100 % of the equity of our domestic subsidiaries and 65 % of the equity of certain foreign subsidiaries . see note 5 : long-term debt and other financing arrangements to our consolidated financial statements for further discussion of the facility agreement . thermo loan agreement we have an amended and restated loan agreement with thermo ( the “ loan agreement ” ) . our obligations to thermo under the loan agreement are subordinated to all of our obligations under the facility agreement . amounts outstanding under the loan agreement accrue interest at 12 % per annum , which we capitalize and add to the outstanding principal in lieu of cash payments . we will make payments to thermo only when permitted by the facility agreement . principal and interest under the loan agreement become due and payable six months after the obligations under the facility agreement have been paid in full , or earlier if there is a change in control or any acceleration of the maturity of the loans under the facility agreement occurs . as of december 31 , 2018 , the principal amount outstanding was $ 119.7 million , including $ 76.2 million of interest that had accrued since 2009 under the loan agreement . as part of the july 2013 amendment and restatement of the loan agreement , conversion features were added to the loan agreement consistent with those features in the 2013 8.00 % notes . the loan agreement is convertible into shares of common stock at a conversion price of $ 0.69 ( as adjusted ) per share of common stock . see note 5 : long-term debt and other financing arrangements in our consolidated financial statements for further discussion of the thermo loan agreement . 8.00 % convertible senior notes issued in 2013 our 2013 8.00 % notes are convertible into shares of our common stock at a conversion price of $ 0.69 ( as adjusted ) per share of common stock . as of december 31 , 2018 , the principal amount outstanding of the 2013 8.00 % notes was $ 1.4 million . the 2013 8.00 % notes will mature on april 1 , 2028 , subject to various call and put features , as discussed further below . interest on the 2013 8.00 % notes is payable semi-annually in arrears on april 1 and october 1 of each year . we pay interest in cash at a rate of 5.75 % per annum and by issuing additional 2013 8.00 % notes at a rate of 2.25 % per annum . story_separator_special_tag the new commercial lease agreement is with thermo covington , llc . we obtained independent valuation reports for similar properties in covington , louisiana in order to determine the terms of the commercial lease agreement with thermo covington , llc and to ensure that the lease complied with applicable rules and policies governing related-party transactions . our new headquarters lease will have a term of ten years with annual base rental payments of approximately $ 1.4 million , increasing at a compounding rate of 2.5 % per year . we renewed our lease agreement with our gateway in singapore in february 2019 ; as this lease agreement had a remaining term of less than one year and our new lease was not signed as of december 31 , 2018 , amounts for this gateway location are not reflected in the table above . the singapore gateway lease will have a total lease term of two years with annual base lease payments of approximately $ 0.5 million per year . ( 6 ) in december 2018 , we entered into a settlement agreement , pursuant to which we are liable for plaintiffs ' legal fees and expenses in connection with the shareholder action in an amount to be determined by the chancery court of the state of delaware . we expect that these costs will be at least partially covered by our directors and officers insurance policy , subject to the $ 1.5 million retention provided in the policy . further discussion of the shareholder action and the settlement agreement is discussed in note 9 : contingencies to our consolidated financial statements . see also item 1a : risk factors - we have substantial contractual obligations , which may require additional capital , the terms of which have not been arranged . the terms of our facility agreement could complicate raising this additional capital . off-balance sheet transactions we have no material off-balance sheet transactions . recently issued accounting pronouncements for a discussion of recent accounting guidance and the expected impact that the guidance could have on our consolidated financial statements , see note 1 : summary of significant accounting policies in our consolidated financial statements . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . note 1 : summary of significant accounting policies in our consolidated financial statements contains a description of the accounting policies used in the preparation of our financial statements as well as the consideration of recently issued accounting standards and the estimated impact these standards will have on our financial statements . we evaluate our estimates on an ongoing basis , including those related to revenue recognition ; property and equipment ; income taxes ; and derivative instruments . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . actual amounts could differ significantly from these estimates under different assumptions and conditions . we define a critical accounting policy or estimate as one that is both important to our financial condition and results of operations and requires us to make difficult , subjective or complex judgments or estimates about matters that are uncertain . we believe that the following are the critical accounting policies and estimates used in the preparation of our consolidated financial statements . in addition , there are other items within our consolidated financial statements that require estimates but are not deemed critical as defined in this paragraph . 48 revenue recognition our primary types of revenue include ( i ) service revenue from two-way voice communication and data transmissions and one-way data transmissions between a mobile or fixed device and ( ii ) subscriber equipment revenue primarily from the sale of fixed and mobile devices as well as other products and accessories . additionally , we generate revenue by providing engineering and support services to certain customers . unless otherwise disclosed , service revenue is recognized over a period of time ( consistent with the customer 's receipt and consumption of the benefits of our performance ) and revenue from the sale of subscriber equipment is recognized at a point in time ( consistent with the transfer of risks and rewards of ownership of the hardware ) . we record customer payments received in advance of the corresponding service period as deferred revenue . we provide duplex , spot and simplex services directly to customers and indirectly through resellers and igos . credits granted to customers are expensed or charged against revenue or accounts receivable over the remaining term of the customer contract . subscriber acquisition costs primarily include dealer and internal sales commissions and certain other costs , including but not limited to , promotional costs , cooperative marketing credits and shipping and fulfillment costs . we capitalize incremental costs to obtain a contract to the extent we expect to recover them ; these costs include internal and external initial activation commissions . all other subscriber acquisitions costs are expensed at the time of the related sale . duplex service revenue we recognize revenue for monthly access fees in the period services are rendered . access fees represent the minimum monthly charge for each line of service based on its associated rate plan . we also recognize revenue for airtime minutes and data in excess of the monthly access fees in the period such minutes or data are used . under certain annual plans whereby a customer prepays for a predetermined amount of minutes and data , revenue is recognized consistent with the customer 's expected pattern of usage based on historical experience because we believe that this method most accurately depicts the satisfaction of our obligation to the customer .
| overview as of december 31 , 2018 , we held cash and cash equivalents of $ 15.2 million and restricted cash of $ 60.3 million , consisting of the balance in our debt service reserve account under our facility agreement . the facility agreement restricts the use of these funds to making principal and interest payments under the facility agreement . see below for further discussion . as of december 31 , 2017 , we held cash and cash equivalents of $ 41.6 million and had $ 63.6 million in restricted cash . as of december 31 , 2018 , we also had a reserve of $ 2.3 million held with our credit card processor to address any liability arising from potential charge-backs given the growth in both volume and amount of our annual service subscriptions , among other factors . we expect that the total cash required to be withheld will increase to the required reserve balance of $ 5.0 million by the third quarter of 2019. the reserve amount is recorded in prepaid and other current assets on our consolidated balance sheet . we are in discussions with our senior lenders to evaluate how this reserve impacts the terms of our facility agreement . the carrying amount of our current and long-term debt outstanding was $ 96.2 million and $ 367.2 million , respectively , at december 31 , 2018 , compared to $ 79.2 million and $ 434.7 million , respectively , at december 31 , 2017 . the current portion of our debt outstanding at these dates represents primarily principal payments under our facility agreement scheduled to occur within 12 months .
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stockholders ' equity and cash flows for the years then ended , and the related notes ( collectively referred to as the “ financial statements ” ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2017 and 2016 , story_separator_special_tag . overview we offer property and casualty insurance products to individuals and small businesses through our wholly owned subsidiary , kingstone insurance company ( “ kico ” ) . kico 's insureds are located primarily in downstate new york , consisting of new york city , long island and westchester county . we are also licensed in the states of new jersey , connecticut , pennsylvania , rhode island , massachusetts and texas . we are currently offering our property and casualty insurance products in new york , new jersey , rhode island and pennsylvania . although new jersey and rhode island are now growing expansion markets for us , 98.5 % of kico 's direct written premiums for the year ended december 31 , 2017 were written in the state of new york . in february 2018 , a homeowners rate , rule , and form filing was made with the state of massachusetts . kico anticipates writing business there in 2018. we derive substantially all of our revenue from kico , which includes revenues from earned premiums , ceding commissions from quota share reinsurance , net investment income generated from its portfolio , and net realized gains and losses on investment securities . all of kico 's insurance policies are for a one year period . earned premiums represent premiums received from insureds , which are recognized as revenue over the period of time that insurance coverage is provided ( i.e. , ratably over the one year life of the policy ) . a significant period of time normally elapses between the receipt of insurance premiums and the payment of insurance claims . during this time , kico invests the premiums , earns investment income and generates net realized and unrealized investment gains and losses on investments . our expenses include the insurance underwriting expenses of kico and other operating expenses . insurance companies incur a significant amount of their total expenses from losses incurred , which are commonly referred to as claims . in settling these claims , various loss adjustment expenses ( “ lae ” ) are incurred such as insurance adjusters ' fees and legal expenses . in addition , insurance companies incur policy acquisition costs . policy acquisition costs include commissions paid to producers , premium taxes , and other expenses related to the underwriting process , including employees ' compensation and benefits . other operating expenses include our corporate expenses as a holding company . these expenses include legal and auditing fees , executive employment costs , and other costs directly associated with being a public company . principal revenue and expense items net premiums earned . net premiums earned is the earned portion of our written premiums , less that portion of premium that is ceded to third party reinsurers under reinsurance agreements . the amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement . insurance premiums are earned on a pro rata basis over the term of the policy . at the end of each reporting period , premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy . our insurance policies have a term of one year . accordingly , for a one-year policy written on july 1 , 2017 , we would earn half of the premiums in 2017 and the other half in 2018. ceding commission revenue . commissions on reinsurance premiums ceded are earned in a manner consistent with the recognition of the direct acquisition costs of the underlying insurance policies , generally on a pro-rata basis over the terms of the policies reinsured . 24 index net investment income and net realized gains ( losses ) on investments . we invest in cash and cash equivalents , short-term investments , fixed-maturity and equity securities . our net investment income includes interest and dividends earned on our invested assets , less investment expenses . net realized gains and losses on our investments are reported separately from our net investment income . net realized gains occur when our investment securities are sold for more than their costs or amortized costs , as applicable . net realized losses occur when our investment securities are sold for less than their costs or amortized costs , as applicable , or are written down as a result of other-than-temporary impairment . we classify equity securities as available-for-sale and our fixed-maturity securities as either available-for-sale or held-to-maturity . net unrealized gains ( losses ) on those securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . other income . we recognize installment fee income and fees charged to reinstate a policy after it has been cancelled for non-payment . loss and loss adjustment expenses incurred . loss and lae incurred represent our largest expense item , and for any given reporting period include estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending and servicing claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and lae related to estimates of future claim payments based on case-by-case valuations , statistical analyses and actuarial procedures . we seek to establish all reserves at the most likely ultimate liability based on our historical claims experience . it is typical for certain claims to take several years to settle and we revise our estimates as we receive additional information on such claims . our ability to estimate loss and lae accurately at the time of pricing our insurance policies is a critical factor affecting our profitability . story_separator_special_tag we believe that the most critical accounting policies relate to the reporting of reserves for loss and lae , including losses that have occurred but have not been reported prior to the reporting date , amounts recoverable from third party reinsurers , deferred ceding commission revenue , deferred policy acquisition costs , deferred income taxes , the impairment of investment securities , intangible assets and the valuation of stock-based compensation . see note 2 ( accounting policies and basis of presentation ) of the notes to consolidated financial statements following item 15 of this annual report . story_separator_special_tag left ; margin-left : 0px ; margin-right : 0px ; text-indent : 0px '' > replace_table_token_14_th the following table summarizes the changes in the components of ceding commission revenue ( in thousands ) for the periods indicated : replace_table_token_15_th ceding commission revenue was $ 9,933,000 in 2017 compared to $ 11,268,000 in 2016. the decrease of $ 1,335,000 , or 11.8 % , was due to a decrease in provisional ceding commissions earned , partially offset by an increase in contingent ceding commissions earned . provisional ceding commissions earned we receive a provisional ceding commission based on ceded written premiums . in 2017 our provisional ceding rate was 52 % from january 1 , 2017 through june 30 , 2017 under the 2016/2017 treaty and was increased to 53 % effective july 1 , 2017 under the 2017/2019 treaty . in 2016 our provisional ceding rate was 55 % from january 1 , 2016 through june 30 , 2016 under the 2015/2016 treaty and was decreased to 52 % effective july 1 , 2016 under the 2016/2017 treaty . the $ 2,092,000 decrease in provisional ceding commissions earned is primarily due to the decrease in quota share ceding rate effective july 1 , 2017 to 20 % , from the 40 % rate in effect from january 1 , 2016 through june 30 , 2017 ; thus there was less ceded premiums beginning july 1 , 2017 available to earn ceding commissions than there was in 2016. the decrease was partially offset by an increase in personal lines direct written premiums subject to the quota share and by the increase in our provisional ceding commission rate as discussed above . 31 index contingent ceding commissions earned we receive a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties . the lower the ceded loss ratio , the more contingent commission we receive . the amount of contingent ceding commissions we are eligible to receive under the personal lines quota share treaties detailed in the table above that were in effect during 2017 are subject to change based on losses incurred from claims with accident dates beginning july 1 , 2016. the amount of contingent ceding commissions we are eligible to receive under our prior years ' quota share treaties is subject to change based on losses incurred related to claims with accident dates before july 1 , 2016. the 2017/2019 treaty , 2016/2017 treaty and 2015/2016 treaty structure limits the amount of contingent ceding commissions that we can receive by setting the provisional commission rate higher than the rates we received in prior years . as a result of the higher upfront provisional ceding commissions that we receive , there is only a limited opportunity to earn contingent ceding commissions under these treaties . under our current “ net ” treaty structure , catastrophe losses in excess of the $ 5,000,000 retention will fall outside of the quota share treaty and such losses will not have an impact on contingent ceding commissions . see “ reinsurance ” below for changes to our personal lines quota share treaty effective july 1 , 2017. net investment income net investment income was $ 4,133,000 in 2017 compared to $ 3,116,000 in 2016. the increase of $ 1,017,000 , or 32.6 % , was due to an increase in average invested assets in 2017. the average yield on invested assets was 3.66 % as of december 31 , 2017 compared to 3.99 % as of december 31 , 2016. the pre-tax equivalent yield on invested assets was 3.70 % and 4.26 % as of december 31 , 2017 and 2016 , respectively . cash and invested assets were $ 187,526,000 as of december 31 , 2017 , compared to $ 107,556,000 as of december 31 , 2016. the $ 79,970,000 increase in cash and invested assets resulted primarily from the net proceeds of approximately $ 30,137,000 that we received in january and february 2017 from our public offering , approximately $ 29,122,000 that we received in december 2017 from our debt offering and operating cash flows of approximately $ 28,000,000 , partially offset by dividends paid of approximately $ 2,800,000. other income other income was $ 1,268,000 in 2017 compared to $ 1,115,000 in 2016. the increase of $ 153,000 , or 13.7 % , was primarily due to an increase in installment and other fees earned in our insurance underwriting business . net loss and lae net loss and lae was $ 34,186,000 in 2017 compared to $ 27,789,000 in 2016. the net loss ratio was 44.2 % in 2017 compared to 45.3 % in 2016 , a decrease of 1.1 percentage points . 32 index the following graphs summarize the changes in the components of net loss ratio for the periods indicated : during 2017 , the net loss ratio decreased compared to 2016 due to a combination of several factors . first , there was a reduction in the impact of severe winter weather , defined as the losses incurred above those expected in an average winter . in 2017 we recorded no impact from severe winter weather , compared to 2.3 points in 2016 , or a decrease of 2.3 points . partially offsetting this impact , the core loss ratio excluding the impact of severe winter weather and prior year development increased to 44.3 % in 2017 from 43.1 % in 2016 , or an increase of 1.2 points .
| consolidated results of operations the following table summarizes the changes in the results of our operations for the periods indicated : replace_table_token_9_th _ ( 1 ) effective july 1 , 2017 , we decreased the quota share ceding rate in our personal lines quota share treaty from 40 % to 20 % . the cut-off of this treaty on july 1 , 2017 resulted in a $ 7,140,000 return of unearned premiums from our reinsurers that were previously ceded under the expiring personal lines quota share treaty . 27 index replace_table_token_10_th _ ( 1 ) the year ended december 31 , 2016 , includes the effects of severe winter weather ( which we define as a catastrophe ) . we define a “ catastrophe ” as an event or series of related events that involve multiple first party policyholders , or an event or series of events that produce a number of claims in excess of a preset , per-event threshold of average claims in a specific area , occurring within a certain amount of time constituting the event or series of events . catastrophes are caused by various natural events including high winds , excessive rain , winter storms , severe winter weather , tornadoes , hailstorms , wildfires , tropical storms , and hurricanes . replace_table_token_11_th 28 index direct written premiums direct written premiums during the year ended december 31 , 2017 ( “ 2017 ” ) were $ 121,575,000 compared to $ 103,192,000 during the year ended december 31 , 2016 ( “ 2016 ” ) . the increase of $ 18,383,000 , or 17.8 % , was primarily due to an increase in policies in-force during 2017 as compared to 2016. we wrote more new policies as a result of continued demand for our products in the markets that we serve .
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other ( income ) expense , net other ( income ) expense , net , is primarily comprised of gains and losses from the remeasurement of our international subsidiaries ' net assets exposed to changes in foreign currency rates , short-term investments and the sale of used assets . income taxes our operations are subject to u.s. federal , state and local and foreign income taxes . we and our subsidiaries file consolidated and separate income tax returns in the u.s. federal jurisdiction and in numerous state and foreign jurisdictions . we account for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in 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 report . 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 report . overview we are a global systems and process company offering solutions in the oil , gas , water and power markets . we are a leader in natural gas processing and treatment and compression products and services , providing critical midstream infrastructure solutions to customers throughout the world . outside the u.s. , we are a leading provider of full-service natural gas contract compression and a supplier of aftermarket parts and services . we provide our products and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry , including large integrated oil and natural gas companies , national oil and natural gas companies , independent oil and natural gas producers and oil and natural gas processors , gatherers and pipeline operators . we operate in three primary business lines : contract operations , aftermarket services and product sales . the nature and inherent interactions between and among our business lines provide us with opportunities to cross-sell and offer integrated product and service solutions to our customers . in our contract operations business line , we provide compression and processing and treating services through the operation of our natural gas compression equipment and crude oil and natural gas production and process equipment for our customers . in our aftermarket services business line , we sell parts and components and provide operations , maintenance , repair , overhaul , upgrade , startup and commissioning and reconfiguration services to customers who own their own oil and natural gas compression , production , processing , treating and related equipment . in our product sales business line , we design , engineer , manufacture , install and sell natural gas compression packages as well as equipment used in the treating and processing of crude oil and natural gas to our customers throughout the world and for use in our contract operations business line . we also offer our customers , on either a contract operations basis or a sale basis , the engineering , design , project management , procurement and construction services necessary to incorporate our products into production , processing and compression facilities , which we refer to as integrated projects . our chief operating decision maker manages business operations , evaluates performance and allocates resources based on the company 's three primary business lines , which are also referred to as our segments . in order to more efficiently and effectively identify and serve our customer needs , we classify our worldwide operations into four geographic regions . the north america region is primarily comprised of our operations in mexico and the u.s. the latin america region is primarily comprised of our operations in argentina , bolivia and brazil . the middle east and africa region is primarily comprised of our operations in bahrain , iraq , oman , nigeria and the united arab emirates . the asia pacific region is primarily comprised of our operations in china , indonesia , thailand and singapore . industry conditions and trends 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 . 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 . although we believe our contract operations business , and to a lesser extent our product sales business , is typically less impacted by short-term commodity prices than certain other energy products and service providers , changes in oil and natural gas exploration and production spending normally result in changes in demand for our products and services . industry observers anticipate strong continued global demand for hydrocarbons , including demand for liquefied natural gas . however , customer cash flows and returns on capital could drive customer investment priorities . industry observers believe shareholders are encouraging management teams of energy producers to focus operational and compensation strategies on returns and cash flow generation rather than solely on production growth . to accomplish these strategies , energy producers may need to better prioritize capital spending , which could impact resource allocation and ultimately the amount of new projects and capital spending by our customers . story_separator_special_tag for example , unfavorable market conditions or financial difficulties experienced by our customers may result in cancellation of contracts or the delay or abandonment of projects , which could cause our cash flows generated by our product sales and services to decline and have a material adverse effect on our results of operations and financial condition . execution on larger contract operations and product sales projects . some of our projects are significant in size and scope , which can translate into more technically challenging conditions or performance specifications for our products and services . contracts with our customers generally specify delivery dates , performance criteria and penalties for our failure to perform . any failure to execute such larger projects in a timely and cost effective manner could have a material adverse effect on our business , financial condition , results of operations and cash flows . personnel , hiring , training and retention . we believe our ability to grow may be challenged by our ability to hire , train and retain qualified personnel . although we have been able to satisfy our personnel needs thus far , retaining employees in our industry continues to be a challenge . our ability to continue our growth will depend in part on our success in hiring , training and retaining these employees . summary of results as discussed in note 4 to the financial statements , the results from continuing operations for all periods presented exclude the results of our venezuelan contract operations , belleli cpe and belleli epc businesses . those results are reflected in discontinued operations for all periods presented . revenue . revenue during the years ended december 31 , 2018 , 2017 and 2016 was $ 1,360.9 million , $ 1,215.3 million and $ 905.4 million , respectively . the increase in revenue during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was due to revenue increases in our product sales and aftermarket services segments , partially offset by a decrease in revenue in our contract operations segment . the increase in revenue during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 was due to a significant increase in revenue in our product sales segment , partially offset by decreases in revenue in our contract operations and aftermarket services segments . 31 net income ( loss ) . we generated net income of $ 24.9 million during the year ended december 31 , 2018 , net income of $ 33.9 million during the year ended december 31 , 2017 and net loss of $ 227.9 million during the year ended december 31 , 2016 . the decrease in net income during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was primarily due to an increase in income taxes , an increase in depreciation and amortization expense , a decrease in income from discontinued operations , net of tax , and an increase in foreign currency losses of $ 7.8 million . these activities were partially offset by an increase in gross margin for our product sales segment and a decrease in interest expense . net income during the years ended december 31 , 2018 and 2017 included income from discontinued operations , net of tax , of $ 24.5 million and $ 39.7 million , respectively . income for discontinued operations , net of tax , was positively impacted by installment payments received of $ 19.8 million and $ 19.7 million associated with our venezuelan subsidiary 's sale of its previously nationalized assets during the years ended december 31 , 2018 and 2017 , respectively , and recoveries from liquidated damages releases and customer approved change orders related to belleli epc during the year ended december 31 , 2017 . the increase in net income during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 was primarily due to non-cash valuation allowances of $ 119.8 million recorded against u.s. net deferred tax assets during 2016 , an increase in income from discontinued operations , net of tax , an increase in gross margin for our product sales segment , a decrease in depreciation and amortization expense and a decrease in restructuring and other charges . these activities were partially offset by an increase in sg & a expense . net income ( loss ) during the years ended december 31 , 2017 and 2016 included income from discontinued operations , net of tax , of $ 39.7 million and loss from discontinued operations , net of tax , of $ 56.2 million , respectively . income from discontinued operations , net of tax , for 2017 was positively impacted by recoveries from liquidated damages releases and customer approved change orders related to belleli epc . loss from discontinued operations , net of tax , for 2016 included impairment charges of $ 68.8 million related to belleli cpe . ebitda , as adjusted . our ebitda , as adjusted , was $ 205.5 million , $ 173.2 million and $ 156.0 million during the years ended december 31 , 2018 , 2017 and 2016 , respectively . ebitda , as adjusted , during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 increased primarily due to an increase in gross margin for our product sales segment . ebitda , as adjusted , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 increased primarily due to an increase in gross margin for our product sales segment , partially offset by an increase in sg & a expense and decreases in gross margin for our aftermarket services and contract operations segments . ebitda , as adjusted , is a non-gaap financial measure .
| operating highlights the following table summarizes the expected timing of revenue recognition from our contract operations backlog ( in thousands ) : replace_table_token_4_th ( 1 ) at december 31 , 2018 , three contracts , each of which were signed in 2018 and in aggregate represent approximately 10 % of the total value of our backlog , are accounted for as operating leases . for these contracts , revenues are recognized on a straight line basis and represent approximately 18 % of total backlog expected to be recognized in 2019 and thereafter represent no more than 14 % for each subsequent periods . revenues recognized during the year ended december 31 , 2018 and assets assigned to these contracts at december 31 , 2018 were not material to our statements of operation and balance sheets , respectively . the following table summarizes our product sales backlog ( in thousands ) : replace_table_token_5_th ( 1 ) we expect that approximately $ 690 million of our product sales backlog as of december 31 , 2018 will be recognized as revenue before december 31 , 2019 . ( 2 ) in june 2018 , we completed the sale of our north america production equipment assets ( “ peq assets ” ) , which included $ 12.0 million in backlog . 33 results of operations the year ended december 31 , 2018 compared to the year ended december 31 , 2017 contract operations ( dollars in thousands ) replace_table_token_6_th the decrease in revenue during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was primarily due to decreases in revenue of $ 17.1 million and $ 12.6 million in the latin america region and north america region , respectively , partially offset by increases in revenue of $ 13.1 million and $ 2.3 million in the middle east and africa region and asia pacific region , respectively .
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our business pjt partners is a premier global advisory-focused investment bank . our team of senior professionals delivers a wide array of strategic advisory , shareholder advisory , restructuring and special situations and private fund advisory and placement services to corporations , financial sponsors , institutional investors and governments around the world . we offer a unique portfolio of advisory services designed to help our clients achieve their strategic objectives . we also provide , through pjt park hill , private fund advisory and fundraising services for alternative investment managers , including private equity funds , real estate funds and hedge funds . we have world-class franchises in each of the areas in which we compete . our strategic advisory business offers a broad range of financial advisory and transaction execution capability , including mergers and acquisitions ( “ m & a ” ) , joint ventures , minority investments , asset swaps , divestitures , takeover defenses , corporate finance advisory , private placements and distressed sales . through pjt camberview , our industry leading shareholder advisory business , we provide investor-led advice to public company boards and management teams around the globe on shareholder engagement , strategic investor relations , activism and contested situations , sustainability and complex corporate governance matters . our restructuring and special situations business is one of the world 's leading advisors in restructurings and recapitalizations , both in and out of court , around the globe . with expertise in highly complex capital structure challenges , we advise companies , creditors and financial sponsors on liability management and related capital raise transactions including exchanges , recapitalizations , reorganizations , debt repurchases and distressed mergers and acquisitions . pjt park hill , our leading global alternative asset advisory and fundraising business , provides private fund advisory and fundraising services for a diverse range of investment strategies . moreover , pjt park hill is the only group among its peers with top-tier dedicated private equity , hedge fund , real estate and secondary advisory groups . business environment economic and global financial conditions can materially affect our operational and financial performance . m & a is a cyclical business that is impacted by macroeconomic conditions . according to refinitiv , worldwide m & a announced volumes during 2019 were down 3 % compared with 2018 , but still the fourth strongest year since records began in 1980 . 1 we remain in a very constructive environment for m & a by historical standards . we expect corporate boards and management teams to continue to use m & a as a key strategic tool . global restructuring activity for 2019 was strong despite continued low default rates in a benign credit environment . notwithstanding , a balanced mix of in-court and out-of-court transactions for companies , creditors and financial sponsors has driven increased demand for restructuring and liability management services across a broad range of industries including technology , media and telecommunications ; oil and gas ; pharmaceuticals ; and consumer products . pjt partners maintained strong market share and was ranked # 1 in global completed restructurings . 2 as investors seek to enhance returns , diversification and portfolio yield , alternative assets continue to be in demand by institutional investors on a global basis . within certain asset classes , we are seeing increased interest in narrow and niche strategies as well as customized solutions such as joint ventures , separate accounts and direct investment opportunities . 1 source : refinitiv . global mergers & acquisitions review for full year 2019 as of december 31 , 2019 . 2 source : refinitiv . league table ranking extracted from sdc platinum as of february 11 , 2020 . 31 on june 23 , 2016 , the united kingdom ( “ u.k. ” ) voted to leave the european union ( “ e.u. ” ) , commonly referred to a s “ brexit , ” and on march 29 , 2017 , the u.k. began the process to withdraw from the e.u . the u.k. formally left the e.u . on january 31 , 2020 and has immediately entered into a transition period , which is expected to continue until december 31 , 2020. the full impact of brexit remains uncertain and the political climate in europe continues to take shape . during this period , t he future terms of the u.k. 's relationship with the e.u . will be determined . we expect that circumstances relating to brexit will impact the company 's organization and or operations and we are taking preparatory steps accordingly . key financial measures revenues substantially all of our revenues are derived from advisory fees and placement fees . this revenue is primarily a function of the number of active engagements we have , the size of each of those engagements and the fees we charge for our services . advisory fees – our strategic advisory services include a broad range of financial advisory and transaction execution services relating to acquisitions , mergers , joint ventures , minority investments , asset swaps , divestitures , takeover defenses , corporate finance advisory , shareholder advisory and distressed sales . our restructuring and special situations services include providing advice to corporations and creditors in recapitalizations and restructurings around the world , with particular expertise in large , complex and high-profile deals . in conjunction with providing such restructuring advice , we may also assist with raising various forms of financing , including debt and equity . our secondary advisory services provided by pjt park hill include providing solutions to investing clients seeking portfolio liquidity , unfunded commitment relief and investments in secondary markets . advisory fees typically consist of retainer and transaction-based fee arrangements . the amount and timing of the fees paid vary by the type of engagement . the majority of our advisory fees recognized are dependent on the successful completion of a transaction . story_separator_special_tag pjt partners inc. is subject to u.s. corporate federal , state and local income tax on its allocable share of results of operations from the operating partnership ( pjt partners holdings lp ) . the tax cuts and jobs act was signed into law on december 22 , 2017 , which lowered the u.s. corporate income tax rate to 21 % as of january 1 , 2018. non-controlling interests pjt partners inc. is a holding company and its only material asset is its controlling equity interest in pjt partners holdings lp , and certain cash and cash equivalents it may hold from time to time . as the sole general partner of pjt partners holdings lp , pjt partners inc. operates and controls all of the business and affairs and consolidates the financial results of pjt partners holdings lp and its operating subsidiaries . 33 prior to october 1 , 2017 , the ownership interests of holders of common units of partnership interest in pjt partners holdings lp ( “ partnership units ” ) ( other than pjt partners inc. ) were considered redeemable non-controlling interests . on october 1 , 2017 , certain of the restrictive covenants entered into in connection with the spin-off expired . previously , the ability to settle exchanges of partnership units in shares of the company 's class a common stock was not entirely within the company 's control . consequently , the value of these interests was reclassified from redeemable non-controlling interests to non-controlling interests at their redemption value as of october 1 , 2017. the portion of net income ( loss ) attributable to the non-controlling interests is presented separately in the consolidated statements of operations . story_separator_special_tag style= '' margin-top:18pt ; margin-bottom:0pt ; text-indent:0 % ; font-weight : bold ; font-style : italic ; font-family : times new roman ; font-size:10pt ; text-transform : none ; font-variant : normal ; '' > sources and uses of liquidity our primary cash needs are for working capital , paying operating expenses , including cash compensation to our employees , funding the cash redemption of partnership units , repurchasing shares of the company 's class a common stock , paying income taxes , making distributions to our shareholders in accordance with our dividend policy , capital expenditures , commitments and strategic investments . we expect to fund these liquidity requirements through cash flows from operations and borrowings under our revolving credit facility . our ability to fund these needs through cash flows from operations will depend , in part , on our ability to generate or raise cash in the future . this depends on our future financial results , which are subject to general economic , financial , competitive , legislative and regulatory factors . furthermore , our ability to forecast future cash flows is more limited because we do not have a long-established operating history as a stand-alone company . if our cash flows from operations are less than we expect , we may need to incur debt , issue additional equity or borrow from our revolving credit facility . although we believe that the arrangements we have in place will permit us to finance our operations on acceptable terms and conditions , our access to , and the availability of , financing on acceptable terms and conditions in the future will be impacted by many factors , including : ( a ) our credit ratings or absence of a credit rating , ( b ) the liquidity of the overall capital markets , and ( c ) the current state of the economy . we can not provide any assurance that such financing will be available to us on acceptable terms or that such financing will be available at all . we believe that our future cash from operations and availability under our revolving credit facility , together with our access to funds on hand , will provide adequate resources to fund our short-term and long-term liquidity and capital needs . subject to the terms and conditions of the exchange agreement between us and certain of the holders of partnership units ( other than pjt partners inc. ) , partnership units are exchangeable at the option of the holder for cash or , at our election , for shares of our class a common stock on a one-for-one basis . depending on our liquidity and capital resources , market conditions , the timing and concentration of exchange requests and other considerations , we may choose to fund cash-settled exchanges of partnership units with available cash , borrowings or new issuances of class a common stock or to settle exchanges by issuing class a common stock to the exchanging partnership unitholder . issuing significant numbers of shares of our class a common stock upon exchange of partnership units could adversely affect the tax consequences to blackstone of the distribution . accordingly , while we will retain the right under the exchange agreement to elect to settle exchanges in cash or class a common stock in our sole discretion , we intend to limit such issuances of class a common stock in settlement of exchanges of partnership units to the extent necessary to preserve the intended tax-free nature of the spin-off and to comply with our obligations under the tax matters agreement . estimating the amount of payments that may be made under the tax receivable agreement entered into with the holders of partnership units ( other than pjt partners inc. ) is by its nature imprecise , insofar as the calculation of amounts payable depends on a variety of factors .
| consolidated results of operations the following table sets forth our consolidated results of operations for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_3_th n/m not meaningful . year ended december 31 , 2019 versus year ended december 31 , 2018 revenues total revenues were $ 717.6 million for the year ended december 31 , 2019 compared with $ 580.2 million for the year ended december 31 , 2018 , an increase of 24 % . the change in total revenues was primarily driven by increases of $ 120.2 million in advisory fees and $ 22.1 million in placement fees , and partially offset by a decrease of $ 5.0 million in interest income and other . the increase in advisory fees was primarily driven by significant 34 growth in our strategic advisory business . the increase in placement fees was driven by growth in corporate private placement activity and increased fundraising activity for alternative asset managers . the decrease in interest income and oth er was primarily driven by realized and unrealized foreign currency losses . the following table provides revenue statistics for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_4_th expenses expenses were $ 635.4 million for the year ended december 31 , 2019 , an increase of $ 96.7 million compared with $ 538.7 million for the year ended december 31 , 2018. the increase in expenses was primarily attributable to increases in compensation and benefits of $ 77.7 million , other expenses of $ 5.7 million , depreciation and amortization of $ 4.5 million and occupancy and related of $ 4.4 million . the increase in compensation and benefits reflected higher revenues during the year ended december 31 , 2019 as well as increased headcount .
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code of ethics ( incorporated by reference to espey 's website www.espey.com ) 29 23.1 consent of freed maxick cpas , p.c . ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 30 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer september 12 , 2016 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . patrick enright jr. president and chief executive officer patrick enright jr. september 12 , 2016 david o'neil treasurer and principal financial officer david o'neil september 12 , 2016 katrina sparano assistant treasurer katrina sparano september 12 , 2016 howard pinsley chairman of the board howard pinsley september 12 , 2016 barry pinsley director barry pinsley september 12 , 2016 michael w. wool director michael w. wool september 12 , 2016 paul j. corr director paul j. corr september 12 , 2016 alvin o. sabo director alvin o. sabo september 12 , 2016 carl helmetag director carl helmetag september 12 , 2016 31 story_separator_special_tag business outlook management expects revenues in fiscal year 2017 to be less than revenues during fiscal year 2016. this expectation is driven primarily by recent communications with a significant customer in the industrial sector who has advised us of a significantly scaled-back purchase plan resulting from falling demand in the rail industry . this negative development may be offset , in part , by a new product for another customer which is currently in the final stages of design development and qualification testing . if the testing is successful , shipments of the product are expected to begin in the third quarter of the fiscal year . during fiscal 2016 the company received approximately $ 30.2 million in new orders . our total backlog at june 30 , 2016 was approximately $ 39.1 million , as compared to $ 36.4 million at june 30 , 2015. currently , we expect a minimum of $ 23 million of orders comprising the june 30 , 2016 backlog will be filled during the fiscal year ending june 30 , 2017. this $ 23 million will be supplemented by shipments which may be made against orders received during the fiscal year . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 50 million in the aggregate as of september 8 , 2016 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement of a single customer . two significant customers including the one which advised us of the intent to reduce orders during fiscal year 2017 , represented 49 % of the company 's total sales in fiscal 2016 and three significant customers represented 61 % of the company 's total sales in fiscal 2015. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2016 backlog of $ 39.1 million includes orders from two customers that represent 35 % and 27 % , respectively , of the total backlog . this high customer concentration level presents significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversity the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . as market factors impact revenues , management will continue to evaluate our sales strategy , employment levels , and facility costs . management is currently participating in a plant layout optimization review with an objective to improve capacity and maximum cost savings as product moves through the facility . recommendations from the review are currently being implemented and expect to be completed in fiscal 2017 and 2018. story_separator_special_tag code of ethics ( incorporated by reference to espey 's website www.espey.com ) 29 23.1 consent of freed maxick cpas , p.c . ( filed herewith ) 31.1 certification of the chief executive officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 31.2 certification of the principal financial officer pursuant to rules 13a-14 ( a ) and 15d-14 ( a ) under the securities exchange act of 1934 , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.1 certification of the chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 32.2 certification of the principal financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( filed herewith ) 30 s i g n a t u r e s pursuant to the requirements of section 13 and 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . espey mfg . & electronics corp. patrick enright jr. patrick enright jr. president and chief executive officer september 12 , 2016 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . patrick enright jr. president and chief executive officer patrick enright jr. september 12 , 2016 david o'neil treasurer and principal financial officer david o'neil september 12 , 2016 katrina sparano assistant treasurer katrina sparano september 12 , 2016 howard pinsley chairman of the board howard pinsley september 12 , 2016 barry pinsley director barry pinsley september 12 , 2016 michael w. wool director michael w. wool september 12 , 2016 paul j. corr director paul j. corr september 12 , 2016 alvin o. sabo director alvin o. sabo september 12 , 2016 carl helmetag director carl helmetag september 12 , 2016 31 story_separator_special_tag business outlook management expects revenues in fiscal year 2017 to be less than revenues during fiscal year 2016. this expectation is driven primarily by recent communications with a significant customer in the industrial sector who has advised us of a significantly scaled-back purchase plan resulting from falling demand in the rail industry . this negative development may be offset , in part , by a new product for another customer which is currently in the final stages of design development and qualification testing . if the testing is successful , shipments of the product are expected to begin in the third quarter of the fiscal year . during fiscal 2016 the company received approximately $ 30.2 million in new orders . our total backlog at june 30 , 2016 was approximately $ 39.1 million , as compared to $ 36.4 million at june 30 , 2015. currently , we expect a minimum of $ 23 million of orders comprising the june 30 , 2016 backlog will be filled during the fiscal year ending june 30 , 2017. this $ 23 million will be supplemented by shipments which may be made against orders received during the fiscal year . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 50 million in the aggregate as of september 8 , 2016 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry and industrial locomotive power supply procurement of a single customer . two significant customers including the one which advised us of the intent to reduce orders during fiscal year 2017 , represented 49 % of the company 's total sales in fiscal 2016 and three significant customers represented 61 % of the company 's total sales in fiscal 2015. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2016 backlog of $ 39.1 million includes orders from two customers that represent 35 % and 27 % , respectively , of the total backlog . this high customer concentration level presents significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversity the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . as market factors impact revenues , management will continue to evaluate our sales strategy , employment levels , and facility costs . management is currently participating in a plant layout optimization review with an objective to improve capacity and maximum cost savings as product moves through the facility . recommendations from the review are currently being implemented and expect to be completed in fiscal 2017 and 2018.
| results of operations net sales for fiscal years ended june 30 , 2016 and 2015 , were $ 27,471,365 and $ 26,831,705 , respectively , a 2.4 % increase . the slight increase in sales can be attributed to the contract specific nature of the company 's business and the timing of deliveries on these contracts . specifically , the increase in net sales is primarily due to an increase in magnetic shipments of $ 1.1 million , offset by a decrease in build-to-print sales . for the fiscal years ended june 30 , 2016 and 2015 gross profits were $ 7,371,682 and $ 7,141,573 , respectively . gross profit as a percentage of sales increased slightly to 26.8 % for fiscal 2016 , up from 26.6 % in fiscal 2015. the primary factors in determining gross profit and net income are overall sales levels and product mix . the gross profits on mature products and build to print contracts are typically higher as compared to products which are still in the engineering development stage or in early stages of production . in the case of the latter , the company can incur what it refers to as “ loss contracts , ” meaning engineering design contracts in which the company invests with the objective of developing future product sales . in any given accounting period the mix of product shipments between higher margin programs and less mature programs , and expenditures associated with loss contracts , has a significant impact on gross profit and net income . in total , the gross profit percentage remained consistent for the twelve months ended june 30 , 2016 , as compared to the twelve months ended june 30 , 2015. fiscal 2016 profit margins on shipments were up slightly due to product mix and less incidents of “ loss contracts ” as compared to the prior fiscal year .
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at the beginning of 2014 management approved a change in operating structure whereby amk would operate within and be managed as part of the oilfield products business segment . consequently , we combined amk and dynaenergetics into one reportable business segment , oilfield products . amk represented 3 % of segment assets , 4 % of consolidated sales and 2 % of segment operating income as of and for the year then ended december 31 , 2013. all prior periods segment disclosures have been restated to conform to the 2014 presentation . on october 1 , 2014 we completed the sale of our amk business . we have reflected the results of amk as discontinued operations in the consolidated statements of operations for all periods presented . accordingly , historical consolidated statements of operations included in the management 's discussion and analysis of financial condition and results of operations have been restated to reflect the discontinued operation . on october 23 , 2014 , we signed an agreement to purchase a manufacturing facility in the siegerland region of germany for 10,528. the facility will significantly enhance nobelclad 's manufacturing capabilities and its ability to serve customers throughout europe , the middle east and africa . we expect the plant will be operational in the second quarter of 2015. on october 27 , 2014 , management announced a plan to restructure its nobelclad european operations . clad metal plate production will be shifted from facilities in both rivesaltes , france and wurgendorf , germany to the new manufacturing facility in germany . nobelclad 's rivesaltes plant will continue to produce transition joints with a reduced workforce while the wurgendorf site will be closed and its workers will be transferred to the new facility . in the fourth quarter of 2014 , we incurred restructuring charges related this plan of $ 6,781. the restructuring charges included severance of $ 2,466 , non-cash impairment charges of $ 3,946 associated with the wurgendorf facility and leasehold improvements at a leased facility in france , both of which are being closed under the consolidation program , and other exit costs of $ 369. we expect to incur additional restructuring charges of approximately $ 1,000 primarily related to equipment relocation in the first quarter of 2015. in 2014 , nobelclad accounted for 48 % of our net sales and 13 % of our income from operations before consideration of unallocated corporate expenses and stock-based compensation expense , which are not allocated to our business segments . dynaenergetics accounted for 52 % and 87 % of our 2014 net sales and income from operations , respectively . in 2013 and 2012 , nobelclad accounted for 59 % and 60 % of our net sales , respectively , and 79 % and 73 % , respectively , of income from operations before unallocated corporate expenses and stock-based compensation expense . in 2013 and 2012 , dynaenergetics accounted for 41 % and 40 % of our net sales , respectively , and 21 % and 27 % , respectively , of income from operations before unallocated corporate expenses and stock-based compensation expense . our 2014 net sales increased by $ 501 , or 0.2 % , compared to 2013 net sales . sales increased $ 21,802 ( 26.1 % ) in our dynaenergetics segment and decreased $ 21,301 ( 18.0 % ) in our nobelclad segment . excluding the impact of restructuring expenses in 2014 of $ 6,781 , our consolidated income from operations increased to $ 13,446 in 2014 compared to $ 10,978 in 2013. the $ 2,468 improvement in consolidated income from operations was due to a $ 9,973 increase in dynaenergetics operating income and a $ 649 decrease in aggregate unallocated corporate expenses and stock-based compensation , offset by a $ 8,154 decline in nobelclad 's operating income . the decrease in corporate expenses was driven by $ 2,965 of non-recurring expenses in the first quarter of 2013 associated with management retirements . consolidated operating income for 2014 and 2013 includes amortization expense of $ 6,103 and $ 6,348 , respectively . net income was $ 2,567 for 2014 compared to net income of $ 6,459 for 2013. restatement of previously-issued financial statements on march 5 , 2015 , we concluded to restate our financial statements and related disclosures to correct non-cash errors reported in our historical consolidated financial statements related to income tax expense and related deferred tax assets and liabilities at our business entities in germany as well as other adjustments , which were immaterial . the effects of the restatement are reflected in this “ management 's discussion and analysis of financial condition and results of operations ” and no prior disclosures were modified or updated except those required to reflect the effects of the restatement . see the explanatory note 28 included in the front section of the annual report on form 10-k and note 3 `` restatement of previously-issued financial statements ” contained in the notes to financial statements for more information regarding the restatement and changes to previously issued financial statements . the errors arose from incorrect income tax accounting at our operations in germany . in november 15 , 2007 we acquired dynaenergetics under holding co , a newly created german subsidiary . subsequent to the acquisition we recognized income tax expense or benefits for german federal and local income tax purposes and paid cash taxes accordingly . however , we incorrectly had been deferring the recognition of the income tax expense or benefit in our calculation of net income for purposes of u.s. gaap reporting . the non-cash impact of the restatement and other adjustments decreased income from continuing operations by $ 1,036 in 2013 and $ 919 in 2012. the cumulative effect of the errors increased shareholders ' equity by $ 237 as of december 31 , 2013. the restatement only impacted the income tax provision ( benefit ) line item in our consolidated statements of operations for the years ended december 31 , 2013 and 2012 , respectively . story_separator_special_tag nobelclad sales decreased 18.0 % to $ 97,108 in 2014 ( 48 % of total sales ) from $ 118,409 in 2013 ( 59 % of total sales ) . the decrease in nobelclad sales this period relates primarily to the lower backlog and timing of shipments out of backlog . dynaenergetics contributed $ 105,453 to sales in 2014 ( 52 % of total sales ) compared to $ 83,651 in 2013 ( 41 % of total sales ) , which represents a sales increase of 26.1 % . the increase in oilfield products sales was driven by increased demand and favorable product and customer mix primarily from sales of our dynaselect selective perforating detonator switch . 30 gross profit replace_table_token_7_th gross profit increased by 5.7 % to $ 61,419 in 2014 from $ 58,134 in 2013 . our 2014 consolidated gross profit margin rate increased to 30.3 % from 28.8 % in 2013 primarily from a higher proportion of sales in dynaenergetics , which has higher gross profit margins than nobelclad . nobelclad 's gross profit margin decreased from 25.4 % in 2013 to 22.3 % in 2014. the decrease in gross margin rate relates principally to lower sales volume and unfavorable manufacturing overhead absorption compared with 2013. dynaenergetics ' gross profit margin increased to 38.0 % in 2014 from 33.9 % in 2013. the full year gross profit margin improved due to favorable price and mix including dynaselect sales . general and administrative expenses replace_table_token_8_th general and administrative expenses decreased by $ 906 , or 3.7 % , to $ 23,766 in 2014 from $ 24,672 in 2012. excluding the impacts in 2013 of $ 2,965 in non-recurring expenses associated with management retirements and a $ 756 asset impairment charge related to an information system project in russia , our general and administrative expenses increased by $ 2,815 or 13.4 % from an aggregate increase in salaries , benefits and payroll taxes of $ 1,093 , a $ 976 increase in stock-based compensation expense and a $ 327 increase in professional services . the increases were driven by year-over-year headcount additions to support business development initiatives , corporate branding and recruiting expenses . excluding the impact of non-recurring management retirement and asset impairment expenses , general and administrative expenses , as a percentage of net sales , increased to 11.7 % in 2014 from 10.4 % in 2013. selling and distribution expenses replace_table_token_9_th selling and distribution expenses increased by 12.2 % to $ 18,104 in 2014 from $ 16,136 in 2013. the increase was primarily due to a $ 1,000 aggregate increase in salaries , benefits and payroll taxes , a $ 436 increase in bad debt expense mostly from favorable adjustments in the third quarter of 2013 and an increase of $ 100 in stock-based compensation expense . as a percentage of net sales , selling and distribution expenses increased to 8.9 % in 2014 compared to 8.0 % in 2013. our 2014 consolidated selling and distribution expenses include $ 5,928 and $ 11,892 for our nobelclad and dynaenergetics business segments , respectively . our 2013 consolidated selling and distribution expenses include $ 5,574 and $ 10,378 for our nobelclad and dynaenergetics business segments , respectively . the higher level of selling and distribution expenses for our dynaenergetics segment relative to its contribution to our consolidated net sales reflects the strategy , particularly in north america , maintaining a number of strategically located distribution centers that are in close proximity to areas which contain a large concentration of oilfields and enjoy a high volume of related oil and gas drilling activities . amortization expenses replace_table_token_10_th 31 amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior years acquisitions of dynaenergetics , lri , the two russian joint ventures , austin explosives and our january 3 , 2012 acquisition of trx , all part of our dynaenergetics business segment . the $ 245 decrease in 2014 amortization expenses reflects the impact of foreign currency translation effects and a slight decrease in q4 2014 amortization expense associated with the dynaenergetics acquisition based on the amortization schedule . amortization expense for 2014 includes $ 4,777 , $ 1,135 , and $ 191 relating to values assigned to customer relationships , core technology , and trademarks/trade names , respectively . amortization expense for 2013 includes $ 5,021 , $ 1,136 , and $ 191 relating to values assigned to customer relationships , core technology , and trademarks/trade names , respectively . amortization expense ( as measured in euros ) associated with the dynaenergetics acquisition and the acquisition of the two russian joint ventures is expected to approximate 2,235 and 145 , respectively , in 2015. our 2015 amortization expense associated with the austin explosives acquisition and the acquisition of trx is expected to approximate $ 435 and $ 895 , respectively , and our 2015 amortization expense ( as measured in canadian dollars ) associated with the lri acquisition is expected to approximate 80 cad . restructuring expenses 2014 2013 change percentage change restructuring expenses $ 6,781 $ — $ 6,781 n/a restructuring expenses relate to our decision in the fourth quarter of 2014 to consolidate our nobelclad european operations . clad metal plate production will be shifted from facilities in both rivesaltes , france and wurgendorf , germany to a new manufacturing facility in germany . nobelclad 's rivesaltes plant will continue to produce transition joints with a reduced workforce while the wurgendorf site will be closed and its workers will be transferred to the new facility .
| general and administrative expenses replace_table_token_17_th general and administrative expenses increased by $ 6,183 , or 33.4 % , to $ 24,672 in 2013 from $ 18,489 in 2012. excluding the impacts of $ 2,965 in non-recurring expenses associated with management retirements and a $ 756 asset impairment charge related to an information system project in russia , our general and administrative increased $ 2,462 or 13.3 % . this increase includes an aggregate increase of $ 797 in salaries , benefits and payroll taxes , an increase of $ 1,212 in consulting/professional service expenses , including $ 439 for our re-branding project , an increase of $ 457 in business travel expenses , an increase of $ 348 in other personnel costs ( principally recruiting and relocation ) , and a net decrease of $ 352 in all other expense categories . excluding 35 the impact of non-recurring management retirement and asset impairment expenses , general and administrative expenses , as a percentage of net sales , increased to 10.4 % in 2013 from 9.6 % in 2012. selling and distribution expenses replace_table_token_18_th selling and distribution expenses decreased by 4.8 % to $ 16,136 in 2013 from $ 16,954 in 2012. this decrease in our selling and distribution expenses includes decreases in stock-based compensation and commissions of $ 917 and $ 175 , respectively , which were offset by increases in salaries , benefits and payroll taxes of $ 222 and a net increase of $ 52 in all other expense categories . the large decrease in 2013 stock-based compensation expense relates principally to the december 31 , 2012 retirement of a senior sales executive for whom $ 860 of stock-based compensation expense was recognized in 2012. as a percentage of net sales , selling and distribution expenses decreased to 8.0 % in 2013 compared to 8.8 % in 2012. our 2013 consolidated selling and distribution expenses include $ 5,574 and $ 10,378 for our nobelclad and dynaenergetics business segments , respectively .
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testing of the groundwater in the areas of the former wastewater treatment impoundments at these facilities disclosed the presence of certain contaminants . in addition , several solid waste management units ( `` swmus `` ) at the plant sites have been identified . during 2014 , at the former augusta , ga plant site , the georgia department of natural resources , environmental protection division ( `` epd `` ) closed the surface impoundment regulated unit since the company met post-closure clean-up goals and the company renewed the corrective action permit , which includes a site-wide corrective action plan , long-term monitoring and institutional controls . the company has accrued $ 515,000 and $ 476,000 at december 31 , 2016 and december 31 , 2015 , story_separator_special_tag critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires 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 . on an on-going basis , management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . allowance for doubtful accounts the company maintained allowances for doubtful accounts of approximately $ 82,000 as of december 31 , 2016 , for estimated losses resulting from the inability of its customers to make required payments . the allowance is based upon a review of outstanding receivables , historical collection information and existing economic conditions . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . receivables are generally due within 30 to 60 days . delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer . inventory adjustments and reserves at the end of each quarter , all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost . this would indicate that an adjustment would be required . as of december 31 , 2016 and december 31 , 2015 , an adjustment was required by our metals segment mainly due to decreases in nickel prices . stainless steel , both in its raw material ( coil or plate ) or finished goods ( pipe ) state is purchased / sold using a base price plus an additional surcharge which is dependent on current nickel prices . as raw materials are purchased , it is priced to the company based upon the surcharge at that date . when the finished pipe is ultimately sold to the customer approximately five months later , the then-current nickel surcharge is used to determine the proper selling prices . a lower of cost or market adjustment is recorded when the company 's inventory cost , based upon a historical nickel price , is greater than the current selling price of that product due to a reduction in the nickel surcharge . a $ 43,000 and $ 1,237,000 adjustment was required at december 31 , 2016 and december 31 , 2015 , respectively , for reductions in nickel surcharge . at december 31 , 2016 , an adjustment of $ 93,000 was required by our storage tank facility as lower demand for oil and gas products caused selling prices to fall below inventory cost for certain tanks . no adjustment was needed at december 31 , 2015 for tank inventory . the company establishes inventory reserves for : estimated obsolete or unmarketable inventory . as of december 31 , 2016 and december 31 , 2015 , the company identified inventory items with no sales or expected sales activity for finished goods or no usage for raw materials for a certain period of time . for those inventory items that are not currently being marketed and unable to be sold , a reserve was established for 100 percent of the inventory cost less any estimated scrap proceeds . the company reserved $ 697,000 and $ 658,000 at december 31 , 2016 and december 31 , 2015 , respectively . estimated quantity losses . the company performs an annual physical inventory during the fourth quarter each year . for those facilities that complete their physical inventory before the end of december , a reserve is established for the potential quantity losses that could occur subsequent to their physical . this reserve is based upon the most recent physical inventory results . at december 31 , 2016 and december 31 , 2015 , the company had $ 269,000 and $ 24,000 , respectively , reserved for physical inventory quantity losses . impairment of long-lived assets the company continually reviews the recoverability of the carrying value of long-lived assets . long-lived assets are reviewed for impairment when events or changes in circumstances , also referred to as `` triggering events '' , indicate that the carrying value of a long-lived asset or group of assets ( the `` assets '' ) may no longer be recoverable . story_separator_special_tag also , accounts payable days outstanding at year-end 2016 was increased by approximately seven days to 52 days . finally , the change in other assets and accrued expenses resulted mainly from an $ 11,000,000 non-cash accrual recorded during the fourth quarter 2016 for a judgment received on an on-going lawsuit which was initially identified during the company 's due diligence associated with the acquisition of palmer . the company is completely indemnified by the former shareholders of palmer and , accordingly , a corresponding indemnified receivable was also recorded . this litigation is more fully described in note 13. cash flows provided by continuing operating activities during 2015 and 2014 totaled $ 17,312,000 and $ 28,104,000 respectively , a decrease in cash flows of $ 10,792,000. cash flows in 2015 were generated from net income from continuing operations totaling $ 8,626,000 after adding back depreciation and amortization expense of $ 6,634,000 , the goodwill impairment charge of $ 17,158,000 19 and deducting the gain on the earn-out liability of $ 4,897,000 , a decrease from the prior year of $ 5,588,000. accounts receivable from continuing operations generated $ 11,381,000 cash during 2015 as sales decreased 27 percent for the fourth quarter of 2015 compared to the fourth quarter of 2014. accounts receivable days outstanding remained relatively stable , decreasing from 54.9 days at the end of 2014 to 53.6 days at the end of 2015. accounts payable negatively affected cash flows from continuing operations by $ 9,122,000 in 2015 as the significant inventory purchases made during the fourth quarter of 2014 in the metals segment , which increased the 2014 year-end accounts payable balance , were paid during 2015. accounts payable days outstanding was consistent at 45 days for both years . accrued income taxes generated $ 3,037,000 as the company received excess tax deposits when the 2014 tax returns were filed . in prior year , these excess payments would have been applied to the subsequent year tax deposits . a decrease in inventory generated $ 4,173,000 of cash during 2015. this resulted from selling the incremental inventory purchased by the metals segment at the end of 2014 combined with a company directive to lower inventory levels during 2015. inventory turns , calculated on a three month basis , decreased from 3.16 turns at the end of 2014 to 1.89 turns at the end of 2015. the 2015 calculation includes specialty 's values which , by definition of being a master pipe distributor , has a lower turnover rate . in 2016 , the company 's current assets and current liabilities increased $ 12,407,000 and $ 5,979,000 , respectively , from the year ended 2015 amounts , which caused working capital for 2016 to increase by $ 6,428,000 to $ 64,732,000 from the 2015 total of $ 58,304,000. the current ratio for the year ended december 31 , 2016 , decreased to 3.0:1 from the 2015 year-end ratio of 3.2:1. the company generated cash from investing activities during 2016 of $ 17,673,000. during the fourth quarter 2016 , a $ 3,000,000 escrow deposit was made in conjunction with the marcegaglia usa acquisition , which will be used to offset total funds due at closing . the sale-leaseback transaction , which is discussed in note 12 to the consolidated financial statements included in item 8 of this form 10-k , resulted in net proceeds of $ 21,925,000. financing activities during 2016 used cash of $ 19,459,000 as the proceeds from the sale-leaseback transaction was used to pay down long-term debt . no dividends were declared during 2016. in connection with the specialty acquisition discussed in note 18 to the consolidated financial statements included in item 8 of this form 10-k , on november 21 , 2014 , the company modified its credit agreement to increase the limit of the current revolving line of credit ( the `` line '' ) by $ 15,000,000 to a maximum of $ 40,000,000 , and extended the maturity date to november 21 , 2017. the total funded debt to ebitda ratio ( as defined in the credit agreement ) , tangible net worth floor ( as defined in the credit agreement ) , and total liabilities to tangible net worth ratio ( as defined in the credit agreement ) were changed as a result of this modification . none of the other provisions of the credit agreement were changed as a result of this modification . interest on the credit agreement is calculated using the one month libor ( as defined in the credit agreement ) , plus a pre-defined spread , based on the company 's total funded debt to ebitda ratio ( as defined in the credit agreement ) . the credit agreement modification on november 21 , 2014 , also provided for a five-year term loan ( the `` specialty note '' ) , expiring november 21 , 2019 , in the amount of $ 10,000,000 that required equal monthly payments of $ 166,667 , plus interest , calculated using the one month libor ( as defined in the credit agreement ) , plus a pre-defined spread , based on the company 's total funded debt to ebitda ratio ( as defined in the credit agreement ) . on august 31 , 2016 , the balance of this note was refinanced and consolidated into the line as part of the amendment to the credit agreement discussed below . on august 31 , 2016 , the company amended its credit agreement with its bank to create a new credit facility in the form of an asset-based revolving line of credit in the amount of $ 45,000,000. the line was used to refinance and consolidate the existing line of credit , the palmer note , and the specialty note in the aggregate amount of approximately $ 24,200,000. the maturity date of the line is february 28 , 2019. interest on the line is calculated using the one month libor rate ( as defined in the credit agreement ) , plus a pre-defined spread .
| results of operations comparison of 2016 to 2015 – consolidated for the full-year 2016 , the net loss from continuing operations totaled $ 6,994,000 , or $ 0.81 loss per share . this compared to full-year 2015 net loss from continuing operations of $ 10,269,000 , or $ 1.18 loss per share . for the fourth quarter of 2016 the company 20 recorded a net loss from continuing operations of $ 1,435,000 , or $ 0.17 loss per share . this compares to a net loss from continuing operations of $ 17,717,000 , or $ 2.04 loss per share for fourth quarter of 2015. consolidated gross profit from continuing operations decreased 33 percent to $ 16,904,000 in 2016 , compared to $ 25,319,000 in 2015 , and , as a percent of sales , decreased to twelve percent of sales in 2016 compared to 14 percent of sales in 2015. for the fourth quarter of 2016 , consolidated gross profit from continuing operations was $ 3,684,000 , an increase of eight percent from the fourth quarter of 2015 of $ 3,424,000. consolidated gross profit from continuing operations was eleven percent of sales for the fourth quarter of 2016 and ten percent of sales for same period of 2015. the majority of the changes in dollars and in percentage of sales were attributable to the metals segment as discussed in the metals segment comparison of 2016 to 2015 below .
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these decreases were partially offset by an increase in income tax expense of $ 2.8 million and a decrease in total revenue of $ 1.7 million , primarily due to lower net interest income . total loans at the bank increased $ 0.1 billion , or 2 % , to $ 7.1 billion at december 31 , 2020 from $ 7.0 billion at december 31 , 2019. total loans were 71 % of total assets at the bank as of december 31 , 2020 , compared to 80 % of total assets at december 31 , 2019. a discussion of the company 's loan portfolio can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - loan portfolio and credit quality. ” deposits at the bank increased $ 1.4 billion , or 19 % , to $ 8.7 billion at december 31 , 2020 from $ 7.3 billion at december 31 , 2019. a discussion of the company 's deposits can be found below in part ii . item 7 . “ management 's discussion and analysis of financial condition and results of operations - financial condition. ” 32 wealth management and trust the following table presents a summary of selected financial data for the wealth management and trust segment for 2020 , 2019 , and 2018. replace_table_token_8_th nm - not meaningful ( 1 ) with the integration of kls into boston private wealth in the third quarter of 2019 , the results of kls are included in the wealth management and trust segment for all periods . see part ii . item 8 . “ financial statements and supplementary data - note 3 : divestitures ” for additional information . the company 's wealth management and trust segment reported net income attributable to the company of $ 7.7 million for the year ended december 31 , 2020 , compared to $ 12.2 million in 2019 and $ 8.9 million in 2018. the decrease in net income attributable to the company from 2019 to 2020 was primarily driven by an increase in total operating expense of $ 3.6 million primarily due to an increase in salaries and employee benefits expense and a decrease in total revenue of $ 3.2 million from lower fee income . the increase in net income attributable to the company from 2018 to 2019 was primarily driven by a decrease in total operating expense of $ 8.1 million primarily due to decreases in salaries and employee benefits expense , information systems expense , and restructuring expense , partially offset by a decrease in total revenue of $ 3.2 million from lower fees . aum increased $ 1.4 billion , or 9 % , to $ 16.6 billion at december 31 , 2020 from $ 15.2 billion at december 31 , 2019. in 2020 , the increase in aum was driven by favorable market returns of $ 1.3 billion and positive net flows of $ 0.1 billion . in 2019 , the $ 1.0 billion increase in aum from 2018 was primarily driven by favorable market returns of $ 2.0 billion , partially offset by net outflows of $ 1.0 billion . the decrease in total revenue of 4 % from the prior year is driven primarily by a reduction in the average effective fee rate . announced acquisition as previously announced on january 4 , 2021 , the company entered into an agreement and plan of merger with svb pursuant to which svb will acquire the company . the transaction has been unanimously approved by both companies ' boards of directors and is expected to close in mid-2021 , subject to the satisfaction of customary closing conditions , including the receipt of customary regulatory approvals and approval by the shareholders of the company . impact of the covid-19 pandemic the covid-19 pandemic has caused , and continues to cause , substantial disruptions to the global economy and to the customers and communities that we serve . in response to the pandemic , the company implemented business continuity contingency plans , including company-wide remote working arrangements . we are also focused on supporting our clients who may be experiencing a financial hardship due to the covid-19 pandemic , including by participating in the sba 's ppp and offering loan deferrals and forbearance as needed , including our residential mortgage and home equity line loan deferment program and commercial and industrial loan deferment program , and creating the commercial real estate second loan program . we will continue to evaluate this fluid situation and take additional actions as necessary . additional information regarding the effects and potential effects of the ongoing covid-19 pandemic on the company 's business , operating results and financial condition is described in this management discussion and analysis . see also part i. item 1 . `` business - supervision and regulation '' and part i. item 1a . `` risk factors '' for further details . mortgage deferment program in response to the covid-19 pandemic , the bank initiated a residential mortgage and home equity line loan deferment program under which principal and interest payments on qualifying loans are generally deferred for initially three months and the loan term is extended three months ; if requested , the loan may be deferred for a subsequent three months . loans 33 that are deferred under the program are not considered tdrs or past due based on current regulatory guidance . in total , approximately 365 residential mortgages and home equity loans totaling approximately $ 220.0 million have been processed under the program . as of december 31 , 2020 , deferrals for approximately 300 loans totaling approximately $ 200.0 million have expired with the loans returning to payment , while approximately 40 loans totaling approximately $ 15.0 million remain in deferral under the program . approximately 25 loans totaling approximately $ 5.0 million are delinquent on payment terms as of december 31 , 2020 after the deferral expired , primarily first time home buyer loans . story_separator_special_tag upon the adoption of asu 2016-13 on january 1 , 2020 , management 's processes for the allowance for loan losses has changed . the updates in this standard replace the incurred loss impairment methodology , previously accounted for in accordance with receivables ( “ asc 310 ” ) and sec staff accounting bulletin no . 102 ( july 2001 ) , with the updated methodology described below that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates . see part ii . item 8 . “ financial statements and supplementary data - note 1 : basis of presentation and summary of significant accounting policies ” for further details . the allowance for loan losses consists of two primary components : general reserves on pass , non-impaired special mention , and substandard loans as well as specific reserves on impaired loans . the calculation of the allowance for loan losses involves a high degree of management judgment and estimates designed to reflect the inherent risk of loss in the loan portfolio at the measurement date the allowance for loan losses is established based upon the company 's current estimate of expected lifetime credit losses on loans measured at amortized cost . under the current expected credit losses ( `` cecl '' ) methodology , which the company adopted on january 1 , 2020 , the company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address risks not incorporated in the quantitative model output . the quantitative model utilizes economic factors and our selected peer groups ' historical default and loss experience evaluated over the historical observation period to estimate expected credit losses . the expected credit losses are the product of multiplying the company 's estimates of probability of default , net loss given default , and individual loan level exposure at default on an undiscounted basis . the model estimates expected credit losses using loan level data over the contractual life of the exposure , considering the effect of estimated prepayment and curtailment rates , both of which are derived from the company 's recent historical experience on the remaining portfolio segment balance over the life of the portfolio . reasonable and supportable economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period , beyond which is a reversion to the company 's historical long-run average of the macroeconomic variables , such as gross domestic product , unemployment , consumer confidence index etc . management has determined a reasonable and supportable period of two years and a straight line reversion period of twelve months to be appropriate for purposes of estimating expected credit losses . management also applies a weight to the various forecasts to determine the reasonable and supportable economic forecasts . a portion of the collective allowance for loan losses is related to the qualitative factors used to adjust historical loss information for asset-specific characteristics and current conditions to the extent they are not captured sufficiently in the quantitative model . the qualitative factors are based on information not reflected in the quantitative models but are likely to impact the measurement of estimated credit losses . the company 's qualitative assessment includes the following factors : volume and trend of past-due , non-accrual , and adversely-graded loans trends in volume and terms of loans concentration risk experience and depth of management risk surrounding lending policy and underwriting standards risk surrounding loan review banking industry conditions , other external factors , and inherent model risk loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting . for the loans that will be individually assessed , the company will use either a discounted cash flow ( `` dcf '' ) approach or a fair value of collateral approach . the latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable . the bank makes a determination of the applicable loss rate for these factors based on relevant local market conditions , credit quality , and portfolio mix . each quarter , management reviews the loss factors to determine if there have been any changes in its loan portfolio , market conditions , or other risk indicators which would result in a change to the current loss factor . a loan is considered impaired in accordance with asc 326 when , based upon current information and events , it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement . impairment is measured based on the fair value of the loan , expected future cash flows discounted at the loan 's effective interest 35 rate , or as a practical expedient , impairment may be determined based upon the observable market price of the loan , or the fair value of the collateral , less estimated costs to sell , if the loan is “ collateral dependent. ” a loan is collateral dependent if repayment of the loan is expected to be provided solely by the underlying collateral or sale of the underlying collateral . for collateral dependent loans , appraisals are generally used to determine the fair value . when a collateral dependent loan becomes impaired , an updated appraisal of the collateral is obtained , if appropriate . appraised values are generally discounted for factors such as the bank 's intention to liquidate the property quickly in a foreclosure sale or the date when the appraisal was performed if the bank believes that collateral values have declined since the date the appraisal was done . the bank may use a broker opinion of value in addition to an appraisal to validate the appraised value .
| executive summary the company offers a wide range of private banking , wealth management , and trust services to high net worth individuals , families , businesses and select institutions through its two reportable segments : ( i ) private banking and ( ii ) wealth management and trust . this executive summary provides an overview of the most significant aspects of the company 's operating segments and operations . details of the matters addressed in this summary are provided elsewhere in this document and , in particular , in the sections immediately following . net income attributable to the company was $ 45.2 million for the year ended december 31 , 2020 , compared to $ 80.0 million in 2019 and $ 80.4 million in 2018. the company recognized diluted earnings per share of $ 0.55 for the year ended december 31 , 2020 , compared to $ 0.97 in 2019 and $ 0.92 in 2018. key items that affected the company 's 2020 results include : net interest income for the year ended december 31 , 2020 was $ 233.4 million , an increase of $ 5.4 million , or 2 % , compared to 2019. the increase was primarily driven by lower funding costs and the addition of ppp-related income , partially offset by lower interest rates on interest-earning assets . nim decreased 11 basis points to 2.69 % in 2020 from 2.80 % in 2019. the decrease in nim in 2020 was driven primarily by lower yields on interest-earning assets and higher volumes of interest-earning assets , primarily excess cash balances held at lower rates due to higher deposit levels , partially offset by lower funding costs .
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at december 31 , 2014 , future minimum rental payments due under the company 's facilities lease were as follows ( in thousands ) : replace_table_token_18_th other contingencies in late october and early november 2013 , following the company 's announcement of the results of its phase 3 trial of allovectin ® and the subsequent decline of the price of its common stock , two putative securities class action complaints were filed in the u.s. district court for the southern district of california against the 63 vical incorporated notes to financial statements ( continued ) company and certain of its current and former officers . on february 26 , 2014 , the two cases were consolidated into one action and a lead plaintiff and lead counsel were appointed . on april 3 , 2014 , the lead plaintiff filed a consolidated complaint alleging that the defendants violated sections 10 ( b ) and 20 ( a ) of the securities exchange act of 1934 by making materially false and misleading statements regarding the company 's business prospects and the prospects for allovectin ® , thereby artificially inflating the price of the company 's common stock . the consolidated complaint seeks unspecified monetary damages and other relief . on april 25 , 2014 , the parties filed a joint motion asking the court to permit plaintiffs to amend the consolidated complaint , which the court granted . on may 12 , 2014 , lead plaintiff filed an amended complaint . on june 9 , 2014 , defendants filed a motion to dismiss the amended complaint . that same day , defendants also filed a motion to strike certain story_separator_special_tag overview we research and develop biopharmaceutical products based on our patented dna delivery technologies for the prevention and treatment of serious or life-threatening diseases . we currently have three active , independent or partnered , development programs in the area of infectious disease comprised of : an ongoing phase 3 clinical trial of asp0113 for prevention of cytomegalovirus , or cmv , reactivation in stem cell transplant recipients and an ongoing phase 2 clinical trial of asp0113 for prevention of cmv infection in kidney transplant recipients , both in collaboration with astellas pharma inc. , or astellas ; an ongoing phase 1/2 clinical trial using our vaxfectin ® -formulated therapeutic vaccine for herpes simplex virus type 2 , or hsv-2 , a cause of recurrent genital herpes ; and a completed preclinical program , with an allowed investigational new drug application , or ind , using our cymvectin prophylactic vaccine formulated with our proprietary vaxfectin ® adjuvant to prevent cmv infection during pregnancy . in addition , we have licensed complementary technologies from leading research institutions and biopharmaceutical companies . research , development and manufacturing programs to date , we have not received revenues from the sale of our independently developed pharmaceutical products and have received minimal revenues from the sale of commercially marketed products by our licensees . we earn revenues by performing services under research and development contracts , grants , manufacturing contracts , and from licensing access to our proprietary technologies . since our inception , we have received approximately $ 238.7 million in revenues from these sources . revenues by source for each of the three years ended december 31 , 2014 , were as follows ( in millions ) : replace_table_token_3_th research , development , manufacturing and production costs by major program , as well as other expenses for each of the three years ended december 31 , 2014 , were as follows ( in millions ) : replace_table_token_4_th 36 since our inception through december 31 , 2014 , we estimate that we have spent approximately $ 522 million on research , development , manufacturing and production . our current independent development focus is on a dna vaccine for cmv , a vaccine to treat hsv-2 , and other clinical and preclinical targets . these programs , excluding asp0113 which we licensed to astellas , will require significant additional funds to advance through development to commercialization . from inception through december 31 , 2014 , we have spent approximately $ 14 million on our hsv-2 program and $ 95 million on our cmv programs . we have other product candidates in the research stage . it can take many years to develop product candidates from the initial decision to screen product candidates , perform preclinical and safety studies , and perform clinical trials leading up to possible approval of a product by the fda or comparable foreign agencies . the outcome of the research is unknown until each stage of the testing is completed , up through and including the registration clinical trials . accordingly , we are unable to predict which potential product candidates we may proceed with , the time and cost to complete development , and ultimately whether we will have a product approved by the fda or comparable foreign agencies . as a result , we expect to incur substantial operating losses for at least the next several years , due primarily to the advancement of our research and development programs , the cost of preclinical studies and clinical trials , spending for outside services , costs related to maintaining our intellectual property portfolio , costs due to manufacturing activities , costs related to our facilities , and possible advancement toward commercialization activities . critical accounting policies and estimates the preparation and presentation of financial statements in accordance with accounting principles generally accepted in the united states requires that management make a number of assumptions and informed estimates that affect the reported amounts of assets , liabilities , revenues and expenses in our financial statements and accompanying notes . management bases its estimates on historical information and assumptions believed to be reasonable . although these estimates are based on management 's best knowledge of current events and circumstances that may impact us in the future , they are inherently uncertain and actual results may differ materially from these estimates . story_separator_special_tag we charge milestone payments to research and development expense when : the technology is in the early stage of development and has no alternative uses ; 38 there is substantial uncertainty of the technology or product being successful ; there will be difficulty in completing the remaining development ; and there is substantial cost to complete the work . capitalization and valuation of long-lived and intangible assets intangible assets with finite useful lives consist of capitalized costs incurred in connection with patents , patent applications pending and technology license agreements . payments to acquire a license to use a proprietary technology are capitalized if the technology is expected to have alternative future use in research and development projects . we amortize costs of approved patents , patent applications pending and license agreements over their estimated useful lives , or terms of the agreements , whichever are shorter . for patents pending , we amortize the costs over the shorter of a period of twenty years from the date of filing the application or , if licensed , the term of the license agreement . we re-assess the useful lives of patents when they are issued , or whenever events or changes in circumstances indicate the useful lives may have changed . for patents and patent applications pending that we abandon , we charge the remaining unamortized accumulated costs to research and development expense . intangible assets and long-lived assets are evaluated for impairment at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable . if the review indicates that intangible assets or long-lived assets are not recoverable , their carrying amount would be reduced to fair value . factors we consider important that could trigger an impairment review include the following : a significant change in the manner of our use of the acquired asset or the strategy for our overall business ; and or a significant negative industry or economic trend . in the event we determine that the carrying value of intangible assets or long-lived assets is not recoverable based upon the existence of one or more of the above indicators of impairment , we may be required to record impairment charges for these assets . as of december 31 , 2014 , our largest group of intangible assets with finite lives included issued patents and patents pending for our dna delivery technology , consisting of intangible assets with a net carrying value of approximately $ 1.7 million . recent accounting pronouncements for information on the recent accounting pronouncements which may impact our business , see note 1 of the notes to financial statements included in this annual report on form 10-k. story_separator_special_tag outside services , facilities , intellectual property and possible commercialization . our future capital requirements will depend on many factors , including continued scientific progress in our research and development programs , the scope and results of preclinical testing and clinical trials , the time and costs involved in obtaining regulatory approvals , the costs involved in filing , prosecuting , enforcing and defending patent claims , the impact of competing technological and market developments , the cost of manufacturing scale-up and validation , and possible commercialization activities and arrangements . we may seek additional funding through research and development relationships with suitable potential corporate collaborators . we may also seek additional funding through public or private financings . we currently have on file an effective shelf registration statement that allows us to raise up to $ 145.9 million from the sale of common stock , preferred stock , debt securities and or warrants . however , additional financing may not be available on favorable terms or at all . if additional financing is not available , we anticipate that our available cash and existing sources of funding will be adequate to satisfy our cash needs at least through december 31 , 2016. in november 2012 , we entered into an at-the-market equity offering sales agreement , or sales agreement , with stifel , nicolaus & company , incorporated , or stifel , under which we may issue and sell up to $ 50.0 million of shares of our common stock from time to time . under the sales agreement , we will set the parameters for the sale of shares , including the number of shares to be issued and any minimum price below which sales may not be made . subject to the terms and conditions of the sales agreement , shares may be sold through stifel acting as sales agent or directly to stifel acting as principal , by means of ordinary brokers ' transactions on the nasdaq global select market , in privately negotiated transactions or otherwise at market prices prevailing at the time of sale , at prices related to prevailing market prices or at negotiated prices . any sales other than by methods deemed to be an at the market offering as defined in rule 415 promulgated under the securities act will require our prior consent . stifel is obligated to use commercially reasonable efforts in conducting sales activities consistent with its normal trading and sales practices . the sales agreement may be terminated by us upon prior notice to stifel or by stifel upon prior notice to us , or at any time under certain circumstances , including but not limited to the occurrence of a material adverse change in our company . the sales agreement provides that stifel will be entitled to compensation for its services in an amount equal to 2.5 % of the gross proceeds from the sale of shares sold through stifel under the sales agreement . we have no obligation to sell any shares under the sales agreement and may at any time suspend offers under the 41 sales agreement .
| results of operations year ended december 31 , 2014 , compared to year ended december 31 , 2013 total revenues . total revenues increased $ 7.5 million , or 97.2 % , to $ 15.2 million in 2014 from $ 7.7 million in 2013. this increase was primarily due to an increase in research work performed and materials supplied to astellas under our asp0113 license agreements with astellas . research and development expenses . research and development expenses decreased $ 3.1 million , or 21.2 % , to $ 11.5 million for 2014 from $ 14.6 million for 2013. this decrease was primarily due to a $ 1.9 million restructuring charge recognized in august 2013 combined with a decrease in employee-related expenses , scientific supplies and contract services . these decreases were partially offset by an increase in clinical trial costs . 39 manufacturing and production expenses . manufacturing and production expenses decreased $ 1.9 million , or 14.8 % , to $ 10.8 million for 2014 from $ 12.7 million for 2013. this decrease was primarily due to a reduction in employee-related expenses as a result of our august 2013 restructuring combined with a reduction in the purchase of scientific supplies . general and administrative expenses . general and administrative expenses decreased $ 2.3 million , or 19.1 % , to $ 9.6 million for 2014 from $ 11.8 million for 2013. this decrease was primarily due to a decrease in employee-related expenses as a result of our august 2013 restructuring . investment and other income , net . investment and other income , net increased $ 20,000 , or 17.5 % , to $ 134,000 for 2014 from $ 114,000 for 2013. year ended december 31 , 2013 , compared to year ended december 31 , 2012 total revenues . total revenues decreased $ 9.8 million , or 55.9 % , to $ 7.7 million in 2013 from $ 17.5 million in 2012.
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for the years ended december 31 , 2015 , 2014 and 2013 , the company has excluded the effects of all potentially dilutive shares , which include redeemable convertible preferred stock , warrants for redeemable convertible preferred stock , warrants for common stock and outstanding common stock options , from the weighted-average number of common shares outstanding as their inclusion in the computation for these years would be anti-dilutive due to net losses incurred . the following is a summary of the common stock equivalents which were excluded from the calculation of diluted net loss per share for the periods indicated ( in thousands ) : replace_table_token_18_th comprehensive income ( loss ) comprehensive income ( loss ) is defined as the change in equity of a business enterprise during a period from transactions , other events , and circumstances from non-owner sources . comprehensive loss consists of net loss and other comprehensive loss , which story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in item 15 of this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a clinical stage biopharmaceutical company focused on the discovery , development and commercialization of novel therapeutic candidates that are based on the mechanisms that the human body uses to regulate the growth and repair of its cells and tissues . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta , or tgf-beta , protein superfamily . we are a leading company in discovering and developing therapeutic candidates that regulate cellular growth and repair . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-beta superfamily , and our internal protein engineering and manufacturing capabilities , we have built a highly productive discovery and development platform that has generated innovative therapeutic candidates with novel mechanisms of action . these differentiated therapeutic candidates have the potential to significantly improve clinical outcomes for patients across many fields of medicine , and we have focused our discovery and development efforts on treatments for cancer and rare diseases . we have four internally discovered therapeutic candidates that are currently in clinical trials : luspatercept , sotatercept , dalantercept and ace-083 . luspatercept , our lead program , and sotatercept , are partnered with celgene corporation , or celgene . luspatercept is designed to promote red blood cell production through a novel mechanism , and we are developing luspatercept with celgene to treat anemia and associated complications in myelodysplastic syndromes ( mds ) and beta-thalassemia . in 2015 , celgene initiated two phase 3 clinical trials for luspatercept for the treatment of mds and beta-thalassemia . we and celgene are developing sotatercept to treat patients with chronic kidney disease . sotatercept has the potential to treat several complications of chronic kidney disease including mineral-bone disorder , vascular calcification and anemia . celgene is responsible for paying 100 % of the development costs for all clinical trials for luspatercept and sotatercept , including our ongoing earlier stage clinical trials for these therapeutic candidates . we may receive up to an additional $ 560.0 million of potential development , regulatory and commercial milestone payments and , if these therapeutic candidates are commercialized , we will receive a royalty on net sales in the low-to-mid 20 % range . we will co-promote luspatercept and sotatercept , if approved , in north america for which our commercialization costs will be entirely funded by celgene . we wholly own dalantercept and ace-083 , and we are independently developing these therapeutic candidates . we are currently evaluating dalantercept in a phase 2 clinical trial for the treatment of patients with renal cell carcinoma . ace-083 is designed for the treatment of focal muscle disorders , such as facioscapulohumeral dystrophy , and we are currently conducting a phase 1 clinical trial with ace-083 in healthy volunteers . in 2015 , we reported data from the phase 1 clinical trial of ace-083 showing marked increases in the volume of muscles treated with ace-083 . in addition to our clinical programs , we are conducting research to identify new therapeutic candidates to bring forward into clinical trials . to this end , in 2015 we implemented a new platform technology , intellitrap , that is accelerating our discovery efforts . we have nominated an intellitrap molecule , ace-2494 , as a candidate for clinical development and will initiate ind-enabling activities in 2016. ace-2494 is designed to treat systemic muscle disorders . as of december 31 , 2015 , our operations have been funded primarily by $ 105.1 million in equity investments from venture investors , $ 219.3 million from public investors , $ 64.2 million in equity investments from our collaboration partners and $ 233.5 million in upfront payments , milestones , and net research and development payments from our collaboration partners . we estimate that we have spent approximately $ 145.4 million on research and development for the three year period from 2013 through 2015 . we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities , as we : conduct clinical trials for dalantercept and ace-083 ; continue our preclinical studies and potential clinical development efforts of our existing preclinical therapeutic candidates ; 49 continue research activities for the discovery of new therapeutic candidates ; manufacture therapeutic candidates for our preclinical studies and clinical trials ; seek regulatory approval for our therapeutic candidates ; and operate as a public company . story_separator_special_tag 51 we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies . our external research and development expenses for sotatercept , luspatercept , dalantercept , ace-031 ( for which development was suspended in april 2013 ) and ace-083 ( for which development commenced in the fourth quarter of 2013 ) during the years ended december 31 , 2015 , 2014 and 2013 , are as follows : replace_table_token_4_th _ ( 1 ) as of january 1 , 2013 , expenses associated with sotatercept and luspatercept are reimbursed 100 % by celgene . these reimbursements are recorded as revenue and are presented as cost-sharing , net . in the periods presented , celgene conducted most of the development activities for sotatercept , and we do not incur and are not reimbursed for expenses related to development activities directly conducted by celgene . ( 2 ) in april 2013 , we and shire ag , or shire , determined not to further advance the development of ace-031 , and shire terminated our collaboration agreement , effective as of june 30 , 2013 . ( 3 ) other expenses include unallocated employee and contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services . since the completion of our initial public offering in september 2013 , we have experienced increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates . additionally , if and when we believe regulatory approval of a therapeutic candidate appears likely , to the extent that we are undertaking commercialization of such therapeutic candidate ourselves , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations . other expense , net other expense , net consists primarily of interest expense from our previous venture debt facility , interest income earned on cash and cash equivalents , and the re-measurement gain or loss associated with the change in the fair value of our preferred stock and common stock warrant liabilities . we use the black-scholes option pricing model to estimate the fair value of the warrants . we base the estimates in the black-scholes option pricing model , in part , on subjective assumptions , including stock price volatility , risk-free interest rate , dividend yield , and the fair value of the preferred stock or common stock underlying the warrants . 52 critical accounting policies and significant judgments and estimates our management 's 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 u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , accrued expenses and stock-based compensation . we also utilize significant estimates and assumptions in determining the fair value of our common stock and the fair value of our liability-classified warrants to purchase preferred stock and common stock . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we have primarily generated revenue through collaboration arrangements with strategic partners for the development and commercialization of our therapeutic candidates . we recognize revenue in accordance with accounting standards codification ( asc ) topic 605 , revenue recognition . accordingly , revenue is recognized for each unit of accounting when all of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on our consolidated balance sheets .
| results of operations comparison of the years ended december 31 , 2015 and 2014 replace_table_token_5_th revenue . we recognized revenue of $ 18.1 million in the year ended december 31 , 2015 , compared to $ 14.6 million in year ended december 31 , 2014 . all of the revenue in both periods was derived from the celgene agreements . this $ 3.5 million 56 increase was primarily due to higher cost sharing revenue of $ 4.0 million caused by higher expenses for luspatercept clinical trials and manufacturing bulk drug substance during 2015 , offset by a decrease in celgene deferred revenue of $ 0.5 million during 2015 as we complete our deliverables under the collaboration agreement . research and development expenses . research and development expenses were $ 58.4 million in the year ended december 31 , 2015 , compared to $ 50.9 million in the year ended december 31 , 2014 . this $ 7.5 million increase was primarily due to increases in personnel expenses of $ 3.2 million , including an increase of $ 2.8 million in stock compensation expense , an increase in clinical and toxicology expenses totaling $ 1.3 million and an increase of $ 2.5 million in miscellaneous expenses primarily for drug supply and outsourced research . litigation settlement . litigation settlements in the year ended december 31 , 2015 were zero compared to $ 5.0 million in the same period in 2014 . this decrease was due to the settlement of litigation with the salk institute in july 2014. general and administrative expenses . general and administrative expenses were $ 20.6 million in the year ended december 31 , 2015 , compared to $ 14.2 million in the year ended december 31 , 2014 . the $ 6.4 million increase was primarily due to an increase in personnel expenses , including an increase in stock compensation expense of $ 4.5 million .
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in addition , some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management , including commodity prices , interest rates , cost of capital and our credit ratings . while we believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting units and other intangible assets , it is reasonably possible that a material change could occur that would require a goodwill impairment charge in the near story_separator_special_tag – liquidity and capital resources ” for additional information about our credit facilities . our existing and future debt levels may limit our flexibility to obtain financing and to pursue other business opportunities . as of december 31 , 2015 , we had $ 140.9 million of indebtedness outstanding under our credit agreement . we will have the ability to incur additional debt , subject to limitations in our credit agreement . our degree of leverage could have important consequences to us , including the following : ● our ability to obtain additional financing , if necessary , for working capital , capital expenditures , acquisitions or other purposes may be impaired or such financing may not be available on favorable terms ; ● our funds available for operations , future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt ; ● we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally ; and ● our flexibility in responding to changing business and economic conditions may be limited . 24 our ability to service our debt will depend upon , among other things , our future financial and operating performance , which will be affected by prevailing economic conditions and financial , business , regulatory and other factors , some of which are beyond our control . if our operating results are not sufficient to service our current or future indebtedness , we will be forced to take actions such as reducing distributions , reducing or delaying our business activities , acquisitions , investments or capital expenditures , selling assets or seeking additional equity capital . we may not be able to effect any of these actions on satisfactory terms or at all . our business could be adversely impacted if we are unable to obtain or maintain the regulatory permits required to develop and operate our facilities and to dispose of certain types of waste . we own and operate swd facilities in north dakota and texas , each with its own regulatory program for addressing the handling , treatment , recycling and disposal of saltwater . we are also required to comply with federal laws and regulations governing our operations . these environmental laws and regulations require that we , among other things , obtain permits and authorizations prior to the development and operation of waste treatment and storage facilities and in connection with the disposal and transportation of certain types of waste . the applicable regulatory agencies strictly monitor waste handling and disposal practices at all of our facilities . for many of our sites , we are required under applicable laws , regulations , and or permits to conduct periodic monitoring , company-directed testing and third-party testing . any failure to comply with such laws , regulations , or permits may result in suspension or revocation of necessary permits and authorizations , civil or criminal liability and imposition of fines and penalties , which could adversely impact our operations and revenues and ability to continue to provide oilfield water and environmental services to our customers . in addition , we may experience a delay in obtaining , be unable to obtain , or suffer the revocation of required permits or regulatory authorizations , which may cause us to be unable to serve customers , interrupt our operations and limit our growth and revenue . regulatory agencies may impose more stringent or burdensome restrictions or obligations on our operations when we seek to renew or amend our permits . for example , permit conditions may limit the amount or types of waste we can accept , pressures , require us to make material expenditures to upgrade our facilities , implement more burdensome and expensive monitoring or sampling programs , or increase the amount of financial assurance that we provide to cover future facility closure costs . moreover , nongovernmental organizations or the public may elect to protest the issuance or renewal of our permits on the basis of developmental , environmental or aesthetic considerations , which protests may contribute to a delay or denial in the issuance or reissuance of such permits . it is not uncommon for local property owners or , in some cases oil and natural gas producers , to oppose swd permits . any such limitations or requirements could limit the water and environmental services we provide to our customers , or make such services more expensive to provide , which could have a material adverse effect on our financial position , results of operations , cash flows and our ability to make cash distributions to our unitholders . delays in obtaining permits by our customers for their operations could impair our business . in most states , our customers are required to obtain permits from one or more governmental agencies in order to perform drilling and completion activities and to operate pipeline and gathering systems . such permits are typically issued by state agencies , but federal and local governmental permits may also be required . the requirements for such permits vary depending on the location where such drilling and completion , and pipeline and gathering , activities will be conducted . as with all governmental permitting processes , there is a degree of uncertainty as to whether a permit will be granted , the time it will take for a permit to be issued , and the conditions that may be imposed in connection with the granting of the permit . story_separator_special_tag any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas exploration and production activities by our customers and , therefore , adversely affect our business . such laws or regulations could also materially increase our costs of compliance and doing business by more strictly regulating how hydraulic fracturing wastes are handled or disposed . oil and natural gas producers ' operations , especially those using hydraulic fracturing , are substantially dependent on the availability of water . restrictions on the ability to obtain water may incentivize water recycling efforts by oil and natural gas producers which would decrease the volume of saltwater delivered to our swd facilities . water is an essential component of oil and natural gas production during the drilling , and in particular , hydraulic fracturing , process . however , the availability of suitable water supplies may be limited for oil and natural gas producers due to reasons such as prolonged drought . for example , according to the lower colorado river authority , during 2011 , texas experienced the lowest inflows of water of any year in recorded history . as a result of this severe drought , some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supplies . in response to continuing drought conditions in 2015 , 2014 and 2013 , the texas legislature considered a number of bills that would have mandated recycling of flowback and produced water and or prohibits recyclable water from being disposed of in wells . if oil and natural gas producers in texas are unable to obtain water to use in their operations from local sources , they may be incentivized to recycle and reuse saltwater instead of delivering such saltwater to our texas swd facilities ( or in other states that adopt similar programs ) . similarly , mandatory recycling programs could reduce the amount of materials sent to us for treatment and disposal . any such limits or mandates could adversely affect our business and results of operations . 26 increased attention to seismic activity associated with hydraulic fracturing and underground disposal could result in additional regulations and ad versely impact demand for our services . there exists a growing concern that the underground injection of produced water into disposal wells has triggered seismic activity in certain areas . some states , including texas , have promulgated rules or guidance in response to these concerns . in texas , the texas railroad commission ( “ trc ” ) published a final rule in october 2014 governing permitting or re-permitting of disposal wells that will require , among other things , the submission of information on seismic events occurring within a specified radius of the disposal well location , as well as logs , geologic cross sections and structure maps relating to the disposal area in question . if the permittee or an applicant of a disposal well permit fails to demonstrate that the injected fluids are confined to the disposal zone or if scientific data indicates such a disposal well is likely to be or determined to be contributing to seismic activity , then the trc may deny , modify , suspend or terminate the permit application or existing operating permit for that well . these new seismic permitting requirements applicable to disposal wells impose more stringent permitting requirements and are likely to result in added costs to comply or , perhaps , may require alternative methods of disposing of salt water and other fluids , which could delay production schedules and also result in increased costs . additional regulatory measures designed to minimize or avoid damage to geologic formations may be imposed to address such concerns . we and our customers may incur significant liability under , or costs and expenditures to comply with , environmental regulations , which are complex and subject to frequent change . our and our customer 's operations are subject to stringent federal , state , provincial and local laws and regulations relating to , among other things , protection of natural resources , wetlands , endangered species , the environment , waste management , waste disposal , and transportation of waste and other materials . these laws and regulations may impose numerous obligations that are applicable to our and our customer 's operations , including the acquisition of permits to conduct regulated activities , the incurrence of capital or operating expenditures to limit or prevent releases of materials from our or our customers ' operations , and the imposition of substantial liabilities and remedial obligations for pollution or contamination resulting from our and our customer 's operations . compliance with this complex array of laws and regulations is difficult and may require us to make significant expenditures . a breach of such requirements may result in suspension or revocation of necessary licenses or authorizations , civil liability for , among other things , pollution damage and the imposition of material fines . our operations also pose risks of environmental liability due to leakage , migration , releases or spills from our operations to surface or subsurface soils , surface water or groundwater . some environmental laws and regulations impose strict , joint and several liabilities in connection with releases of regulated substances into the environment . therefore , in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of , or conditions caused by , third parties . laws protecting the environment generally have become more stringent over time . we expect this trend to continue , which could lead to material increases in our costs for future environmental compliance and remediation , and could adversely affect our operations by restricting the way in which we treat and dispose of exploration and production , or e & p , waste or our ability to expand our business .
| results of operations and financial results . our business is dependent upon our operational systems to process a large amount of data and a substantial number of transactions . if any of our financial , operational or other data processing systems fail or have other significant shortcomings , our financial results could be adversely affected . our financial results could also be adversely affected if an employee causes our operational or financial systems to fail , either as a result of inadvertent error or by deliberately tampering with or manipulating our operational systems . in addition , dependence upon automated systems may further increase the risk that operational system flaws , employee tampering or manipulation of those systems will result in losses that are difficult to detect . due to technology advances , we have become more reliant on technology to help increase efficiency in our business . we use computer programs to help run our financial and operations processes , and this may subject our business to increased risks . any future cyber security attacks that affect our facilities , communications systems , our customers or any of our financial data could have a material adverse effect on our business . in addition , cyber-attacks on our customer and employee data may result in a financial loss and may negatively impact our reputation . we do not maintain specialized insurance for possible liability resulting from a cyber-attack on our assets that may shut down all or part of our business . third-party systems on which we rely could also suffer operational system failure . any of these occurrences could disrupt our business , result in potential liability or reputational damage or otherwise have an adverse effect on our financial results .
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the board examined the qualifications of its audit committee members and determined that the present members of the audit committee , based on their prior education and professional experience , were sufficiently capable of performing the duties of the audit committee in 2011 without being “ financial experts ” within such definition . item 11. executive compensation . summary compensation table as of december 31 , 2010 and december 31 , 2011 replace_table_token_20_th - 33 - notes to summary compensation table ( a ) the amounts in this column reflect the aggregate grant date fair value for stock awards computed in accordance with fasbasc topic 718. no stock awards were granted in 2011 . ( 1 ) the board appointed julie smolyansky as the ceo , cfo , president and treasurer of the company on june 10 , 2002. from september 21 , 1998 until such appointments , she had been director of sales and marketing of the company . since november 2004 , ms. smolyansky has served solely as ceo and president . ( 2 ) the board appointed edward smolyansky as the cfo , chief accounting officer and treasurer of the company in november 2004 . ( 3 ) the company approves , on an annual basis , the payment to ludmila smolyansky of salary and bonus as other compensation for continuing advisory services to the company and in light of her extensive experience . ludmila smolyansky devotes as much time as necessary to the business of the company . ( 4 ) the board appointed valeriy nikolenko as the vice president of operations and secretary of the company in december 1993 . ( 5 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 ( k ) plan on behalf of the following named executive officer , julie smolyansky : $ 0 for 2011 ; and ( ii ) the following amounts related to personal usage of automobiles leased by the company , and related insurance and fuel , for 2011 : $ 13,126 for of lease payments , $ 12,000 for insurance premiums and $ 2,000 for fuel . ( 6 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 story_separator_special_tag comparison of quarter ended december 31 , 2011 to quarter ended december 31 , 2010 the following analysis should be read in conjunction with the audited financial statements of the company and related notes included elsewhere in this annual report and the audited financial statements and management 's discussion and analysis contained in our quarterly reports on form 10-q , for the fiscal quarters ended march 31 , 2011 , june 30 , 2011 , and september 30 , 2011. story_separator_special_tag font-family : times new roman ; font-size : 10pt '' > cost of goods sold as a percentage of net sales , excluding depreciation expense , were approximately 66 % during the twelve-month period ended december 31 , 2011 , compared to approximately 63 % during the same period in 2010. the increase was primarily attributable to the cost of conventional and organic milk , the company 's largest raw material . the total cost of milk was approximately 20 to 25 % higher during the twelve-month period ended december 31 , 2011 when compared to the same period in 2010. operating expenses as a percentage of net sales were approximately 25 % during the twelve-month period ended december 31 , 2011 compared to approximately 24 % during the same period in 2010. selling related expenses increased by $ 2,602,343 ( approximately 34 % ) to $ 10,205,441 during the twelve-month period ended december 31 , 2011 , from $ 7,603,098 during the same period in 2010. this increase is attributable to the company recording an approximate $ 700,000 expense related its 25th anniversary cross country mobile tour , which occurred in the second quarter and was expensed during the second quarter of 2011. the company views this as a non-recurring advertising expense . - 11 - total operating income decreased by $ 1,198,141 ( approximately 19 % ) to $ 5,076,491 during the twelve-month period ended december 31 , 2011 , from $ 6,274,632 during the same period in 2010. provision for income taxes was $ 1,977,837 or a 41 % effective tax rate , for the twelve-month period ended december 31 , 2011 compared with $ 2,823,986 , or a 44 % effective tax rate , during the same period in 2010. the decline in the effective tax rate is primarily the result of changes in estimates reflected in the current period . additionally , during the year ended december 31 , 2010 , a liability of approximately $ 220,000 was recognized resulting from the completion of an irs review of the company 's 2007 and 2008 federal tax return filings . income taxes are discussed in note 11 of the notes to consolidated financial statements . total net income was $ 2,855,421 or $ 0.17 per share for the twelve-month period ended december 31 , 2011 compared to $ 3,622,466 or $ 0.22 per share in the same period in 2010. liquidity and capital resources sources and uses of cash net cash provided by operating activities was $ 4,042,021 during the twelve-months ended december 31 , 2011 compared to net cash provided by operating activities of $ 5,615,943 the same period in 2010. this decrease is primarily attributable to the increase in accounts receivable of $ 1,494,790. net cash used in investing activities was $ 2,112,657 during the twelve-months ended december 31 , 2011 compared to net cash provided by investing activities of $ 1,410,377 in the same period in 2010. this decrease is primarily due to a decrease in proceeds from sale of investments of $ 3,858,342 compared to 2010. the company had a net decrease in cash and cash equivalents of $ 2,114,789 during the twelve-month period ended december 31 , 2011 story_separator_special_tag the board examined the qualifications of its audit committee members and determined that the present members of the audit committee , based on their prior education and professional experience , were sufficiently capable of performing the duties of the audit committee in 2011 without being “ financial experts ” within such definition . item 11. executive compensation . summary compensation table as of december 31 , 2010 and december 31 , 2011 replace_table_token_20_th - 33 - notes to summary compensation table ( a ) the amounts in this column reflect the aggregate grant date fair value for stock awards computed in accordance with fasbasc topic 718. no stock awards were granted in 2011 . ( 1 ) the board appointed julie smolyansky as the ceo , cfo , president and treasurer of the company on june 10 , 2002. from september 21 , 1998 until such appointments , she had been director of sales and marketing of the company . since november 2004 , ms. smolyansky has served solely as ceo and president . ( 2 ) the board appointed edward smolyansky as the cfo , chief accounting officer and treasurer of the company in november 2004 . ( 3 ) the company approves , on an annual basis , the payment to ludmila smolyansky of salary and bonus as other compensation for continuing advisory services to the company and in light of her extensive experience . ludmila smolyansky devotes as much time as necessary to the business of the company . ( 4 ) the board appointed valeriy nikolenko as the vice president of operations and secretary of the company in december 1993 . ( 5 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 ( k ) plan on behalf of the following named executive officer , julie smolyansky : $ 0 for 2011 ; and ( ii ) the following amounts related to personal usage of automobiles leased by the company , and related insurance and fuel , for 2011 : $ 13,126 for of lease payments , $ 12,000 for insurance premiums and $ 2,000 for fuel . ( 6 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 story_separator_special_tag comparison of quarter ended december 31 , 2011 to quarter ended december 31 , 2010 the following analysis should be read in conjunction with the audited financial statements of the company and related notes included elsewhere in this annual report and the audited financial statements and management 's discussion and analysis contained in our quarterly reports on form 10-q , for the fiscal quarters ended march 31 , 2011 , june 30 , 2011 , and september 30 , 2011. story_separator_special_tag font-family : times new roman ; font-size : 10pt '' > cost of goods sold as a percentage of net sales , excluding depreciation expense , were approximately 66 % during the twelve-month period ended december 31 , 2011 , compared to approximately 63 % during the same period in 2010. the increase was primarily attributable to the cost of conventional and organic milk , the company 's largest raw material . the total cost of milk was approximately 20 to 25 % higher during the twelve-month period ended december 31 , 2011 when compared to the same period in 2010. operating expenses as a percentage of net sales were approximately 25 % during the twelve-month period ended december 31 , 2011 compared to approximately 24 % during the same period in 2010. selling related expenses increased by $ 2,602,343 ( approximately 34 % ) to $ 10,205,441 during the twelve-month period ended december 31 , 2011 , from $ 7,603,098 during the same period in 2010. this increase is attributable to the company recording an approximate $ 700,000 expense related its 25th anniversary cross country mobile tour , which occurred in the second quarter and was expensed during the second quarter of 2011. the company views this as a non-recurring advertising expense . - 11 - total operating income decreased by $ 1,198,141 ( approximately 19 % ) to $ 5,076,491 during the twelve-month period ended december 31 , 2011 , from $ 6,274,632 during the same period in 2010. provision for income taxes was $ 1,977,837 or a 41 % effective tax rate , for the twelve-month period ended december 31 , 2011 compared with $ 2,823,986 , or a 44 % effective tax rate , during the same period in 2010. the decline in the effective tax rate is primarily the result of changes in estimates reflected in the current period . additionally , during the year ended december 31 , 2010 , a liability of approximately $ 220,000 was recognized resulting from the completion of an irs review of the company 's 2007 and 2008 federal tax return filings . income taxes are discussed in note 11 of the notes to consolidated financial statements . total net income was $ 2,855,421 or $ 0.17 per share for the twelve-month period ended december 31 , 2011 compared to $ 3,622,466 or $ 0.22 per share in the same period in 2010. liquidity and capital resources sources and uses of cash net cash provided by operating activities was $ 4,042,021 during the twelve-months ended december 31 , 2011 compared to net cash provided by operating activities of $ 5,615,943 the same period in 2010. this decrease is primarily attributable to the increase in accounts receivable of $ 1,494,790. net cash used in investing activities was $ 2,112,657 during the twelve-months ended december 31 , 2011 compared to net cash provided by investing activities of $ 1,410,377 in the same period in 2010. this decrease is primarily due to a decrease in proceeds from sale of investments of $ 3,858,342 compared to 2010. the company had a net decrease in cash and cash equivalents of $ 2,114,789 during the twelve-month period ended december 31 , 2011
| results of operations total consolidated gross sales increased by $ 2,615,251 ( approximately 16 % ) to $ 18,739,197 during the three-month period ended december 31 , 2011 from $ 16,123,946 during the same three-month period in 2010. this increase is primarily attributable to increased sales and awareness of the company 's flagship line , kefir , as well as probugs® organic kefir for kids and biokefir . in addition , lifeway 's frozen kefir line , which was launched in april 2011 , contributed approximately $ 350,000 to sales during the fourth quarter of 2011. total consolidated net sales increased by $ 2,034,614 ( approximately 14 % ) to $ 16,766,984 during the three-month period ended december 31 , 2011 from $ 14,732,370 during the same three-month period in 2010. net sales are recorded as gross sales less promotional activities such as slotting fees paid , couponing , spoilage and promotional allowances as well as early payment terms given to customers . the total allowance for promotions and discounts during the three-month period ended december 31 , 2011 was $ 1,972,213 , or 10.5 % of gross sales , compared to the total allowance for promotions and discounts during the three-month period ended december 31 , 2010 of $ 1,391,576 , or 8.6 % of gross sales . this increase is a result of an adjustment made during the three-month period ended december 31 , 2011 the company recorded an increase in allowances for promotions and discounts of $ 0.5 million associated with write-offs of accounts receivable balances outstanding as of december 31 , 2011 for known discounts . these discounts have previously been accounted for through a reserve applied against accounts receivable .
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( incorporated by reference to exhibit 10.2 to our quarterly report on form 10-q for the fiscal quarter ended january 31 , 2006 . ) 10.8 amendment no . 4 to the copytele , inc. 2003 share incentive plan . ( incorporated by reference to exhibit 4 ( g ) to our form s-8 dated september 21 , 2007 . ) 10.9 amendment no . 5 to the copytele , inc. 2003 share incentive plan . ( incorporated by reference to exhibit 4 ( g ) to story_separator_special_tag forward-looking statements information included in this annual report on form 10-k may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements are not statements of historical facts , but rather reflect our current expectations concerning future events and results . we generally use the words believes , expects , intends , plans , anticipates , likely , will and similar expressions to identify forward-looking statements . such forward-looking statements , including those concerning our expectations , involve risks , uncertainties and other factors , some of which are beyond our control , which may cause our actual results , performance or achievements , or industry results , to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and factors include , but are not limited to , those factors set forth in this annual report on form 10-k under 21 item 1a . risk factors above . except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k. general our principal operations include the development , production and marketing of thin flat display technologies , including low-voltage phosphor color displays and low-power passive e-paper ® displays , and the development , production and marketing of multi-functional encryption products that provide information security for domestic and international users over several communications media . as part of our ongoing development activities , we continue to conduct improvement programs related to both our electrophoretic display ( epd ) and flat panel , low voltage phosphor , nanotube display ( nano display ) technologies to meet anticipated future customer needs . our advanced new epd technology utilizes specially coated particles in combination with a unique type of pixel structure to create an image . this new technology is applicable to electronic books and other low power applications . we believe that our advanced epd technology will have higher contrast , considerably faster operation , and be produced at a lower cost than current electrophoretic displays . our nano display technology incorporates a new type of low voltage , efficient color phosphors in combination with nano materials and an electron emission system utilizing nano materials to produce color video information . our nano display technology is applicable to small hand-held and larger size applications , including tv 's . we believe our nano display could potentially have a cost similar to a crt ( cathode ray tube ) and thus cost less than current lcds ( liquid crystal displays ) , partly because our nano display does not contain a backlight , color filter or polarizer which represent a substantial portion of the cost of an lcd . in may 2011 , we entered into an exclusive license agreement ( the epd license agreement ) with au optronics corp. , a taiwanese company ( auo ) . under the epd license agreement , we provided auo with an exclusive , non-transferable , worldwide license of our e-paper ® display patents and technology ( the epd licensed technology ) , for auo ( or an auo subsidiary ) to produce , market and sell products containing the epd licensed technology , with the right to sublicense the technology to third parties . we retained the non-exclusive right to use the epd licensed technology in a non-competitive manner . in may 2011 , we also entered into another license agreement ( the nano display license agreement and together with the epd license agreement , the auo license agreements ) with auo . under the nano display license agreement , we provided auo with a non-exclusive , non-transferable , worldwide license of our nano display patents and technology ( the nano display licensed technology ) , for auo ( or an auo subsidiary ) to produce , market and sell products containing the nano display licensed technology , with the right to consent to the granting of licenses of the nano display licensed technology to third parties . 22 since entering into the auo license agreements , both auo and copytele have set up project teams to implement our epd and nano display technologies . we are continuously providing technical support to auo 's project teams . this support includes coordinating our technologies to interface with auo 's production requirements . under the auo license agreements , auo has agreed to pay copytele an aggregate license fee of up to $ 10 million , of which $ 3 million was paid by auo in june 2011 and the remaining $ 7 million is payable upon completion of certain conditions for the respective technologies , in each case subject to a 20 % foreign withholding tax . accordingly , in june 2011 we received a payment from auo , net of the withholding tax , of $ 2.4 million . in addition , each of the agreements also provides for the basis for royalty payments by auo to copytele . in november 2007 , we entered into a technology license agreement ( as amended in may 2008 , the videocon license agreement ) with videocon industries limited , an indian company ( videocon ) . story_separator_special_tag such appointments are limited to advise with respect to strategic planning and technology in the display field and do not grant either such senior advisor any rights with respect to involvement in the overall management or operations of the company . while videocon and copytele have made such appointments and the senior advisors from each of the companies are in communications with each other with respect to strategic planning and technology in the display field , the senior advisors have not had any interactions with the other 's board of directors and do not and have not attended any board of director meetings . such senior advisors do not presently intend to have any interactions with the other 's board of directors in the future . 24 at the same time we entered into the videocon license agreement in november 2007 , we also entered into a share subscription agreement ( the share subscription agreement ) with mars overseas limited , an affiliate of videocon ( mars overseas ) . under the share subscription agreement , mars overseas purchased 20,000,000 unregistered shares of our common stock ( the copytele shares ) from us for an aggregate purchase price of $ 16,200,000. also in november 2007 , our wholly-owned subsidiary , copytele international ltd. ( copytele international ) , entered into a gdr purchase agreement with global epc ventures limited ( global ) , for copytele international to purchase from global 1,495,845 global depository receipts of videocon ( the videocon gdrs ) , for an aggregate purchase price of $ 16,200,000. the fair value of our investment in the videocon gdrs as of october 31 , 2011 was approximately $ 5,382,000. for the purpose of effecting a lock up of the videocon gdrs and copytele shares ( collectively , the securities ) for a period of seven years , and therefore restricting both parties from selling or transferring the securities during such period , copytele international and mars overseas entered into two loan and pledge agreements in november 2007. the videocon gdrs are to be held as security for a loan in the principal amount of $ 5,000,000 from mars overseas to copytele international , and the copytele shares are similarly held as security for a loan in the principal amount of $ 5,000,000 from copytele international to mars overseas . the loans are for a period of seven years , do not bear interest , and prepayment of the loans will not release the lien on the securities prior to end of the seven year period . the loan agreements provide for customary events of default , which may result in forfeiture of the securities by the defaulting party , and also provide for the transfer to the respective parties , free and clear of any encumbrances under the agreements , any dividends , distributions , rights or other proceeds or benefits in respect of the securities . the loan receivable from mars overseas is classified as a contra-equity under shareholders ' equity in the accompanying consolidated balance sheet , because the loan receivable is secured by the copytele shares and the share subscription agreement and loan and pledge agreement were entered into concurrently . our nano display technology includes a proprietary mixture of specially coated carbon nanotubes and nano materials in combination with our proprietary low voltage color phosphors . the specially coated carbon nanotubes , which are supplied to us by a u.s. company , and nano materials , require a low voltage for electron emission and are extremely small approximately 1 ten thousandth the width of a human hair . our technology utilizes a new memory-based active matrix thin film technology with each pixel phosphor activated by electrons emitted by a proprietary carbon nanotube network located extremely close from the pixels . the matrix also has a high pixel field factor to obtain high contrast and low power consumption . as a result , each pixel phosphor brightness is controlled using less than 40 volts . the carbon nanotubes and proprietary color phosphors are precisely placed and separated utilizing our proprietary nanotube and phosphor deposition technology . we have developed a process of maintaining uniform carbon nanotube deposition independent of phosphor deposition . we have also developed a method of enhancing nanotube electron emission to increase the brightness of this type of display . 25 in september 2009 , we entered into a technology license agreement ( the volga license agreement ) with volga to produce and market our thin , flat , low voltage phosphor , nano displays in russia . as part of the volga license agreement , volga is required to purchase from us the matrix substrate , carbon nanotubes , and associated display electronics for any production of the licensed displays . in addition , in september 2009 , we entered into a separate agreement with volga whereby we obtained a 19.9 % ownership interest in volga in exchange for 150,000 unregistered shares of our common stock . we have also initiated an evaluation of our e-paper ® electrophoretic intellectual property with zqx advisors , llc ( zqx ) under our august 2009 engagement agreement . this included a review of our patent claims in connection with patents relating to the current e-reader market . we continue to maintain a 19.5 % interest in zqx . in august 2009 , we entered into a development agreement with a u.s. company to provide engineering and implementation support for the development of our patented extremely low power passive monochrome or color display for use in portable devices including e-books . this company has experience in the field involving portions of our display technology . our proprietary extremely low power display that we are developing , in conjunction with this u.s. company , incorporates a new micro-matrix substrate . our display is designed to have bi-stability capability , and uses low power when an image is being created . once an image is created , power consumption is negligible .
| results of operations fiscal year ended october 31 , 2011 compared to fiscal year ended october 31 , 2010 net revenue net revenue increased by approximately $ 272,000 in fiscal year 2011 , to approximately $ 1,003,000 , as compared to approximately $ 731,000 in fiscal year 2010. in fiscal year 2011 , revenue from display technology license fees of approximately $ 873,000 related to the auo license agreements . in fiscal year 2010 , revenue from display technology license fees of $ 600,000 related to the videocon license agreement . see - general above in this item 7. revenue from sales of encryption products decreased by less than $ 1,000 in fiscal year 2011 , from approximately $ 131,000 in fiscal year 2010. our encryption revenue has been limited and is sensitive to individual large transactions . cost of encryption products sold the cost of encryption products sold decreased by approximately $ 48,000 in fiscal year 2011 , to approximately $ 34,000 , as compared to approximately $ 82,000 in fiscal year 2010. the cost of encryption products sold includes a provision for excess inventory in fiscal year 2010 of approximately $ 44,000. there was no provision for excess inventory in fiscal year 2011. the cost of encryption products shipped in fiscal year 2011 decreased to approximately $ 34,000 , as compared to approximately $ 38,000 in fiscal year 2010 , due to variations in gross profit margins of encryption products shipped .
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the second tranche , which was paid in full as of december 31 , 2015 , had an interest-only period of six months followed by a principal and interest amortization period of 32 months with interest being charged at 8.25 % . there were certain fees in accordance with the lsa which were recorded as discounts or short-term liabilities depending on the nature of the fees and accreted through interest expense over the life of the loans . as of october 14 , 2015 , the lsa was paid in full and no amounts remain outstanding . 83 note 5. commitments and contingencies leases the company leases its facilities and certain office equipment under long-term non-cancelable operating leases that expire at various dates through 2021. the company has the following minimum rental payments under noncancelable operating lease obligations that existed at december 31 , 2015 ( in thousands ) : replace_table_token_24_th rent expense under non-cancelable operating leases and other month-to-month equipment rental agreements , including common area maintenance fees , totaled story_separator_special_tag the following discussion and analysis should be read in conjunction with “ selected financial data ” and our financial statements and related notes included elsewhere in this annual report . this discussion and analysis and other parts of this annual report contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ risk factors ” and elsewhere in this annual report . you should carefully read the “ risk factors ” section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled “ forward-looking statements. ” 49 overview chimerix , inc. is a biopharmaceutical company dedicated to discovering , developing and commercializing novel , oral antivirals in areas of high unmet medical needs . we were founded in 2000 based on the promise of our proprietary lipid conjugate technology to unlock the potential of some of the most broad-spectrum antivirals by enhancing their antiviral activity and safety profiles in convenient , orally administered dosing regimens . based on our proprietary lipid conjugate technology , our lead compound , brincidofovir ( bcv , cmx001 ) , is in phase 3 clinical development . in addition , we have an active discovery program focusing on viral targets for which limited or no therapies are currently available . recent developments cytomegalovirus ( cmv ) in allogeneic hematopoietic cell transplant ( hct ) recipients in late december 2015 , we reported top line results from our phase 3 suppress trial , which evaluated the safety and efficacy of brincidofovir in the prevention of cmv infection through the first 24 weeks following an allogeneic hct . in february 2016 , we presented an analysis of the suppress trial results at the bmt tandem meetings . the suppress trial enrolled 452 adult allogeneic ( non-self ) hct recipients who were at high risk of cmv infection in the post-transplant period based on antibody evidence of a prior infection with cmv , referred to as “ cmv seropositive ” or “ recipient ( r+ ) seropositive. ” because there is no approved antiviral for the prevention of cmv reactivation in this patient population , patients were randomized 2:1 to receive brincidofovir 100 mg twice weekly ( biw , n=300 ) or placebo biw ( n=150 ) ; all enrolled subjects were monitored weekly during the first 14 weeks and once every three weeks during the post-treatment period from week 14 to week 24 for evidence of cmv reactivation in the blood . if cmv was confirmed by polymerase chain reaction ( pcr ) at 1000 c/ml or two consecutive measurements of > 150 c/ml and increasing for subjects identified at enrollment as at increased risk of progression to cmv disease , “ preemptive ” antiviral therapy was initiated . subjects who died or had missing data at week 24 were also considered failures for the primary endpoint . dosing of blinded study drug began as soon after the transplant as the patient could swallow a tablet , but mandated within the first four weeks , and continued through week 14 following the transplant . these first 14 weeks or ~100 days after a transplant is the period of greatest risk for viral infections . subjects were followed in the trial for an additional 10 weeks after the last dose of study drug , for a total of 24 weeks after transplant . because allogeneic hct recipients are at increased risk for other dna viral infections including hhv-6 , epstein-barr virus ( ebv ) , adenoviruses ( adv ) and bk virus ( bkv ) , against which bcv has in vitro antiviral activity , key secondary endpoints in suppress included clinical events associated with dna viruses such as encephalitis , respiratory infections , graft failure and measures of kidney function . in the suppress trial , brincidofovir did not prevent clinically significant cmv infection through week 24 after transplant to a greater extent than occurred on placebo , the primary endpoint of the trial . during the on-treatment period through week 14 after hct , fewer patients in the bcv arm had a cmv infection ( p=0.002 ) . however , during the 10 weeks off-treatment from week 14 to week 24 , there was an increase in subjects in the brincidofovir arm who met the primary endpoint through cmv infection , death , or missing data compared to the control arm , such that at week 24 there was no benefit demonstrated for bcv treatment . story_separator_special_tag in july 2015 , we reported positive topline results from the pivotal smallpox study that was conducted under the fda 's animal efficacy rule , which allows for testing of investigational drugs in animal models to support effectiveness in diseases which are not ethical or feasible to study in humans . in this well-characterized model of smallpox , animals were administered a lethal inoculum of rabbitpox virus , and monitored for clinical signs of disease . following the onset of fever , animals were randomized to receive placebo , immediate brincidofovir , or brincidofovir after a delay of 24 , 48 , or 72 hours . in this study , brincidofovir administered immediately following the first clinical evidence of infection ( fever ) demonstrated 100 % survival . animals treated with brincidofovir 24 or 48 hours following confirmation of infection demonstrated a 68 % statistically significant ( p < 0.05 ) reduction in mortality compared to animals that received placebo which had a less than 50 % survival . the brincidofovir doses 51 used in this animal study were scaled to equivalent doses used in the phase 3 clinical trials of brincidofovir for cmv and adenovirus in humans , the suppress and advise trials , respectively . reduction in force ( rif ) in early 2016 , as a consequence of the failure of suppress to meet its primary endpoint , we initiated a reduction to our workforce . personnel reductions were initiated across our entire organization that have resulted in an elimination of 25 positions . the principal objective of the rif was to enable us to focus our financial resources on the continued clinical development of brincidofovir . in connection with the rif , we expect to record an aggregate charge related to one-time termination benefits of approximately $ 1.4 million in 2016. financial overview revenues to date , we have not generated any revenue from product sales . all of our revenue to date has been derived from government grants and contracts and the receipt of up-front proceeds under our collaboration and license agreement . in february 2011 , we entered into a contract with barda , a u.s. governmental agency that supports the advanced research and development , manufacturing , acquisition , and stockpiling of medical countermeasures . the contract originally consisted of an initial performance period , referred to as the base performance segment , which ended on may 31 , 2013 , plus up to four extension periods of approximately one year each , referred to as option segments . subsequent option segments to the contract are not subject to automatic renewal and are not exercisable at chimerix 's discretion . the contract is a cost plus fixed fee development contract . under the contract as currently in effect , we may receive up to $ 75.8 million in expense reimbursement and $ 5.3 million in fees if all remaining option segments are exercised . we are currently performing under the second and third option segments of the contract during which we may receive up to a total of $ 17 million and $ 13 million in expense reimbursement and fees , respectively . the second option segment is scheduled to end on june 30 , 2016 and the third option segment is scheduled to end on october 31 , 2016. as of december 31 , 2015 , we had recognized revenue in aggregate of $ 46.0 million with respect to the base performance segment and the first three extension periods . in july 2012 , we entered into a collaboration and licensing agreement with merck , sharp & dohme corporation ( merck ) . the agreement provided for various types of payments , including a $ 17.5 million non-refundable upfront license fee , contingent event-based milestone payments and future royalties on net product sales . we recognized the upfront license fee payment from merck as revenue for the year ended december 31 , 2012 , as our remaining performance obligations under the contract were not considered substantive . we did not recognize any revenue under this agreement for the years ended december 31 , 2013 and 2014. the license agreement with merck was terminated in may 2014. on december 17 , 2014 , we entered into a collaboration and licensing agreement with contravir pharmaceuticals ( nasdaq : ctrv ) . in exchange for the license to cmx157 rights , we received an upfront payment consisting of 120,000 shares of contravir series b convertible preferred stock with a stated value of $ 1.2 million . in addition , we are eligible to receive clinical , regulatory and initial commercial milestones in the united states and europe , as well as royalties and additional milestones based on commercial sales in those territories . we recognized the upfront license fee payment from contravir as deferred revenue for the year ended december 31 , 2014 , and during the second quarter of 2015 we completed our performance obligations and recorded $ 1.5 million in revenue . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sales of products developed under licenses of our intellectual property . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . 52 research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our product candidates .
| results of operations comparison of the years ended december 31 , 2015 and december 31 , 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and december 31 , 2014 , together with the changes in those items in dollars and percentage ( in thousands , except percentages ) : replace_table_token_7_th * not meaningful or not calculable contract revenue for the year ended december 31 , 2015 , contract revenue increased to $ 9.2 million compared to $ 4.0 million for the year ended december 31 , 2014 . the increase of $ 5.2 million , or 128.1 % , was related to an increase in reimbursable expenses related to our contract with barda . collaboration and licensing revenue for the year ended december 31 , 2015 , total collaboration and licensing revenue was $ 1.5 million . in december 2014 , we entered into a collaboration and licensing agreement with contravir pharmaceuticals . we recognized the upfront license fee payment as deferred revenue in 2014. during the second quarter of 2015 , we completed our performance obligations related to this agreement and recognized $ 1.5 million of collaboration and licensing revenue . research and development expenses for the year ended december 31 , 2015 , our research and development expenses increased to $ 97.2 million compared to $ 45.4 million for the year ended december 31 , 2014 .
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this method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under gaap which does not recognize revenue until a proof of delivery is received or which recognizes revenue as progress on the transit is made . the company 's method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods . all other revenue , including revenue from other value-added services including brokerage services , warehousing and fulfillment services , is recognized upon completion of the service . f-12 p ) s hare-based compensation the company has issued restricted stock awards and stock options to certain directors , officers and employees . the company accounts for share-based compensation under the fair value recognition provisions such that compensation cost is measured at the grant date story_separator_special_tag the following discussion and analysis of our financial condition and result of operations should be read in conjunction with the consolidated financial statements and the related notes and other information included elsewhere in this report . overview we operate as a third party logistics company , providing multi-modal transportation and logistics services primarily in the united states and canada . we service a large and diversified account base consisting of consumer goods , food and beverage , manufacturing and retail customers which we support from an extensive network of over 150 operating locations across north america . we provide these services through a multi-brand network comprised of approximately 31 company owned offices and 128 locations operated by our independent agents , as well as an integrated international service partner network located in other key markets around the globe . as a third party logistics company , we have approximately 10,000 asset-based transportation companies , including motor carriers , railroads , airlines and ocean lines in our carrier network . we believe shippers value our services because we are able to objectively arrange the most efficient and cost-effective means , type and provider of transportation service since we are not influenced by the ownership of transportation assets . in addition , our minimal investment in physical assets affords us the opportunity for higher return on invested capital and net cash flows than our asset-based competitors . through our operating locations across north america , we offer domestic and international air and ocean freight forwarding services and freight brokerage services including truckload services , less than truckload services ; and intermodal services , which is the movement of freight in trailers or containers by combination of truck and rail . our primary business operations involve arranging the shipment , on behalf of our customers , of materials , products , equipment and other goods that are generally larger than shipments handled by integrated carriers of primarily small parcels , such as fedex , dhl and ups , including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems . we also provide other value-added logistics services , including customs brokerage , order fulfillment , inventory management and warehousing services to complement our core transportation service offering . we launched our business with the acquisition of airgroup corporation ( “ airgroup ” ) in january of 2006. since that initial platform acquisition in 2006 , we have continued to enhance our back-office infrastructure , transportation and accounting systems while executing a strategy to expand operations through a combination of organic growth and the strategic acquisition of non-asset based transportation and logistics providers meeting our acquisition criteria . in april 2015 , we acquired wheels , our most significant acquisition to date , which significantly expanded our scale and provided geographic and service line expansion through its truck brokerage and intermodal service offering throughout the united states and canada . we expect to grow our business organically and by completing acquisitions of other companies with complementary geographical and logistics service offerings . our organic growth strategy will continue to focus on strengthening existing and expanding new customer relationships leveraging the benefit of our new truck brokerage and intermodal service offerings , while continuing our efforts on the organic build-out of our network of strategic operating partner locations . in addition to our focus on organic growth , we continue to search for acquisition candidates that bring critical mass from a geographic standpoint , purchasing power and or complementary service offerings to the current platform . as we continue to grow and scale the business , we remain focused on leveraging our back-office infrastructure to drive productivity improvement across the organization . in addition , as we continue to grow and scale the business we are creating density in our trade lanes which creates opportunities for us to more efficiently source and manage our transportation capacity . 27 performance metrics our principal source of income is derived from freight forwarding and freight brokerage services we provide to our customers . as a third party logistics provider , we arrange for the shipment of our customers ' freight from point of origin to point of destination . generally , we quote our customers a turnkey cost for the movement of their freight . our price quote will often depend upon the customer 's time-definite needs ( first day through fifth day delivery ) , special handling needs ( heavy equipment , delicate items , environmentally sensitive goods , electronic components , etc . ) , and the means of transport ( motor carrier , air , ocean or rail ) . in turn , we assume the responsibility for arranging and paying for the underlying means of transportation . our transportation revenue represents the total dollar value of services we sell to our customers . our cost of transportation includes direct costs of transportation , including motor carrier , air , ocean and rail services . story_separator_special_tag the second impairment assessment involves allocating the reporting unit 's fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit 's goodwill as of the assessment date . the implied fair value of the reporting unit 's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date . we typically perform our annual impairment test effective as of april 1 of each year , unless events or circumstances indicate , an impairment may have occurred before that time . acquired intangibles consist of customer related intangibles , trade names and trademarks , and non-compete agreements arising from our acquisitions . customer related intangibles are amortized using the straight-line method over a period of up to 10 years , trademarks and trade names are amortized using the straight line method over 15 years , and non-compete agreements are amortized using the straight line method over the term of the underlying agreements . during the fourth quarter of 2015 we evaluated the amortizable life used for customer related intangibles and determined that to better reflect the expected future cash flows of those assets , the lives were extended from five years to a range of up to 10 years . this change in estimate , effective as of april 1 , 2015 , was accounted for prospectively . this change lowered amortization expense $ 600,000 , increasing earnings per basic and diluted share approximately $ .01 , for the year ended june 30 , 2015. we review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable . if the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount , the asset is considered to be impaired . impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset . when fair values are not available , we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset . assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . as a non-asset based carrier , we do not generally own transportation assets . we do , however , own certain trailers and refrigerated trailers that we use in our business . we generate the majority of our air and ocean freight forwarding and freight brokerage revenues by purchasing transportation services from direct ( asset-based ) carriers and reselling those services to our customers . based upon the terms in the contract of carriage , freight forwarding revenues related to shipments where we issue a house airway bill or a house ocean bill of lading are recognized at the time the freight is tendered to the direct carrier at origin . costs related to the shipments are also recognized at this same time based upon anticipated margins , contractual arrangements with direct carriers , and other known factors . the estimates are routinely monitored and compared to actual invoiced costs . the estimates are adjusted as deemed necessary by us to reflect differences between the original accruals and actual costs of purchased transportation . this method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under gaap which do not recognize revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made . our method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods . all other revenue , including revenue from other value-added services including freight brokerage services , customs brokerage services and warehousing and fulfillment services , is recognized upon completion of the service . 29 story_separator_special_tag liabilities ( primarily the changes in accounts receivable and accounts payable ) . net cash used for investing activities was $ 47.9 million for the year ended june 30 , 2015 , compared to $ 9.0 million for the year ended june 30 , 2014. use of cash in 2015 consisted of $ 44.0 million related to acquisitions and the purchase of $ 4.1 million of property , furniture and technology related equipment , offset by proceeds from the sale of equipment of $ 0.2 million . use of cash in 2014 consisted of $ 7.5 million related to acquisitions , the purchase of $ 0.2 million of technology related equipment , and payments made to the former shareholders of acquired operations totaling $ 1.3 million . net cash provided by financing activities was $ 50.6 million for the year ended june 30 , 2015 , compared to $ 3.9 million for the year ended june 30 , 2014. the cash provided by financing activities in 2015 consisted of borrowings from our credit facility of $ 30.6 million , borrowings of subordinated and other notes of $ 25.5 million , and a tax benefit from the exercise of stock options of $ 3.3 million , offset by payments of employee tax withholdings related to net share settlements of stock option exercises of $ 3.8 million , payment of contingent consideration made to former shareholders of acquired operations of $ 1.5 million , preferred dividend payments of $ 2.0 million , and payments of loan fees of $ 1.4 million . cash from financing activities in 2014 consisted of repayments to our credit facility of $ 1.6 million , repayments of senior subordinated promissory notes of $ 10.0 million , repayments of notes payable to former shareholders of $ 2.8 million , payment of employee tax withholdings related to net share settlements of stock option exercises of $ 0.9 million , payment of contingent consideration to former shareholders of acquired operations of $ 0.3 million , preferred dividend payments of $ 0.7
| results of operations fiscal year ended june 30 , 2015 , compared to fiscal year ended june 30 , 2014 the following table summarizes transportation revenue , cost of transportation and net transportation revenue by geographic operating segments for the fiscal years ended june 30 , 2015 and 2014 ( in thousands ) : replace_table_token_2_th transportation revenues for the year ended june 30 , 2015 were $ 500.9 million , consisting of forwarding revenues of $ 438.4 million and brokerage revenues of $ 62.5 million , compared to transportation revenues of $ 348.0 million for the year ended june 30 , 2014 , which were categorized as forwarding revenues . total transportation revenues for the year ended june 30 , 2015 increased $ 152.9 million , or 43.9 % , over transportation revenues for the year ended june 30 , 2014. the increases in forwarding revenues were attributed to the acquisition of wheels , sba , and dca , a full year of revenues for pca and the addition of several new agent based locations . brokerage revenues for the current year were attributable to the wheels transaction that closed in the fourth quarter . net transportation margins were 24.4 % for the year ending june 30 , 2015 compared to 28.2 % for the prior year period . net revenues were $ 123.7 million for the year ended june 30 , 2015 compared to $ 99.2 million for the year ended june 30 , 2014 , representing an increase of $ 24.5 million , or 24.7 % . the decrease in net margins was primarily attributed to the wheels acquisition which added substantial brokerage operations which have lower margin characteristics than the forwarding business .
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spindletop 's stock is traded on the over-the-counter ( otc ) market . he was president ( december 2004 to august 2007 ) of applied educational opportunities llc , an educational organization which had career training schools located in story_separator_special_tag the following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . this report on form 10-k contains forward-looking statements within the meaning of the federal securities laws , principally , but not only , under the captions “ business ” , “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” . we caution investors that any forward-looking statements in this report , or which management may make orally or in writing from time to time , are based on management 's beliefs and on assumptions made by , and information currently available to , management . when used , the words “ anticipate , ” “ believe , ” “ expect , ” “ intend , ” “ may , ” “ might , ” “ plan , ” “ estimate , ” “ project , ” “ should , ” “ will , ” “ result ” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements . these statements are subject to risks , uncertainties and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties and factors that are beyond our control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . we caution you that , while forward-looking statements reflect our good faith beliefs when we make them , they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements . we expressly disclaim any responsibility to update our forward-looking statements , whether as a result of new information , future events or otherwise . accordingly , investors should use caution in relying on past forward-looking statements , which are based on results and trends at the time they are made , to anticipate future results or trends . some of the risks and uncertainties that may cause our actual results , performance or achievements to differ materially from those expressed or implied by forward-looking statements include , among others , the following : general risks affecting the real estate industry ( including , without limitation , the inability to enter into or renew leases , dependence on tenants ' financial condition , and competition from other developers , owners and operators of real estate ) ; risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments ; failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully ; risks and uncertainties affecting property development and construction ( including , without limitation , construction delays , cost overruns , inability to obtain necessary permits and public opposition to such activities ) ; risks associated with downturns in the national and local economies , increases in interest rates and volatility in the securities markets ; costs of compliance with the americans with disabilities act and other similar laws and regulations ; potential liability for uninsured losses and environmental contamination ; risks associated with our dependence on key personnel whose continued service is not guaranteed ; and the other risk factors identified in this form 10-k , including those described under the part i , item 1a . “ risk factors ” . the risks included here are not exhaustive . other sections of this report , including part i , item 1a . “ risk factors ” include additional factors that could adversely affect our business and financial performance . moreover , we operate in a very competitive and rapidly changing environment . new risk factors emerge from time to time and it is not possible for management to predict all such risk factors , nor can we assess the impact of all such risk factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . investors should also refer to our quarterly reports on form 10-q for future periods and current reports on form 8-k as we file them with the sec , and to other materials we may furnish to the public from time to time through forms 8-k or otherwise . overview our primary business is investing in real estate . we divested ourselves of our commercial segment with the sale of the 2010 valley view office building and the parkway centre retail shopping center in october 2009 , resulting in land held for development or sale remaining as our sole operating segment . at december 31 , 2011 , our land consisted of 178.1 acres of land held for future development or sale . all of our land holdings are located in texas . the principal source of revenue for the company is interest income on over $ 31.6 million of note receivables due from affiliated and or related parties . on cash flow notes where payments are based upon surplus cash from operations , accrued but unpaid interest income is only recognized to the extent that cash is received . we are advised by pillar under a contractual arrangement that is reviewed annually by our board of directors . the management and leasing of our commercial properties is handled by regis , an affiliate of pillar . 12 we have historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . story_separator_special_tag other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . 13 depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . asc topic 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by our board of directors , or a committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . included in discontinued operations , in accordance with asc 805 “ business combinations ” , we recognize rental revenue of acquired in-place “ above- ” and “ below-market ” leases at their fair values over the terms of the respective leases , as applicable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc topic 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the gain recognition and accounts for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable for notes other than surplus cash notes , we record interest income as earned in accordance with the terms of the related loan agreements . on cash flow notes where payments are based upon surplus cash from operations , accrued but unpaid interest income is only recognized to the extent cash is received .
| results of operations the following discussion is based on our consolidated financial statements “ consolidated statement of operations ” for the years ended december 31 , 2011 , 2010 , and 2009 from part ii , item 8 . “ financial statements and supplementary data ” and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares . instead , we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders . our current operations consist of land held for future development or sale . our operating expenses relate primarily to the administration and maintenance costs associated with the land held for development or sale . we also have other income and expense items . we receive interest income from the funds deposited with our advisor at a rate of prime plus 1.0 % . we have receivables from our affiliates which also provide interest income . our other significant expense item is from the mortgage expense which includes interest payments on the debt secured by our land portfolio . 15 comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 we had a net income applicable to common shares of $ 0.67 million or $ 0.16 per diluted earnings per share for the year ended december 31 , 2011 , as compared to a net income applicable to common shares of $ 1.84 million or $ 0.44 per diluted earnings per share for the same period ended 2010. revenue there was no rental and other property revenues for the twelve months ended december 31 , 2011 , and december 31 , 2010. in 2011 , we recognized the sale of the land and storage warehouse known as eagle crest , resulting in no further rental revenues and the reclassification of all financial results to
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f-19 kohl 's corporation notes to consolidated financial statements ( continued ) 7. stock-based compensation we currently grant share-based compensation pursuant to the kohl 's corporation 2010 long-term compensation plan , which provides for the granting of various forms of equity-based awards , including nonvested stock and options to purchase shares of our common stock , to officers , story_separator_special_tag story_separator_special_tag signs . advertising increased as a percentage of net sales , or deleveraged , in 2011 , primarily due to increased spending during a very promotional holiday season and incremental spending to support the jennifer lopez and marc anthony brand launches . distribution costs , which are included in sg & a , totaled $ 202 million for 2011 , $ 187 million for 2010 and $ 168 million for 2009. the increase in 2011 is primarily due to growth in our e-commerce business . on april 1 , 2011 , we commenced a seven-year private label credit card program agreement with capital one , national association ( capital one ) . pursuant to this agreement , capital one offers private label credit cards to new and existing customers of kohl 's . we handle all customer service functions , including processing billings , collecting on accounts , responding to customer inquiries , and maintaining data systems . we are also responsible for all advertising and marketing related to our credit card customers . kohl 's and capital one share in the net risk-adjusted revenue of the portfolio as defined by the sum of finance charges , late fees and other revenue less write-offs of uncollectible accounts . unlike the previous program agreement , we also share the costs of funding the outstanding receivables if interest rates were to exceed defined rates . while we currently believe that increases in funding costs would be largely offset by increases in finance charge revenue , the profitability of our credit card program may be impacted by changes in interest rates . revenues from our credit card operations , net of the expenses to provide the functions detailed above , were $ 347 million in 2011 , $ 180 million in 2010 and $ 252 million in 2009. the increase in 2011 compared to 2010 represents higher revenues as a result of higher finance charges due to receivable growth , higher late fees due to regulatory changes which reduced late fees in 2010 , and lower receivable write-offs due to improved delinquency rates . a more favorable revenue sharing percentage under the current capital one agreement also contributed to the increase . the decrease in 2010 compared to 2009 reflects lower late fees due to regulatory changes and higher receivable write-offs due to higher delinquency rates , partially offset by higher finance charges due to receivable growth . 22 sg & a for 2010 increased $ 239 million , or 6 % , over 2009 , but decreased as a percentage of net sales . sg & a increased primarily due to store growth , higher sales , and investments in technology and infrastructure related to our e-commerce business . depreciation and amortization . replace_table_token_21_th the increases in depreciation and amortization are primarily due to the addition of new stores , remodels and the opening of our third e-commerce fulfillment center in edgewood , maryland . operating income . replace_table_token_22_th the changes in operating income and operating income as a percent of net sales are due to the factors discussed above . interest expense . replace_table_token_23_th net interest expense for 2011 decreased $ 5 million , or 2 % , from 2010. the decrease is attributable to the repayment of debt totaling $ 400 million in march and october 2011 and the subsequent issuance of $ 650 million of debt in october 2011 at a lower interest rate . net interest expense for 2010 increased $ 3 million over 2009. the increase was primarily attributed to interest on new financing obligations related to new stores . income taxes . replace_table_token_24_th the effective tax rate for 2011 was comparable to the 2010 and 2009 tax rates . inflation although we expect that our operations will be influenced by general economic conditions , including rising food , fuel and energy prices , we do not believe that inflation has had a material effect on our results of operations . however , there can be no assurance that our business will not be affected by such factors in the future . we experienced 10 15 % increases in apparel costs in 2011. we expect to see modest increases in the first six months of 2012 , but to see decreases in the last six months of the year . 23 liquidity and capital resources our primary ongoing cash requirements are for capital expenditures in connection with our expansion and remodeling programs and seasonal and new store inventory purchases . share repurchases and dividend payments to shareholders are currently another significant usage of cash . these payments are discretionary and can be discontinued at any time should we require cash for other uses . our primary sources of funds are cash flow provided by operations , short-term trade credit and our lines of credit . short-term trade credit , in the form of extended payment terms for inventory purchases , often represents a significant source of financing for merchandise inventories . seasonal cash needs may be met by cash on hand and or the line of credit available under our revolving credit facility . our working capital and inventory levels typically build throughout the fall , peaking during the november and december holiday selling season . as of january 28 , 2012 , we had cash and cash equivalents of $ 1.2 billion . we generated $ 1.1 billion of free cash flow in 2011 . ( see the free cash flow discussion later in this liquidity and capital resources section for additional discussion of this non-gaap financial measure . ) replace_table_token_25_th operating activities . cash provided by operations increased 22 % in 2011 to $ 2.1 billion . story_separator_special_tag in conjunction with the debt issuance , we paid $ 48 million to settle interest-rate hedges which were entered into in december 2010 and may 2011 in anticipation of the october debt issuance . we have various facilities upon which we may draw funds , including a 5-year , $ 1 billion senior unsecured revolving credit facility which we entered into in june 2011. the co-leads of this facility , bank of america , u.s. bank , and wells fargo bank , have each committed $ 110 million . the remaining 13 lenders have each committed between $ 30 and $ 85 million . the $ 1 billion facility replaced a $ 900 million facility which was scheduled to expire in october 2011. we also have a demand note with availability of $ 30 million . there were no draws on these facilities during 2011 or 2010. our credit ratings have been unchanged since september 2007 when we issued $ 1 billion in debt . as of january 28 , 2012 , our ratings were as follows : moody 's standard & poor 's fitch long-term debt baa1 bbb+ bbb+ we may from time to time seek to retire or purchase our outstanding debt through open market cash purchases , privately negotiated transactions or otherwise . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved could be material . during 2011 , we paid cash dividends of $ 271 million as detailed in the following table : replace_table_token_27_th on february 22 , 2012 , our board of directors approved a dividend of $ 0.32 per common share which will be paid on march 28 , 2012 to shareholders of record as of march 7 , 2012. our financing activities used cash of $ 989 million in 2010 and $ 13 million in 2009. the increase is primarily due to treasury stock purchases in the fourth quarter of 2010. key financial ratios . key financial ratios that provide certain measures of our liquidity are as follows : replace_table_token_28_th * return on gross investment is a non-gaap financial measure . 26 the decrease in working capital and the current ratio and the increase in the debt/capitalization ratio as of year-end 2011 compared to year-end 2010 were primarily due to the repurchase of $ 2.3 billion of our common stock in 2011. the net increase in our outstanding debt balances also contributed to the increase in the debt/capitalization ratio . the ratio of earnings to fixed charges was generally consistent with prior years . see exhibit 12.1 to this annual report on form 10-k for the calculation of this ratio . the decrease in working capital and the current ratio as of year-end 2010 compared to year-end 2009 was primarily due to the reclassification of $ 400 million of debt maturing in 2011 from long-term to short-term and the repurchase of $ 1.0 billion of kohl 's common stock . the debt/capitalization ratio was comparable to 2009 , as share repurchases offset earnings in equity . the increase in the 2010 ratio of earnings to fixed charges was primarily due to higher earnings . our return on gross investment ( roi ) was 18.8 % for 2011 , 19.2 % for 2010 and 18.2 % for 2009. roi decreased in 2011 compared to 2010 as investments in stores , distribution centers and technology increased more than profitability . the increase in 2010 compared to 2009 was primarily due to higher earnings . roi is a non-gaap financial measure which we define as earnings before interest , taxes , depreciation , amortization and rent ( ebitdar ) divided by average gross investment . our roi calculation may not be comparable to similarly titled measures reported by other companies . roi should be evaluated in addition to , and not considered a substitute for , other financial measures such as return on assets . we believe that roi measures how effectively we utilize our assets , excluding cash equivalents and long-term investments , to generate earnings . the following table includes our roi and return on assets ( the most comparable gaap measure ) calculations : replace_table_token_29_th ( 1 ) represents average of 5 most recent quarter end balances for 2011 and 2010 and the 2 most recent year-end balances for 2009 ( 2 ) represents average of 5 most recent quarter end balances for all periods ( 3 ) represents excess cash not required for operations ( 4 ) represents 10 times store rent expense and 5 times equipment/other rent ( 5 ) net income divided by average total assets ( 6 ) ebitdar divided by gross investment 27 debt covenant compliance . our debt agreements contain various covenants including limitations on additional indebtedness and the following leverage ratio as of january 28 , 2012 : replace_table_token_30_th as of january 28 , 2012 , we were in compliance with all debt covenants and expect to remain in compliance during fiscal 2012. free cash flow . we generated free cash flow of $ 1.1 billion in 2011 and approximately $ 900 million in 2010. the increase in free cash flow is primarily a result of higher cash provided by operating activities , as discussed above . free cash flow is a non-gaap financial measure which we define as net cash provided by operating activities and proceeds from financing obligations ( which generally represent landlord reimbursements of construction costs ) less acquisition of property & equipment and capital lease & financing obligation payments . free cash flow should be evaluated in addition to , and not considered a substitute for , other financial measures such as net income and cash flow provided by operating activities . we believe that free cash flow represents our ability to generate additional cash flow from our business operations . the following table reconciles net cash provided by operating activities ( a gaap measure ) to free cash flow ( a non-gaap measure ) .
| executive summary total net sales for 2011 were $ 18.8 billion , a 2.2 % increase over 2010. comparable store sales increased 0.5 % over 2010. comparable sales were driven by a 6.6 % increase in average unit retail price , which was largely offset by decreases in units per transaction and number of transactions . our e-commerce business met its $ 1 billion revenue goal for the year and contributed 150 basis points to the comparable store sales increase . the northeast region and the accessories and home businesses reported the strongest comparable store sales growth . gross margin was essentially flat to 2010 at 38.2 % of sales for 2011. we successfully managed apparel cost inflation throughout the year , but saw lower margins during the fourth quarter holiday season due to the extremely competitive landscape and sales which were below our expectations . expense management contributed to a 4 % increase in net income and a 17 % increase in diluted earnings per share . for 2011 , net income was $ 1.2 billion , or $ 4.30 per diluted share , compared to $ 1.1 billion , or $ 3.66 per diluted share for 2010. we increased our free cash flow ( a non-gaap financial measure which is defined in liquidity and capital resources ) by 27 % to $ 1.1 billion and returned approximately $ 2.6 billion to shareholders in 2011 with our first-ever quarterly dividends and with share repurchases . we ended the year with 1,127 stores in 49 states , including 40 which were successfully opened in 2011. we also completed 100 remodels in 2011. as of year-end , approximately one-half of our stores were either new or remodeled in the last five years . we believe this is a critical element in creating a positive shopping experience and driving increased sales .
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we have a majority ownership position in franklin technology inc. ( fti ) , a research and development facility located in seoul , south korea . fti primarily provides design and development services to us for our wireless products . our products are generally marketed and sold directly to wireless operators , and indirectly through strategic partners and distributors . our global customer base extends primarily from the united states to countries in south america , the caribbean , europe , the middle east and africa ( `` emea '' ) and asia . factors that may influence future results of operations we believe that our revenue growth will be influenced largely by ( 1 ) the successful maintenance of our existing customers , ( 2 ) the rate of increase in demand for wireless data products , ( 3 ) customer acceptance for our new products , ( 4 ) new customer relationships and contracts , and ( 4 ) our ability to meet customers ' demands . we have entered into and expect to continue to enter into new customer relationships and contracts for the supply of our products , and this may require significant demands on our resources , resulting in increased operating , selling , and marketing expenses associated with such new customers . critical accounting policies revenue recognition we recognize revenue in accordance with asc 605 , “ revenue recognition , ” when persuasive evidence of an arrangement exists , the price is fixed or determinable , collection is reasonably assured and delivery of products has occurred or services have been rendered . accordingly , we recognize revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms . we provide a warranty for one year , which is covered by our vendors under the purchase agreements . any net warranty related expenditures made by us have not historically been material . under our sales return policy , customers may generally return products that are under warranty for repair or replacement . capitalized product development costs accounting standards codification ( “ asc ” ) topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . 10 the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to financial statements ) include payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues . the amortization begins when the products are available for general release to the company 's customers . as of june 30 , 2015 and june 30 , 2014 , capitalized product development costs in progress were $ 0 and $ 39,545 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2015 , we incurred $ 89,145 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income ( loss ) . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . we have evaluated the available evidence supporting the realization of our gross deferred tax assets , including the amount and timing of future forecasted taxable income , and have determined it is more likely than not that the assets will be fully realized and no valuation allowance is necessary as of june 30 , 2015. as of june 30 , 2015 , we have federal and state net operating loss carryforwards of approximately $ 5.2 million and $ 1.7 million , which expire through 2034 and 2017 , respectively . the utilization of net operating loss carryforwards may be subject to limitations under the provisions of internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . story_separator_special_tag recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . 11 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > the $ 181,675 in net cash used in investing activities for the year ended june 30 , 2015 was primarily due to the payments for capitalized product development of $ 89,145 and purchases of intangible assets and property and equipment of $ 51,012 and $ 53,032 , respectively . the $ 357,477 in net cash used in investing activities for the year ended june 30 , 2014 was primarily due to the payments for capitalized product development and purchases of property and equipment of $ 310,615 and $ 127,894 , respectively , which were partially offset by the repayment of a loan from a third party of $ 110,294. financing activities net cash provided by financing activities for the years ended june 30 , 2015 and 2014 was $ 0 and $ 96,074 , respectively . the $ 96,074 in net cash provided by financing activities for the year ended june 30 , 2014 was primarily due to the issuance of stock related to stock options exercised . off-balance sheet arrangements none . 13 contractual obligations and other commitments the following table summarizes our contractual obligations and commitments as of june 30 , 2015 , and the effect such obligations could have on our liquidity and cash flow in future periods : replace_table_token_4_th on july 27 , 2010 , we entered into a common stock repurchase agreement with c-motech ( the “ agreement ” ) , under which we agreed to repurchase 3,370,356 shares of our common stock from c-motech for $ 3,500,000. a total of 1,803,684 shares were repurchased on the date of the agreement in exchange for non-cash consideration in the amount of $ 1,873,065 , which represented amounts owed to the company by c-motech for certain marketing funds as well as the settlement of a price dispute for products previously purchased by the company from c-motech . under the agreement , the remaining 1,566,672 shares were to be repurchased by us upon payment of the balance , $ 1,626,935 , on or before december 31 , 2010. on january 28 , 2011 ( the “ amendment date ” ) the agreement was amended to reflect ( 1 ) a change in the date the 1,566,672 shares are to be repurchased from c-motech from december 31 , 2010 to march 31 , 2011 , and ( 2 ) a change to the non-cash consideration of $ 1,873,065. in exchange for the 1,803,684 shares , we were to pay cash to c-motech ( in the same amount ) for the shares , by march 31 , 2011. in addition , in a separate agreement dated january 28 , 2011 , c-motech agreed to pay us $ 1,873,065 , for amounts owed , by march 31 , 2011. the purpose of these revisions was to more clearly differentiate each party 's payment obligations to the other with respect to this transaction . following the amendment date , we paid c-motech $ 1,873,065 in exchange for the 1,803,684 shares previously transferred to us by c-motech , and c-motech paid us $ 1,873,065 for amounts owed , of which $ 1,581,457 was booked to other income and $ 291,608 was booked to cost of goods sold . the repurchase of the remaining 1,566,672 shares from c-motech was not completed . we have provided formal notification to c-motech that it is in breach of its obligations and we have also provided a demand to sell the shares back to us . we have attempted to tender payment for the shares without results . we were previously advised that two individuals , cheng-ji zhu and ok-nam yun , claim to have purchased the shares from c-motech through its former ceo ; however , the authority of the former ceo to agree to the sale of the shares was disputed by c-motech . the ownership of the shares was the subject of litigation involving cheng-ji zhu and ok-nam yun and c-motech in u.s. and korean courts . on april 1 , 2015 the circuit court of cook county , illinois county department , chancery division issued an order with respect to the matter of cheng-ji zhu and ok-nam yun , plaintiffs , v. integrity stock transfer and registrar , mountain share transfer , inc. and c-motech company ltd. , defendants . the order recognizes and enforces the plaintiff 's motion to recognize and enforce foreign judgment in which the plaintiffs previously prevailed over c-motech with respect to the ownership of the 1,566,672 shares of franklin wireless common stock in an action that took place in korea . on may 7 , 2013 , we filed a lawsuit against c-motech in the superior court of california for the county of san diego for breach of the agreement and breach of other contracts between the parties relating to indemnification and other obligations . on february 25 , 2014 , c-motech answered the complaint and on february 26 , 2014 , c-motech filed a notice of removal from the superior court of the state of california for the county of san diego to the united states district court for the southern district of california . on june 19 , 2014 , c-motech filed a voluntary petition for relief under chapter 15 of the u.s. bankruptcy code and on june 27 , 2014 , c-motech filed a motion for recognition of a foreign main proceeding under chapter 15 of the u.s. bankruptcy code and further relief . on july 10 , 2014 , this motion was heard in the u.s. bankruptcy court for the southern district of california during which the court ordered that c-motech 's bankruptcy proceeding in south korea was recognized as a foreign main proceeding and that our
| results of operations the following table sets forth , for the years ended june 30 , 2015 and 2014 , our statements of operations including data expressed as a percentage of sales : replace_table_token_3_th year ended june 30 , 2015 compared to year ended june 30 , 2014 net sales - net sales increased by $ 15,391,336 , or 49.7 % , to $ 46,344,233 for the year ended june 30 , 2015 from $ 30,952,897 for the corresponding period of 2014. for the year ended june 30 , 2015 , net sales by geographic regions , consisting of south america and the caribbean , the united states , emea ( europe , the middle east and africa ) and asia were $ 1,416,052 ( 3.1 % of net sales ) , $ 36,710,081 ( 79.2 % of net sales ) , $ 4,578,970 ( 9.9 % of net sales ) and $ 3,639,130 ( 7.8 % of net sales ) , respectively . net sales in the south american and caribbean regions decreased by $ 693,268 , or 32.9 % , to $ 1,416,052 for the year ended june 30 , 2015 , from $ 2,109,320 for the corresponding period of 2014. the decrease was primarily due to the general nature of sales in these regions , which often fluctuate significantly from period to period due to timing of orders placed by a relatively small number of customers .
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in 2016 , 87 % of our revenue was generated from product sales , less than 1 % was generated from performance on contracts for prototype units , 7 % was generated from a prorated portion of the $ 8.0 million upfront payment , and 5 % was generated from ongoing per unit royalties . sony corporation ( sony ) accounted for 91 % of our total revenue in 2016. in 2015 , 70 % of our revenue was generated from product sales , 17 % was generated from performance on support services contracts , 10 % was generated from a prorated portion of the $ 8.0 million upfront payment , and 3 % was generated from ongoing per unit royalties . sony accounted for 98 % of our total revenue in 2015. in 2014 , 49 % of our revenue was generated from performance on collaborative research and development agreements , 40 % was generated from performance on contracts to deliver customized prototype units , 10 % was generated from product sales , and 1 % was generated from ongoing per unit royalties . sony accounted for 58 % of our total revenue and a worldwide logistics company accounted for 17 % of our total revenue in 2014. we have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending december 31 , 2017. we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales and licensing activities . there can be no assurance that additional capital will be available or that , if available , it will be available on terms acceptable to us on a timely basis . we can not be certain that we will succeed in commercializing our technology or products . these factors raise substantial doubt regarding our ability to continue as a going concern . 16 these financial statements were prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern . key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on a continuous basis . we base our estimates on historical data , terms of existing contracts , our evaluation of trends in the information display and 3d sensing industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue when : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred and there are no uncertainties regarding customer acceptance , ( iii ) fees are fixed or determinable , and ( iv ) collection is reasonably assured . we generate revenue from many sources and activities . we enter into arrangements that can include various combinations of product sales , services , and licensing activities . for multiple- element arrangements , we use a hierarchy to determine the contract consideration to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third party evidence of selling price ( tpe ) , and ( iii ) best estimate of selling price . to date , our revenue sources can be classified as : product revenue , royalty revenue , contract revenue , or development revenue . product revenue our product sales generally include acceptance provisions . we recognize product revenue upon acceptance of the product by the customer or expiration of the contractual acceptance period , after which there are no rights of return . no estimates are made for product returns because revenue is recognized upon expiration of the contractual acceptance period . royalty revenue we recognize revenue on upfront license fees over the expected time frame that we provide services or have ongoing obligations under the agreement . ongoing per unit royalties are recognized when reported by our customer to us on a quarterly basis . currently , we recognize revenue for ongoing per unit royalties one quarter in arrears when reported by our customer , representing when such amounts are fixed and determinable , and all other revenue recognition criteria are met . contract revenue our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue related to the sale of prototype units and evaluation kits upon acceptance of the deliverables by the customer or expiration of the contractual acceptance period , after which there are no rights of return . 17 we recognize contract revenue on long-term , cost plus fixed fee , and fixed price contracts using the percentage-of-completion method . under the percentage-of-completion method , revenue is recognized as work progresses on the contract . the percentage-of-completion method relies on estimates of total expected contract revenue and costs . story_separator_special_tag we account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award , net of estimated forfeitures . the fair value of stock options is estimated on the grant date using the black-scholes option pricing model . the fair value of rsus is determined by the closing price of our common stock on the grant date . changes in estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense . income taxes significant judgment is required in evaluating our tax position and in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . we record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . based on our history of losses since inception , the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets . our actual tax exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made . the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our consolidated financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our consolidated financial statements . inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years . 19 story_separator_special_tag increased personnel-related compensation and benefits expenses . we believe that a substantial level of continuing research and development expense will be required to further develop our picop® scanning technology . sales , marketing , general and administrative expense 2016 2015 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 8,743 $ 7,879 $ 864 11.0 sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the increase in sales , marketing , general and administrative expense during the year ended december 31 , 2016 , compared to 2015 , was primarily due to increased personnel-related compensation and benefits expenses , professional fees and business development costs . gain on sale of previously reserved inventory replace_table_token_8_th 21 gain on sale of previously reserved inventory includes the sales of excess component inventory for discontinued products that was fully reserved in prior periods . the activity during the years ended december 31 , 2016 and 2015 was primarily the sale of previously reserved excess component inventory . year ended december 31 , 2015 compared to year ended december 31 , 2014. product revenue replace_table_token_9_th product revenue was higher during the year ended december 31 , 2015 , than the same period in 2014 , due to higher product sales to sony as part of continued shipments of orders we received during 2015 and 2014 totaling $ 14.6 million and $ 3.8 million , respectively , for key components to be integrated into display modules it manufactures and sells . the backlog of product orders at december 31 , 2015 was $ 11.0 million compared to $ 3.6 million at december 31 , 2014. all backlog at december 31 , 2015 was fulfilled during 2016. royalty revenue replace_table_token_10_th royalty revenue was higher during the year ended december 31 , 2015 , compared to the same period in 2014 , as a result of the prorated revenue that was recognized from the $ 8.0 million upfront license fee we received from sony in march 2015 and ongoing per unit royalties on display modules it sells . during the year ended december 31 , 2015 , we recognized $ 316,000 from ongoing per unit royalties , and $ 849,000 from a prorated portion of the $ 8.0 million upfront payment . during the year ended december 31 , 2014 , we recognized $ 40,000 from ongoing per unit royalties . contract revenue replace_table_token_11_th during the year ended december 31 , 2015 , we recognized the full contract value of $ 1.5 million in revenue , having completed all deliverables and obligations under the agreement . during the year ended december 31 , 2014 , our contract revenue included the delivery of prototype units to customers in the automotive and consumer electronics industries , as well as the delivery of customized scanning engines to a worldwide logistics company during the third quarter of that year . the contract backlog , including orders for prototype units and evaluation kits , at december 31 , 2015 was $ 45,000 compared to $ 1.5 million at december 31 , 2014. development revenue % of % of total total 2015 revenue 2014 revenue $ change % change ( in thousands ) development revenue $ - - $ 1,691 48.5 $ ( 1,691 ) ( 100.0 ) in march 2013 , we entered into a $ 4.6 million collaborative research and development agreement with sony to incorporate our picop® scanning technology into a display module that could enable a variety of new products . as of september 30 , 2014 , we had completed all deliverables and obligations under the collaborative research and development agreement and had recognized the full contract value of $ 4.6 million .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015. product revenue replace_table_token_3_th product revenue is revenue from sales of our products , which are mems and asics . product revenue was higher during the year ended december 31 , 2016 , compared to the same period in 2015 , due to higher product sales to sony as part of continued shipments of orders we received during 2015 and 2014 totaling $ 14.6 million and $ 3.8 million , respectively , for key components to be integrated into display modules it manufactures and sells . during 2016 , we completed delivery of all outstanding orders from sony and the backlog of product orders at december 31 , 2016 was zero compared to $ 11.0 million at december 31 , 2015. royalty revenue replace_table_token_4_th royalty revenue is revenue derived from license agreements to our picop® scanning technology . royalty revenue was higher during the year ended december 31 , 2016 , compared to the same period in 2015 , as a result of higher royalty payments we received from sony for display modules it sold . during the year ended december 31 , 2016 , we recognized $ 801,000 from ongoing per unit royalties , and $ 1.0 million from a prorated portion of the $ 8.0 million upfront payment . during the year ended december 31 , 2015 , we recognized $ 316,000 from ongoing per unit royalties , and $ 849,000 from a prorated portion of the $ 8.0 million upfront payment . at december 31 , 2016 , remaining unrecognized upfront license fees are included in current and long-term deferred revenues , amounting to $ 999,000 and $ 5.1 million , respectively . at december 31 , 2015 , unrecognized upfront license fees are included in current and long-term deferred revenues , amounting to $ 1.0 million and $ 6.1 million , respectively .
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in addition to risk factors previously disclosed in blackrock 's securities and exchange commission ( sec ) reports and those identified elsewhere in this report , the following factors , among others , could cause actual results to differ materially from forward-looking statements or historical performance : ( 1 ) the introduction , withdrawal , success and timing of business initiatives and strategies ; ( 2 ) changes and volatility in political , economic or industry conditions , the interest rate environment , foreign exchange rates or financial and capital markets , which could result in changes in demand for products or services or in the value of assets under management ( aum ) ; ( 3 ) the relative and absolute investment performance of blackrock 's investment products ; ( 4 ) the impact of increased competition ; ( 5 ) the impact of future acquisitions or divestitures ; ( 6 ) the unfavorable resolution of legal proceedings ; ( 7 ) the extent and timing of any share repurchases ; ( 8 ) the impact , extent and timing of technological changes and the adequacy of intellectual property , information and cyber security protection ; ( 9 ) the impact of legislative and regulatory actions and reforms , including the dodd-frank wall street reform and consumer protection act , and regulatory , supervisory or enforcement actions of government agencies relating to blackrock or the pnc financial services group , inc. ( pnc ) ; ( 10 ) terrorist activities , international hostilities and natural disasters , which may adversely affect the general economy , domestic and local financial and capital markets , specific industries or blackrock ; ( 11 ) the ability to attract and retain highly talented professionals ; ( 12 ) fluctuations in the carrying value of blackrock 's economic investments ; ( 13 ) the impact of changes to tax legislation , including income , payroll and transaction taxes , and taxation on products or transactions , which could affect the value proposition to clients and , generally , the tax position of the company ; ( 14 ) blackrock 's success in maintaining the distribution of its products ; ( 15 ) the impact of blackrock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations ; and ( 16 ) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions . overview blackrock , inc. ( together , with its subsidiaries , unless the context otherwise indicates , blackrock or the company ) is a leading publicly traded investment management firm with $ 4.652 trillion of aum at december 31 , 2014. with approximately 12,200 employees in more than 30 countries , blackrock provides a broad range of investment and risk management services to institutional and retail clients worldwide . for further information see note 1 , introduction and basis of presentation , in the notes to the consolidated financial statements beginning on page f-1 of this form 10-k. 28 story_separator_special_tag nonrecurring items . earnings per diluted common share rose $ 3.08 , or 22 % , compared with 2012 due to higher net income and the benefit of share repurchases . as adjusted . operating income of $ 4,024 million and operating margin of 41.4 % increased $ 450 million and 100 basis points , respectively , from 2012. the current year results included the previously mentioned $ 39 million pre-tax nonoperating gain related to the pennymac ipo . income tax expense included a tax benefit of approximately $ 29 million , primarily due to the realization of tax loss carryforwards , and benefits from certain nonrecurring items and excluded the $ 69 million net noncash benefit in 2013 and the $ 30 million net noncash benefit in 2012 described above . earnings per diluted common share rose $ 2.90 , or 21 % , from 2012. the financial impact related to the charitable contribution has been excluded from as adjusted results for 2013. see non-gaap financial measures for further information on as adjusted items . for further discussion of blackrock 's revenue , expense , nonoperating results and income tax expense , see discussion of financial results herein . business outlook blackrock 's highly diversified multi-product platform was created to meet the needs of its clients in all market environments . blackrock is positioned to provide active and index investment solutions across asset classes and geographies and leverage blackrock solutions ' world-class risk management , analytics and advisory capabilities on behalf of clients . blackrock serves a diverse mix of institutional and retail clients across the globe , including investors in ishares etfs , maintaining differentiated client relationships and a fiduciary focus . blackrock 's retail strategy is focused on an outcome-oriented approach to creating client solutions , including active , index and alternative products , and enhanced distribution . in the united states , blackrock is leveraging its integrated wholesaler force to further penetrate wirehouse distribution platforms and gain share amongst registered investment advisors . internationally , blackrock continues to diversify the range of investment solutions available to clients , penetrate new distribution channels and capitalize on regulatory change impacting retrocession arrangements . ishares growth strategy is centered on increasing global ishares market share and driving global market expansion . blackrock will seek to achieve these goals by pursuing global growth themes in client and product segments including core investments , financial instruments and precision exposures . blackrock believes institutional results will be driven by strength in specialty areas , including defined contribution , financial institutions , official institutions and foundations , family offices and endowments ; deepening client relationships through effective cross-selling efforts ; enhancing blackrock 's solutions-oriented approach and leveraging blackrock solutions ' analytical and risk management expertise . assuming a stable market environment , blackrock anticipates that organic growth , coupled with the benefits of scale , should result in increasing operating margins over time . story_separator_special_tag as compensation expense associated with ( appreciation ) depreciation on investments related to certain deferred compensation plans , which is included in operating income , substantially offsets the gain ( loss ) on the investments set aside for these plans , management believes nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted , provides a useful measure , for both management and investors , of blackrock 's nonoperating results that impact book value . during 2013 , the noncash , nonoperating pre-tax gain of $ 80 million related to the contributed pennymac investment has been excluded from nonoperating income ( expense ) , less net income ( loss ) attributable to nci , as adjusted due to its nonrecurring nature and because the more than offsetting associated charitable contribution expense of $ 124 million is reported in operating income . replace_table_token_21_th ( 3 ) net income attributable to blackrock , as adjusted : management believes net income attributable to blackrock , inc. , as adjusted , and diluted earnings per common share , as adjusted , are useful measures of blackrock 's profitability and financial performance . net income attributable to blackrock , inc. , as adjusted , equals net income attributable to blackrock , inc. , gaap basis , adjusted for significant nonrecurring items , charges that ultimately will not impact blackrock 's book value or certain tax items that do not impact cash flow . replace_table_token_22_th see aforementioned discussion regarding operating income , as adjusted , and operating margin , as adjusted , for information on the pnc ltip funding obligation , charitable contribution , u.k. lease exit costs and contribution to stifs . 32 for each period presented , the non-gaap adjustments , including the pnc ltip funding obligation , u.k. lease exit costs and contribution to stifs were tax effected at the respective blended rates applicable to the adjustments . amounts for 2013 included a tax benefit of approximately $ 48 million recognized in connection with the charitable contribution . the tax benefit has been excluded from net income attributable to blackrock , inc. , as adjusted due to the nonrecurring nature of the charitable contribution . non-gaap adjustments for 2014 , 2013 and 2012 reflected the revaluation of deferred income tax liabilities related to intangible assets and or goodwill . the amount for 2014 included a $ 9 million net noncash tax benefit arising primarily from state and local income tax changes . the amount for 2013 included a $ 69 million noncash tax benefit , primarily related to legislation enacted in the united kingdom and state and local income tax changes . the amount for 2012 included a $ 50 million noncash tax benefit , primarily related to the effect of legislation enacted in the united kingdom and the state and local income tax effect resulting from changes in the company 's organizational structure . such amounts for 2014 , 2013 and 2012 have been excluded from as adjusted results as they will not have a cash flow impact and to ensure comparability among periods presented . ( 4 ) amounts for 2012 exclude net income attributable to participating securities ( see below ) . ( 5 ) nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations . prior to 2013 , certain unvested rsus were not included in diluted weighted-average common shares outstanding as they were deemed participating securities . average outstanding participating securities were 0.2 million in 2012. for further information , see note 21 , earnings per share , to the consolidated financial statements . assets under management aum for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio . net asset values , total assets , committed assets or other measures may be used to determine portfolio aum . aum and net inflows ( outflows ) by client type replace_table_token_23_th aum and net inflows ( outflows ) by product type replace_table_token_24_th ( 1 ) amounts include the effect of two single client low-fee institutional index fixed income outflows of $ 36.0 billion and $ 74.2 billion . ( 2 ) advisory aum represents long-term portfolio liquidation assignments . outflows include planned client distributions . ( 3 ) amounts include commodity ishares . 33 the following table presents the component changes in blackrock 's aum for 2014 , 2013 and 2012. replace_table_token_25_th ( 1 ) in 2012 , amounts include the effect of two single client low-fee institutional index fixed income outflows of $ 36.0 billion and $ 74.2 billion . ( 2 ) advisory aum represents long-term portfolio liquidation assignments . outflows include planned client distributions . ( 3 ) amounts include aum acquired from the company 's acquisition of mgpa in october 2013 of $ 11.0 billion , the credit suisse etf franchise in july 2013 ( the credit suisse etf transaction ) of $ 16.0 billion , the swiss re private equity partners acquisition ( the srpep transaction ) in september 2012 of $ 6.2 billion and the claymore investments , inc. acquisition ( the claymore transaction ) in march 2012 of $ 7.6 billion . ( 4 ) foreign exchange reflects the impact of converting non-u.s. dollar denominated aum into u.s. dollars for reporting purposes . blackrock has historically grown aggregate aum through organic growth and acquisitions . management believes that the company will be able to continue to grow aum by focusing on strong investment performance , efficient delivery of beta for index products , client service , developing new products and optimizing distribution capabilities . component changes in aum for 2014 the following table presents the component changes in aum by client type and product for 2014. replace_table_token_26_th ( 1 ) foreign exchange reflects the impact of converting non-u.s. dollar denominated aum into u.s. dollars for reporting purposes . ( 2 ) average aum is calculated as the average of the month-end spot aum amounts for the trailing thirteen months . ( 3 ) advisory aum represents long-term portfolio liquidation assignments .
| executive summary replace_table_token_19_th ( 1 ) net of net income ( loss ) attributable to noncontrolling interests ( nci ) ( redeemable and nonredeemable ) . ( 2 ) as adjusted items are described in more detail in non-gaap financial measures . ( 3 ) nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations . in addition , unvested restricted stock units ( rsus ) that contain nonforfeitable rights to dividends are not included for 2012 as they were deemed to be participating securities in accordance with accounting principles generally accepted in the united states ( gaap ) . upon vesting of the participating rsus , the shares were added to the weighted-average shares outstanding that resulted in an increase to the percentage of net income attributable to common shares . the company 's remaining participating securities vested in january 2013 . ( 4 ) total blackrock stockholders ' equity , excluding an appropriated retained deficit of $ 19 million for 2014 and appropriated retained earnings of $ 22 million and $ 29 million for 2013 and 2012 , respectively , divided by total common and preferred shares outstanding at december 31 of the respective year-end . 2014 compared with 2013 gaap . operating income of $ 4,474 million increased $ 617 million from 2013 , reflecting growth in base fees and blackrock solutions and advisory revenue , partially offset by higher expense . the company 's 2014 expense reflected higher revenue-related expense , including compensation and direct fund expense . expense for 2014 also included a $ 50 million reduction of an indemnification asset recorded in general and administration expense ( offset by a $ 50 million tax benefitsee income tax expense within discussion of financial results for more information ) and $ 11 million of closed-end fund launch costs .
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the financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audit . we conducted our audit in accordance with 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 audit 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 story_separator_special_tag forward-looking statements the following discussion contains various forward-looking statements within the meaning of section 21e of the exchange act . although we believe that , in making any such statement , our expectations are based on reasonable assumptions , any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected . when used in the following discussion , the words “ anticipates , ” “ believes , ” “ expects , ” “ intends , ” “ plans , ” “ estimates ” and similar expressions , as they relate to us or our management , are intended to identify such forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated . factors that could cause actual results to differ materially from those anticipated , certain of which are beyond our control , are set forth in item 1a under the caption “ risk factors. ” our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward-looking statements . accordingly , we can not be certain that any of the events anticipated by forward-looking statements will occur or , if any of them do occur , what impact they will have on us . we caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements , which speak only as of the date of the document in which they appear . we do not undertake to update any forward-looking statement . overview creative realities , inc. is a minnesota corporation that provides innovative digital marketing technology solutions to retailers , brand marketers , venue-operators , enterprises , non-profits and other organizations throughout the united states and a growing number of international markets . our technology and solutions include : digital merchandising systems , interactive digital shopping assistants and kiosks , mobile digital marketing platforms , digital way-finding platforms , digital menu board systems , dynamic signage , and other digital marketing technologies . we enable our clients ' engagement with consumers by using combinations of our technology and solutions that interact with mobile , social media , point-of-sale , wireless networks and web-based platforms . we have expertise in a broad range of existing and emerging digital marketing technologies , as well as the following related aspects of our business : content , network management , and connected device software and firmware platforms ; customized software service layers ; hardware platforms ; digital media workflows ; and proprietary processes and automation tools . we believe we are one of the world 's leading digital marketing technology companies focused on helping retailers and brands use the latest technologies to create better shopping experiences . our main operations are conducted directly through creative realities , inc. ( f/k/a wireless ronin technologies , inc. ) , and under our wholly owned subsidiaries creative realities , llc , a delaware limited liability company , wireless ronin technologies canada , inc. , a canadian corporation , and conexus world global , llc , a kentucky limited liability company . we generate revenue in this business by : ● consulting with our customers to determine the technologies and solutions required to achieve their specific goals , strategies and objectives ; ● designing our customers ' digital marketing experiences , content and interfaces ; ● engineering the systems architecture delivering the digital marketing experiences we design – both software and hardware – and integrating those systems into a customized , reliable and effective digital marketing experience ; ● managing the efficient , timely and cost-effective deployment of our digital marketing technology solutions for our customers ; ● delivering and updating the content of our digital marketing technology solutions using a suite of advanced media , content and network management software products ; and ● maintaining our customers ' digital marketing technology solutions by : providing content production and related services ; creating additional software-based features and functionality ; hosting the solutions ; monitoring solution service levels ; and responding to and or managing remote or onsite field service maintenance , troubleshooting and support calls . 20 these activities generate revenue through : bundled-solution sales ; service fees for consulting , experience design , content development and production , software development , engineering , implementation , and field services ; software license fees ; and maintenance and support services related to our software , managed systems and solutions . our sources of revenue we generate revenue through digital marketing solution sales , which include system hardware , professional and implementation services , software design and development , software licensing , deployment , and maintenance and support services . we currently market and sell our technology and solutions primarily through our sales and business development personnel , but we also utilize agents , strategic partners , and lead generators who provide us with access to additional sales , business development and licensing opportunities . our expenses our expenses are primarily comprised of three categories : sales and marketing , research and development , and general and administrative . story_separator_special_tag the percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract . estimated revenues from applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . contract costs include all direct material , labor , subcontractors , certain indirect costs , such as indirect labor , equipment costs , supplies , tools and depreciation costs . selling , general and administrative costs are charges to expense as incurred . this method is followed where reasonably dependable estimates of revenues and costs can be made . we measure progress for completion based on either the hours worked as a percentage of the total number of hours of the project or by delivery and customer acceptance of specific milestones as outlined per the terms of the agreement with the customer . estimates of total contract revenue and costs are continuously monitored during the term of the contract , and recorded revenue and costs are subject to revision as the contract progresses . such revisions may result in increases or decreases to revenue and income and are reflected in the financial statements in the periods in which they are first identified . if estimates indicate that a contract loss will occur , a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable . contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of sales and classified in accrued expenses in the balance sheet . our presentation of revenue recognized on a contract completion basis has been consistently applied for all periods presented . 22 software and software license sales included in “ services and other ” software and software license sales are recognized when a fixed fee order has been received and delivery has occurred to the customer . we assess whether the fee is fixed or determinable and free of contingencies based upon signed agreements received from the customer confirming terms of the transaction . software is delivered to customers electronically or on a cd-rom , and license files are delivered electronically . maintenance and support services included in “ services and other ” is maintenance and support services revenue . this consists of software updates and various forms of support services . software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period . support includes access to technical support personnel for software and hardware issues . we also offer a hosting service through our network operations center , or noc , allowing the ability to monitor and support its customers ' networks 7 days a week , 24 hours a day . this revenue is recognized ratably over the term of the contract , which is typically one to three years . maintenance and support is renewable by the customer . rates for maintenance and support , including subsequent renewal rates , are typically established based upon a fee per location , per device , or a specified percentage of net software license fees as set forth in the arrangement . we support agreement fees are based on the level of service provided to its customers , which can range from monitoring the health of a customer 's network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system . costs and estimated earnings recognized in excess of billings on uncompleted contracts are recorded as unbilled services and are included in work-in-process on the balance sheet . billings in excess of costs and estimated earnings on uncompleted contracts are recorded as deferred revenue until revenue recognition criteria are met . unbilled receivables are a normal part of our business as some receivables are invoiced in the month following shipment or completion of services . our policy is to present any taxes imposed on revenue-producing transactions on a net basis . accounts receivable our unsecured accounts receivable are customer obligations due under normal trade terms , carried at their face value less an allowance for doubtful accounts . as discussed in note 3 , we have entered into a factoring arrangement with allied affiliated funding for the majority of our accounts receivable . we determine our allowance for doubtful accounts based on the evaluation of the aging of its accounts receivable and on a customer-by-customer analysis of its high-risk customers . our reserves contemplate our historical loss rate on receivables , specific customer situations and the economic environments in which we operate . we determine past-due accounts receivable on a customer-by-customer basis . accounts receivable are written off after all reasonable collection efforts have failed . goodwill and intangible assets goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in a purchase business combination and is tested annually at september 30 for impairment or tested for impairment more frequently if events and circumstances indicate that the asset might be impaired . an impairment loss is recognized to the extent that the carrying value exceeds the asset 's fair value . the company has one reporting unit and the company determines the fair value of the reporting unit and compares it to its carrying value . second , if the carrying value of the reporting unit exceeds its fair value , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation , in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill .
| results of operations note : all dollar amounts reported in results of operations are in thousands , except per-share information . year ended december 31 , 2015 compared to year ended december 31 , 2014 the tables presented below compare our results of operations from one period to another , and present the results for each period and the change in those results from one period to another in both dollars and percentage change . our consolidated comparisons include certain historical data , transaction entries , journal entries , and chart of account classifications that are not uniformly consistent across creative realities , llc , wireless ronin technologies , inc. broadcast international , inc. and conexus world global , llc . as a result , certain assessments and qualitative descriptions related to our consolidated results can not be compared directly , and may not fully or accurately reflect actual changes in the specific statement of operations line-item category or subcategory at this time . for the year ended december 31 , 2015 , the financial results of conexus was incorporated from the acquisition date of october 15 , 2015 through the year ended december 31 , 2015. for the year ended december 31 , 2014 , the financial results of wrt were incorporated beginning from the merger date of august 20 , 2014 through the year ended december 31 , 2014. as a result of these recent mergers , the results of operations may not be entirely comparable and the variances are explained in more detail in the analysis below . 26 the columns present the following : ● the first two data columns in the table show the dollar results for each period presented . ● the column entitled “ dollars ” show the change in results , in dollars . the column entitled “ % ” show the change in percentages .
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we believe that effectively executing against this commitment to excellence will enable us to accomplish our mission statement and our long-term strategy and thereby create shareholder value . we currently focus on the following long-term strategy elements as our key value drivers : sustaining and growing our core markets ; accelerating the performance of initiatives in key growth markets ; driving operational excellence ; and improving cash flow and optimizing capital deployment . sustaining and growing our core markets : we have established strong positions in our core tactical radio , government communications systems and it services markets . our foundational technologies and customer relationships in these core markets differentiate us from many of our peers and help drive our growth . we are focused on sustaining and growing these core markets by utilizing the following strategies : tactical communications : continue to leverage our position as a leading global supplier of secure tactical radio communications and embedded high-grade encryption solutions for military , government and commercial customers . capitalize on the opportunity to transform the legacy narrowband market in a modernization cycle driven by wideband technology , as well as the demand in international defense markets driven by the transition to wideband and the need for network system solutions . create new demand by investing in and developing new products that strengthen our position in our current core markets and enable us to penetrate attractive adjacent markets . government communications systems : continue to conduct advanced research and to develop , produce , integrate and support advanced communications and information systems that solve the mission-critical challenges of our civilian , intelligence and defense government customers worldwide , primarily the u.s. government . leverage core capabilities such as mission-critical networks , satcom , ground systems , avionics , data links , isr and space systems . extend core franchise programs and sustain high margins . it services : continue to design , integrate , deploy , operate and support secure communications systems and information networks for complex , mission-critical applications for our defense , intelligence , homeland security and civilian government customers . leverage our position as a prime contractor on many key it services idiq contract vehicles . leverage our it services scale and capabilities in the vertical markets we serve across our company . accelerating the performance of initiatives in key growth markets : we are focused on accelerating the performance of initiatives in key growth markets , such as public safety and professional communications , healthcare it , commercial managed satellite communications solutions and emerging international markets . we expect growth in the public safety and professional communications market to be fueled by the continued rollout of apco p25 and the next-generation , 4g lte standard for wireless broadband . in this market , we have provided 700 mhz band lte pilot programs to multiple u.s. cities and successfully conducted the first live , multi-state lte demonstration for first responders , which enabled them to share streaming video , voice and mapping . in the healthcare it market , we have achieved significant growth , particularly in the government healthcare segment , and we expect continued growth , driven by u.s. federal mandates to reduce costs and improve patient outcomes . we believe demand for fully managed , 32 end-to-end satellite communications solutions is growing rapidly from energy , maritime and government customers , driven by new applications and the expansion of services within existing markets , and our solutions focus on voice , data and networking solutions for remote sites and are supported by the largest global managed satellite network in the world . sales and opportunities outside of the u.s. continue to expand , with good opportunities to leverage our capabilities with ultra-reliable and secure communications and it , particularly in regions such as the middle east and brazil . in the middle east , we believe needs for defense , homeland security and oil exploration and production have created opportunities for tactical radios , geospatial intelligence and managed satellite communications solutions . in brazil , where we have increased our facilities and staff , we believe demand will be driven by defense and border security requirements , public safety infrastructure upgrades , air traffic control system modernization and offshore oil exploration . driving operational excellence : we are committed to driving operational excellence , and harris business excellence ( hbx ) is our new operational excellence platform that is designed to leverage resources and transform the way we do business by enabling every employee to engage in sustained , continuous improvement that delivers better business performance and improved customer satisfaction . hbx incorporates standardized , industry-proven processes and tools based on lean six sigma principles to help us execute more effectively and to accelerate our long-term growth opportunities . we expect hbx to help increase productivity , accelerate asset velocity and improve customer satisfaction as we strive to optimize processes , eliminate waste , reduce costs and enhance quality across our company , including in areas such as manufacturing and field operations , supply chain and overhead functions . we are continuing our efforts , for example , to use automation to replace manual processes ; to reduce the cost of poor quality , such as the cost of warranty work , rework , repairs and scrap ; to consolidate suppliers and drive our outsourcing partners to lower cost geographies ; and to more fully deploy lean techniques . we also are continuing our working capital initiatives , including to drive down unbilled costs , optimize payment terms , reduce accounts receivable and shorten billing cycles . story_separator_special_tag although we expect that uncertainty related to u.s. government budgets will continue and that declining u.s. government budgets and the slow government spending environment will remain a challenge , the funding priorities within the president 's budget request for gfy 2014 align well with our key programs serving the u.s. government , such as funding for tactical radio modernization , managing the faa 's fti network , the start-up of the faa 's nextgen programs , providing the ground processing system for noaa 's goes-r weather program , foreign military sales and national intelligence . however , there can be no assurance regarding the potential impact of sequestration on our key programs . state and local : we also provide products to state and local government agencies that are committed to protecting our homeland and public safety . despite near-term budget pressures for state and local government agencies , we believe more normal spending patterns will resume in the long term as these agencies continue upgrading their technologies to improve communications and interoperability , although there can be no assurance that they will do so or that they will not be impacted by pressures on u.s. government grant funding to state and local government agencies . international : we believe demand for communications and it infrastructure technology and services in emerging global markets presents a major opportunity for growth . international markets continue to drive toward tactical communications upgrades and interoperability . we have also identified substantial opportunities with international governments with respect to their defense spending on national security and on tactical communications modernization and standardization programs . a major focus for us will be in the middle east and brazil . we believe increased spending on defense , homeland security and oil exploration and production in the middle east has created opportunities for sales of tactical radios , geospatial intelligence and managed satellite communications solutions . we believe growth in brazil is being driven by defense and border security requirements , the compelling need for public safety infrastructure upgrades and air traffic control system modernization , and demand for managed communications for offshore oil exploration . 34 government oversight and risk : as a u.s. government contractor , we are subject to u.s. government oversight . the u.s. government may investigate our business practices and audit our compliance with applicable rules and regulations . depending on the results of those investigations and audits , the u.s. government could make claims against us . under u.s. government procurement regulations and practices , an indictment or conviction of a government contractor could result in that contractor being fined and or suspended from being able to bid on , or from being awarded , new u.s. government contracts for a period of time . similar government oversight exists in most other countries where we conduct business . for a discussion of risks relating to u.s. government contracts and subcontracts , see item 1. business principal customers ; government contracts and item 1a . risk factors of this report . we are also subject to other risks associated with u.s. government business , including technological uncertainties , dependence on annual appropriations and allotment of funds , extensive regulations and other risks , which are discussed in item 1a . risk factors and item 3. legal proceedings of this report . commercial : we are working to leverage our proven technologies for government applications into attractive commercial applications and expand in high-growth commercial markets . these markets include it services and managed services supporting energy , maritime and healthcare networks . we are trusted to run some of the u.s. 's largest , secure mission-critical information networks , and demand for communications and it infrastructure in emerging global markets remains robust . in the energy market , we believe oil exploration must accelerate to meet rising global demand for oil and that drivers of industry demand , including commodity prices , drilling rig counts and well completions and workover activity , should remain favorable in most geographic market areas . in the maritime market , demand for improved connectivity is increasing along with the number of vessels ( ocean crossing freighters , cruise ships and leisure yachts ) needing it . in the healthcare market , we believe there are significant opportunities for growth as we capitalize on trends towards accelerating electronic health record adoption and sharing ; accountable care driving hospital consolidation and enterprise solutions ; and increased penalties for healthcare data security violations fueling demand for cyber solutions . our management believes that our experience and capabilities are well aligned with , and that we are positioned to capitalize on , the market trends noted above in this report . although we believe that some of these developments may temper near-term growth , we also expect they generally will have a longer-term positive impact on us . however , we remain subject to general economic conditions that could adversely affect us and our suppliers and customers . we also remain subject to other risks associated with these markets , including technological uncertainties , adoption of our new products and other risks which are discussed below under forward-looking statements and factors that may affect future results and in item 1a . risk factors of this report . 35 operations review consolidated results of operations replace_table_token_5_th * not meaningful revenue fiscal 2013 compared with fiscal 2012 : the decrease in revenue in fiscal 2013 compared with fiscal 2012 was primarily due to lower revenue in our rf communications and integrated network solutions segments . the $ 295 million 36 decrease in revenue in our rf communications segment was primarily due to lower tactical communications revenue . the $ 33 million decrease in revenue in our integrated network solutions segment was due to lower it services revenue , partially offset by moderate revenue growth in harris caprock communications and healthcare solutions . fiscal 2012 compared with fiscal 2011 : the increase in revenue
| discussion of business segment results of operations rf communications segment replace_table_token_6_th fiscal 2013 compared with fiscal 2012 : segment revenue in fiscal 2013 included $ 1,255.5 million in tactical communications , a 20 percent decrease from $ 1,570.4 million in fiscal 2012 ; and $ 593.5 million in public safety and professional communications , a 3 percent increase from $ 573.7 million in fiscal 2012. the decrease in tactical communications revenue in fiscal 2013 compared with fiscal 2012 reflects the impact of u.s. and international tactical radio procurement delays due to the slowdown in spending resulting from u.s. government funding constraints experienced under the continuing resolution and magnified when sequestration was triggered , as well as several key order delays in the international market . the decrease in segment gross margin in fiscal 2013 compared with fiscal 2012 was due to lower revenue in tactical communications . the increase in segment gross margin percentage in fiscal 2013 compared with fiscal 2012 was primarily driven by a favorable product mix within tactical communications and a $ 7 million benefit from the cumulative effect of a correction made in the fourth quarter of fiscal 2013 in the timing of cost recognition on tactical radio programs . the increase in segment esa expenses as a percentage of revenue in fiscal 2013 compared with fiscal 2012 was primarily driven by segment esa expenses that were only slightly higher compared with fiscal 2012 relative to a 14 percent decrease in segment revenue .
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refer to postal realty trust , inc. , a maryland corporation , together with our consolidated subsidiaries , including postal realty lp , a delaware limited partnership ( “ our operating partnership ” ) , of which we are the sole general partner and which we refer to in this section as our operating partnership . prior to the closing of our ipo on may 17 , 2019 , andrew spodek , our chief executive officer and a member of our board of directors , directly or indirectly controlled 190 properties owned by the predecessor that were contributed as part of the formation transactions . of these 190 properties , 140 were held indirectly by our predecessor through a series of holding companies , which we refer to collectively as “ uph. ” the remaining 50 properties were owned by mr. spodek through 12 limited liability companies and one limited partnership , which we refer to collectively as the “ spodek llcs. ” references to our predecessor consist of uph , the spodek llcs and nationwide postal management , inc. , a property management company whose management business we acquired in the formation transactions , collectively . this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks , uncertainties and assumptions . see “ cautionary statement regarding forward-looking statements ” for a discussion of the risks , uncertainties and assumptions associated with those statements . our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors , including , but not limited to , those in “ risk factors ” and included in other portions of this report . 31 overview company we were formed as a maryland corporation on november 19 , 2018 and commenced operations upon completion of our ipo and the related formation transactions . we conduct our business through a traditional upreit structure in which our properties are owned by our operating partnership directly or through limited partnerships , limited liability companies or other subsidiaries . at the completion of our ipo and the formation transactions , we owned a portfolio of 271 postal properties located in 41 states comprising approximately of 872,000 net leasable interior square feet , all of which were leased to the usps . for the year ended december 31 , 2020 , we acquired 261 postal properties leased primarily to the usps for approximately $ 130 million , excluding closing costs . as of december 31 , 2020 , our portfolio consists of 726 owned postal properties , located in 47 states and comprising approximately 2.7 million net leasable interior square feet . the following charts show certain statistics of our portfolio as of december 31 , 2020 : portfolio by % of aggregate interior square feet portfolio by % of aggregate gross rent we are the sole general partner of our operating partnership through which our postal properties are directly or indirectly owned . as of march 30 , 2021 , we own approximately 81.8 % of our outstanding op units , including ltip units . our board of directors oversees our business and affairs . follow on offering and atm program on july 15 , 2020 , we priced a public offering of 3.5 million shares of our class a common stock , or the july follow-on offering , at $ 13.00 per share . on july 17 , 2020 , the underwriters purchased an additional 521,840 shares pursuant to a 30-day option to purchase up to an additional 525,000 shares at $ 13.00 per share , or the july additional shares . the july follow-on offering , including the july additional shares , closed on july 20 , 2020 resulting in $ 52.2 million in gross proceeds , and approximately $ 49.4 million in net proceeds after deducting approximately $ 2.9 million in underwriting discounts and before giving effect to $ 0.9 million in other estimated expenses relating to the july follow-on offering . 32 on december 14 , 2020 , we entered into separate open market sale with each of jefferies llc , stifel , nicolaus & company , incorporated , bmo capital markets corp. , janney montgomery scott llc and d.a . davidson & co. , pursuant to which we may offer and sell , from time to time , shares our class a common stock having an aggregate sales price of up to $ 50,000,000. as of december 31 , 2020 , we had $ 50.0 million of availability remaining under the atm program . pursuant to the open market sale agreements , shares of our class a common stock may be offered and sold through the sales agents in transactions that are deemed to be “ at the market ” offerings as defined in rule 415 under the securities act of 1933 , including sales made directly on the nyse or sales made to or through a market maker other than on an exchange or , subject to the terms of a written notice from us , in privately negotiated transactions . executive overview we are an internally managed reit with a focus on acquiring and managing properties primarily leased to the usps . we believe the overall opportunity for consolidation that exists within the postal logistics network is very attractive . we continue to execute our strategy to acquire and consolidate postal properties that will generate strong earnings for our shareholders . geographic concentration as of december 31 , 2020 , we owned a portfolio of 726 postal properties located in 47 states leased primarily to the usps . for the year ended december 31 , 2020 , 10.0 % of our total of rental income was concentrated in pennsylvania . such geographical concentration could expose the company to certain downturns in the economies of those states or other changes in such states ' respective real estate market conditions . story_separator_special_tag the results of these changes or any future changes could lead to additional delays or financing shortfalls for the usps . revenues we derive revenues primarily from rent and tenant reimbursements under leases with the usps for our properties , and fee and other income under the management agreements with respect to the postal properties owned by mr. spodek , his family members and their partners managed by prm , our trs . rental income represents the lease revenue recognized under leases with the usps which includes the impact of above and below market lease intangibles . tenant reimbursements primarily represents payments made by the usps under the leases to reimburse us for the majority of real estate taxes paid at each property . fee and other income principally represent revenue prm receives from postal properties owned by mr. spodek , his family members and their partners pursuant to the management agreements and is a percentage of the lease revenue for the managed property . as of december 31 , 2020 , all properties leased to the usps had an average remaining lease term of 3.7 years . factors that could affect our rental income , tenant reimbursement and fee and other income in the future include , but are not limited to : ( i ) our ability to renew or replace expiring leases and management agreements ; ( ii ) local , regional or national economic conditions ; ( iii ) an oversupply of , or a reduction in demand for , postal space ; ( iv ) changes in market rental rates ; ( v ) changes to the usps 's current property leasing program or form of lease ; and ( vi ) our ability to provide adequate services and maintenance at our properties and managed properties . operating expenses we lease our properties to the usps . the majority of our leases are modified double-net leases , whereby the usps is responsible for utilities , routine maintenance and the reimbursement of property taxes and the landlord is responsible for insurance and roof and structure . thus , an increase in costs related to the landlord 's responsibilities under these leases could negatively influence our operating results . refer to “ lease renewal ” for further discussion . 34 operating expenses generally consist of real estate taxes , property operating expenses , which consist of insurance , repairs and maintenance ( other than those for which the tenant is responsible ) , property maintenance-related payroll and depreciation and amortization . factors that may affect our ability to control these operating costs include but are not limited to : the cost of periodic repair , renovation costs , the cost of re-leasing space and the potential for liability under applicable laws . recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred . tenant reimbursements and operating expenses are recognized on a gross basis , because ( i ) generally , we are the primary obligor with respect to the real estate taxes and ( ii ) we bear the credit risk in the event the tenant does not reimburse the real estate taxes . the expenses of owning and operating a property are not necessarily reduced when circumstances , such as market factors and competition , cause a reduction in income from the property . if revenues drop , we may not be able to reduce our expenses accordingly . costs associated with real estate investments generally will not be materially reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease . as a result , if revenues decrease in the future , static operating costs may adversely affect our future cash flow and results of operations . general and administrative general and administrative expense represents personnel costs , professional fees , legal fees , insurance , consulting fees , portfolio servicing costs and other expenses related to corporate governance , filing reports with the sec and the nyse , and other compliance matters . our predecessor was privately owned and historically did not incur costs that we incur as a public company . in addition , while we expect that our general and administrative expenses will continue to rise as our portfolio grows , we expect that such expenses as a percentage of our revenues will decrease over time due to efficiencies and economies of scale . equity-based compensation expense all equity-based compensation expense is recognized in our consolidated statements of operations as components of general and administrative expense and property operating expenses . we issue share-based awards to align our employees ' interests with those of our investors . depreciation and amortization depreciation and amortization expense relate primarily to depreciation on properties and improvements and to amortization of certain lease intangibles . indebtedness and interest expense interest expense for our predecessor related primarily to three mortgage loans payable and related party interest-only promissory notes , see note 5—debt of the accompanying financial statements for further details . as a result of the formation transactions , we assumed certain indebtedness of the predecessor , a portion of which was repaid without penalty using a portion of the net proceeds from our ipo . on september 27 , 2019 , we entered into a credit agreement , as amended the credit agreement with people 's united bank , national association , individually and as administrative agent , bmo capital markets corp. , as syndication agent , and certain other lenders . the credit agreement provides for a senior revolving credit facility with revolving commitments in an aggregate principal amount of $ 100.0 million and , subject to customary conditions , the option to increase the aggregate lending commitments under the agreement by up to $ 100.0 million , or the accordion feature .
| results of operations comparison of the year ended december 31 , 2020 and december 31 , 2019 our results of operations for the year ended december 31 , 2020 include our consolidated results for the year ended december 31 , 2020. our results of operations for the year ended december 31 , 2019 include our consolidated results for the period from our ipo on may 17 , 2019 through december 31 , 2019 and combined consolidated results of our predecessor for the period from january 1 , 2019 through may 16 , 2019. we incurred a net loss of $ 0.6 million in 2020 and a loss of $ 2.0 million since the completion of our ipo on may 17 , 2019 through december 31 , 2019 , which includes the loss on early extinguishment of our predecessor 's debt of $ 0.2 million and equity-based compensation of approximately $ 1.0 million . see note 3—real estate acquisitions of the accompanying financial statements for information regarding our real estate acquisition activity during the years ended december 31 , 2020 and 2019 . 36 replace_table_token_2_th revenues total revenues increased by $ 13.4 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase in revenue is attributable to the properties that we acquired in connection with the formation transactions being part of our portfolio for all of 2020 and the effects of the properties that we acquired since the completion of our ipo . rental income – rental income increased $ 11.4 million year over year primarily due to the properties that we acquired in connection with the formation transactions being part of our portfolio for all of 2020 and the effects of the properties that we acquired since the completion of our ipo .
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the above tables include the economics associated with our aforementioned 50.0 % interest in the joint venture that purchased in march 2011 the outstanding notes issued out of our non-u.s. acquired portfolio structured financing trust prior to its consolidation in december 2014. separate financial data for this entity are as follows : as of december 31 , 2014 december 31 , 2013 investments in non-marketable debt securities , at fair value $ — $ 36,158 total assets $ — $ 36,770 total liabilities $ — $ — members ' capital $ — $ 36,770 replace_table_token_23_th as described in note 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 ( including trust , subsidiary and other entity names and financial , operating and statistical measures ) 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 . overview we are a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market—a market largely represented by credit risks that regulators classify as sub-prime . currently , within our credit and other investments segment , we are applying the experiences and infrastructure from our 18-year operating history to originate consumer loans through multiple channels , including retail point-of-sale and direct solicitation . in our point-of-sale channel , we partner with retailers and service providers in various industries across the u.s. to provide credit to their customers for the purchase of goods and services or the rental of merchandise to their customers under rent-to-own arrangements . these products are often extended to customers who may have been declined under traditional financing options . we specialize in providing this `` second-look '' credit service . using our infrastructure and technology platform , we also provide loan servicing , including underwriting , marketing , customer service and collections operations 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 continue to collect on portfolios of credit card receivables . these receivables include both receivables we originated through third-party financial institutions and portfolios of receivables we purchased from third-party financial institutions . 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 . lastly , we report within our credit and other investments segment the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer . prior to december 2014 we also included income from an additional equity-method investee that held structured financing notes underlying credit card receivables for which we are the servicer . this investee was consolidated on our financial statements as of december 31 , 2014 subsequent to our distribution of certain assets to an unrelated third-party partner for their interest . the recurring cash flows we receive within our credit and other investments segment principally include those associated with ( 1 ) our point-of-sale and direct-to-consumer finance activities , ( 2 ) servicing compensation and ( 3 ) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility . we historically financed most of our credit card receivables through the asset-backed securitization markets . these markets deteriorated significantly in 2008 , and the level of “ advance rates , ” or leverage against credit card receivable assets , in the current asset-backed securitization markets is below pre-2008 levels . considering this reality coupled with constraints on credit card asset returns in the u.s. , we no longer market or maintain open credit card accounts in the u.s. we do believe , however , that our point-of-sale and direct-to-consumer finance activities are generating and will continue to generate attractive returns on assets , thereby allowing us to secure debt financing under terms and conditions ( including advance rates and pricing ) that will allow us to achieve our desired returns on equity , and we continue to pursue growth in this area . 19 within our auto finance segment , our car subsidiary operations principally purchase and or service loans secured by automobiles from or for , and also provide floor plan financing for , a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here , pay-here , used car business . we purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection . also within our auto finance segment , we are collecting on portfolios of auto finance receivables that we previously originated through franchised and independent auto dealers in connection with prior business activities , as well as providing certain lending products in addition to our traditional loans secured by automobiles . story_separator_special_tag although we increased our equity interest in one of our two equity-method investees in the second quarter of 2013 , because of continued liquidations in their financial assets ( a credit card receivables portfolio held by one equity-method investee and structured financing notes held by the other ) , absent additional investments in our existing or in new equity-method investees in the future , we expect gradually declining effects from our equity-method investments on our operating results . further , in december 2014 , we consolidated on our financial statements one of our equity-method investees subsequent to our distribution of certain assets to an unrelated third-party partner for their interest in the entity . as such , we expect even further diminishing effects from our equity-method investments on our operating results for 2015. losses upon charge off of loans and fees receivable recorded at fair value . this account reflects charge offs ( net of recoveries ) of the face amount of credit card receivables we record at fair value on our consolidated balance sheet . we have experienced a general trending decline in , and we expect future trending declines in , these charge offs as we continue to liquidate our credit card receivables . additionally , net losses in both periods reflect the effects of reimbursements received in respect of one of our portfolios . in 2014 , these reimbursements exceeded the charge-offs experienced within the portfolio as the reimbursements are not directly associated with the timing of actual charge offs . provision for losses on loans and fees receivable recorded at net realizable value . our provision for losses on loans and fees receivable recorded at net realizable value covers , with respect to such receivables , the aggregate loss exposures on ( 1 ) principal receivable balances , ( 2 ) finance charges and late fees receivable underlying income amounts included within our total interest income category , and ( 3 ) other fees receivable . we have experienced year-over-year increases in this category between 2013 and 2014 due to the effects of initial elevated losses incurred on new credit product testing and more recently growth in our new installment lending product lines and additional reserves we have recorded associated with the closure of one of our merchant partners . the closure of this merchant partner resulted in our experiencing heightened risk for charge-offs of the underlying loans , particularly in cases where the consumer may not have received the full benefits expected from the merchant partner and for which we do not expect to be reimbursed by the merchant partner . we expect growth in new product receivables recorded at net realizable value to exceed any further liquidations of our auto finance receivables recorded at net realizable value . accordingly , we expect increases in our provisions for losses on loans and fees receivable recorded at net realizable value in future quarters—such increases predominantly expected to reflect the effects of volume associated with our point-of-sale finance product offering ( i.e. , growth of new product receivables ) , rather than credit quality changes or deterioration . testing associated with our credit card product in the u.k. resulted in slightly higher provisions through the first quarter of 2014 , but , given that we have discontinued new originations in the u.k. , we expect declines in provisions associated with this product offering , albeit not at levels expected to produce period over period declines for 2015. see note 2 , “ significant accounting policies and consolidated financial statement components , ” to our consolidated financial statements and the discussions of our credit and other investments and auto finance segments for further credit quality statistics and analysis . total other operating expense . total other operating expense variances for the year ended december 31 , 2014 , relative to the year ended december 31 , 2013 , reflect the following : modestly higher 2014 salaries and benefits costs resulting from increases required to grow our new credit product offerings ; card and loan servicing expenses that are higher in 2014 based on new product efforts , the cost of such efforts overshadowing the cost effects of continuing credit card and auto finance receivables portfolio liquidations ; decreases in marketing costs as our new product offerings require less direct-to-consumer marketing expenses as those seen under our historical credit card operations ; increased depreciation primarily associated with our rent-to-own program , totaling $ 63.1 million and $ 16.1 million for the years ended december 31 , 2014 and 2013 , respectively , with no amounts in prior periods ; impairments of $ 2.7 million associated with software development costs in 2014 as planned uses for this software were discontinued with no corresponding impairment costs in 2013 ; and general decreases in other expenses including customer acquisition and underwriting costs offset by increases in third party costs associated with ongoing information technology upgrades and increases of £3.0 million ( $ 4.7 million ) related to provisions associated with an ongoing review in the u.k. by hmrc associated with filings by one of our u.k. subsidiaries to reclaim vat that it paid on its inputs and that it believed and continues to believe were and are eligible to be reclaimed . a portion of our operating costs are variable based on the levels of accounts we market and receivables we service ( both for our own account and for others ) and the pace and breadth of our search for , acquisition of and introduction of new business lines , products and services . however , a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our credit card and auto finance loans and fees 23 receivable levels .
| consolidated results of operations replace_table_token_3_th year ended december 31 , 2014 , compared to year ended december 31 , 2013 total interest income . total interest income consists primarily of finance charges and late fees earned on our point-of-sale finance , credit card and auto finance receivables . period-over-period results reflect continued growth in our point-of-sale finance products , offset , however , by continued net liquidations of our credit card and auto finance receivables over the past year . we are currently experiencing growth in our point-of-sale finance products and our car receivables—growth which we expect to result in net period over period growth in our total interest income within the next few quarters . future periods ' growth is also dependent on the addition of new retail partners for our point-of-sale operations as well as continued growth within existing partnerships and growth within our direct-to-consumer finance activities . this growth was delayed late in the first quarter of 2014 as a significant retail partner in our point-of-sale operations underwent a product shift that resulted in the suspension of new account originations with us for both our installment lending product as well as our rent-to-own product . this disruption lasted into the second quarter and continues to impact growth through lower originations . 21 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 our point-of-sale finance operations as evidenced within note 9 , “ notes payable , ” to our consolidated financial statements . we anticipate additional debt financing over the next few quarters as we continue to grow , and as such , we expect our 2015 quarterly interest expense to be above those experienced in the prior periods .
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we maintain safety and manufacturing programs that are designed to remove risk , improve the effectiveness of our business processes and reduce the likelihood and significance of our various retained and insured risks . in recent years , our actual claims experience has collectively trended favorably and , as a result , both self-insurance expense and the related liability have decreased . total self-insurance liabilities were included in the following captions on the accompanying consolidated balance sheets ( in millions ) : replace_table_token_49_th litigation we are involved in a number of claims and lawsuits incident to the operation of our businesses . insurance coverages are maintained and estimated costs are recorded for such claims and lawsuits , including costs to settle claims and lawsuits , based on experience involving similar matters and specific facts known . some of these claims and lawsuits allege personal injury or story_separator_special_tag the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and related notes contained in item 8 of this annual report on form 10-k. business overview we operate in three reportable business segments of the heating , ventilation , air conditioning and refrigeration ( “ hvacr ” ) industry . our reportable segments are residential heating & cooling , commercial heating & cooling , and refrigeration . for more detailed information regarding our reportable segments , see note 19 in the notes to the consolidated financial statements . we sell our products and services through a combination of direct sales , distributors and company-owned parts and supplies stores . the demand for our products and services is seasonal and significantly impacted by the weather . warmer than normal summer temperatures generate demand for replacement air conditioning and refrigeration products and services , and colder than normal winter temperatures have a similar effect on heating products and services . conversely , cooler than normal summers and warmer than normal winters depress the demand for hvacr products and services . in addition to weather , demand for our products and services is influenced by national and regional economic and demographic factors , such as interest rates , the availability of financing , regional population and employment trends , new construction , general economic conditions and consumer spending habits and confidence . a substantial portion of the sales in each of our business segments is attributable to replacement business , with the balance comprised of new construction business . the principal elements of cost of goods sold are components , raw materials , factory overhead , labor , estimated costs of warranty expense and freight and distribution costs . the principal raw materials used in our manufacturing processes are steel , copper and aluminum . in recent years , pricing volatility for these commodities and related components has impacted us and the hvacr industry in general . we seek to mitigate the impact of higher commodity prices through a combination of price increases , commodity contracts , improved production efficiency and cost reduction initiatives . we also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts . financial highlights net sales increased $ 168 million , or 5 % , to $ 3,367 million in 2014 from $ 3,199 million in 2013. operational income from continuing operations in 2014 was $ 335 million compared to $ 289 million in 2013. the increase was primarily due to higher volumes , higher margins from improved price and material cost savings . net income in 2014 increased to $ 206 million from $ 172 million in 2013. diluted earnings per share from continuing operations were $ 4.28 per share in 2014 compared to $ 3.55 per share in 2013. we generated $ 185 million of cash flow from operating activities in 2014 compared to $ 210 million in 2013. in 2014 , we returned $ 550 million to shareholders through share repurchases and $ 53 million through dividend payments . overview of results the residential heating & cooling segment led our overall financial performance in 2014 , with a 10 % increase in net sales and a $ 56 million increase in segment profit compared to 2013. this segment 's results benefited from industry growth in the replacement and new construction markets as well as market share gains . our commercial heating & cooling segment also performed well in 2014 with a 4 % increase in net sales and a $ 6 million increase in segment profit compared to 2013. this segment 's results benefited from market share gains , market growth in north america and material cost savings . sales in our refrigeration segment were down 3 % and segment profit decreased $ 35 million compared to 2013. this segment 's results were impacted by unfavorable mix , unfavorable australian dollar exchange rates , increased investments in growth initiatives , and decreased profitability of our refrigerant business in australia due to the repeal of the carbon tax . on a consolidated basis , our gross profit margins were relatively flat at 26.8 % in 2014 due primarily to favorable price and material cost savings across all of our segments . these improvements were offset by unfavorable foreign exchange rates , continued investment in distribution expansion across all segments , unfavorable mix in the refrigeration and commercial heating & cooling segments , and reduced profitability in our australian wholesale business due to the repeal of the carbon tax . 17 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 20 refrigeration the following table presents our refrigeration segment 's net sales and profit for 2014 and 2013 ( dollars in millions ) : replace_table_token_10_th refrigeration net sales declined 3 % in 2014 compared to 2013 primarily due to a 2 % impact from unfavorable australian and brazilian foreign currency exchange rates and a 1 % negative impact to our refrigerant business in australia due to the repeal of the carbon tax . the north american supermarket and australian wholesale businesses have been soft . story_separator_special_tag the $ 14 million of losses related to the hearth business included operating losses of $ 3 million , a $ 6 million charge to write down certain long-lived assets to their fair value , a $ 6 million pension settlement charge for the realization of pension losses related to the transfer of a pension to the buyer of the business , a $ 1 million loss on the sale of the business , $ 2 million of other expenses and a $ 4 million gain for the realization of foreign currency translation adjustments . year ended december 31 , 2013 compared to year ended december 31 , 2012 - results by segment residential heating & cooling the following table presents our residential heating & cooling segment 's net sales and profit for 2013 and 2012 ( dollars in millions ) : replace_table_token_12_th residential heating & cooling net sales increased 15 % in 2013 compared to 2012 driven by strong volume increases and favorable price and mix . sales volume increases contributed 13 % and were attributable to industry growth in new construction and replacement markets and market share gains . benefits of price increases and favorable product mix contributed 2 % . segment profit in 2013 increased $ 77 million due to $ 57 million in higher sales volumes , $ 18 million from favorable price and mix , $ 33 million in commodity and non-commodity material cost savings and $ 3 million in favorable other product costs due primarily to factory efficiencies . partially offsetting these increases were $ 13 million in higher sg & a costs due primarily to higher advertising and employee compensation costs , $ 17 million of higher distribution expenses due to continued investment in distribution initiatives and $ 4 million in adjustments to the product warranty accrual . commercial heating & cooling the following table presents our commercial heating & cooling segment 's net sales and profit for 2013 and 2012 ( dollars in millions ) : replace_table_token_13_th commercial heating & cooling net sales increased 8 % in 2013 compared to 2012 driven by higher volumes . the drivers of the volume increases were market share gains and industry growth in the north american markets . also , foreign currency exchange rates had a favorable impact of less than 1 % . segment profit in 2013 increased $ 19 million compared to 2012 due to increases of $ 19 million from higher volumes , $ 11 million for favorable commodity and non-commodity material costs and $ 4 million for favorable price and mix . partially offsetting these increases were $ 4 million of higher distribution expenses due to continued investment in distribution initiatives , $ 6 million of higher sg & a expenses and $ 5 million of increases primarily to investments in our commercial services network . 23 refrigeration the following table presents our refrigeration segment 's net sales and profit for 2013 and 2012 ( dollars in millions ) : replace_table_token_14_th refrigeration net sales were down 2 % in 2013 compared to 2012 due to volume declines and unfavorable foreign currency exchange rates , partially offset by growth in australia . volumes declined 2 % primarily because of weakness in the north america grocery markets . also , foreign currency exchange rates had a 1 % unfavorable impact over the comparable period . these declines were partially offset by growth of 1 % related to the australia wholesale refrigerant business . segment profit for 2013 increased $ 8 million over 2012 , with increases of $ 14 million from growth in the australia wholesale refrigerant business which benefited from one-time purchases of lower cost inventory and from investments in related operations , increases of $ 10 million from favorable price and mix and increases of $ 11 million from favorable commodity and non-commodity material costs . partially offsetting these increases were $ 13 million of higher sg & a expenses primarily related to investments in cost savings initiatives and increases in employee compensation , $ 11 million of volume-related declines , approximately $ 2 million from unfavorable foreign currency exchange rates and $ 1 million of higher distribution costs . corporate and other corporate and other expenses increased $ 28 million in 2013 to $ 88 million from $ 60 million in 2012 driven primarily by an increase in incentive compensation due to improved operating results in 2013. accounting for futures contracts realized gains and losses on settled futures contracts are a component of segment profit ( loss ) . unrealized gains and losses on unsettled futures contracts are excluded from segment profit ( loss ) as they are subject to changes in fair value until their settlement date . both realized and unrealized gains and losses on futures contracts are a component of losses and other expenses , net in the accompanying consolidated statements of operations . see note 8 of the notes to consolidated financial statements for more information on our derivatives and note 19 of the notes to the consolidated financial statements for more information on our segments and for a reconciliation of segment profit to income from continuing operations before income taxes . liquidity and capital resources our working capital and capital expenditure requirements are generally met through internally generated funds , bank lines of credit and an asset securitization arrangement . working capital needs are generally greater in the first and second quarters due to the seasonal nature of our business cycle . during the fourth quarter , the company strategically built $ 77 million of inventory to support customers in the minimum-efficiency regulatory transition taking effect at the start of 2015 for certain products . statement of cash flows the following table summarizes our cash flow activity for the years ended 2014 , 2013 and 2012 ( in millions ) : replace_table_token_15_th net cash provided by operating activities - net cash provided by operating activities decreased $ 26 million to $ 185 million in 2014 compared to $ 210 million in 2013 .
| results of operations the following table provides a summary of our financial results , including information presented as a percentage of net sales ( dollars in millions ) : replace_table_token_5_th the following table provides net sales by geographic market ( dollars in millions ) : replace_table_token_6_th year ended december 31 , 2014 compared to year ended december 31 , 2013 - consolidated results net sales net sales increased 5 % in 2014 compared to 2013 , with sales volumes up approximately 5 % and price and mix up approximately 1 % . the increase in volume was driven by our residential heating & cooling and commercial heating & cooling segments capturing additional replacement and new construction business . the benefit of price and mix was a combination of price increases across all segments and favorable product mix predominantly in our residential heating & cooling segment . partially offsetting these increases was a 1 % decrease from foreign currency exchange rates . gross profit gross profit margins were relatively flat at 26.8 % in 2014 compared to 26.9 % in 2013. lower material costs increased our profit margin by 140 bps and reduced product warranty costs increased our profit margin by 10 bps . offsetting these increases were decreases of 20 bps from unfavorable mix , 10 bps from lower refrigerant pricing on our australia wholesale business when compared to the prior year , and 60 bps for investments in distribution and other growth initiatives with the balance from other cost changes . selling , general and administrative expenses sg & a expenses increased by $ 4 million in 2014 compared to 2013. as a percentage of net sales , sg & a expenses decreased 80 bps from 17.8 % to 17.0 % in the same periods . the percentage decrease in sg & a expenses was principally due to lower 18 employee incentive compensation .
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included in our fourth quarter of 2014 review was an analysis of our reserve assumptions , including those for the discount rate , mortality and morbidity rates , persistency , and premium rate increases . our analysis of reserve discount rate assumptions considered the continued historic low interest rate environment , future market expectations , and our view of future portfolio yields . the assumptions we established in 2011 were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years , with improvements in market yields beginning after the third year . since that time , however , interest rates continued to hover near historic lows , and credit spreads tightened . our assumption update for mortality incorporated the last three years of company-specific experience and emerging trends as well as industry data , where available and appropriate , and reflected improvements in life expectancies beyond what was initially anticipated in 2011. our morbidity assumptions were updated to reflect trends from our own emerging company experience in claim incidence and terminations , as well as trends based on available and appropriate industry data and studies . our premium rate increase assumptions were updated to reflect progress-to-date and our on-going rate increase strategy . based on our analysis , as of december 31 , 2014 we lowered the discount rate assumption to reflect the low interest rate environment and our revised expectation of future investment portfolio yield rates . our revised assumptions anticipated the low 34 interest rate environment persisting for the next three to five years , with a return to more historical averages over the following five year period . we updated our mortality assumptions to reflect emerging experience due to an increase in life expectancies which increases the ultimate number of people who will utilize long-term care benefits and also lengthens the amount of time a claimant may receive long-term care benefits . we changed our morbidity assumptions to reflect emerging industry experience as well as our own company experience , and we updated our projection of future premium rate increase approvals . using our revised best estimate assumptions , as of december 31 , 2014 we determined that our policy and claim reserves should be increased $ 698.2 million to reflect our current estimate of future benefit obligations . this charge decreased our 2014 net income $ 453.8 million . 2014 retirement benefit amendment in 2014 , we amended our u.s. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit . the offer provided eligible former employees , regardless of age , with an option to elect to receive a lump-sum settlement of his or her entire accrued pension benefit in december 2014 or to elect receipt of monthly pension benefits commencing in january 2015. we recognized a settlement loss of $ 64.4 million before tax , or $ 41.9 million after tax , during the fourth quarter of 2014. this non-operating retirement-related loss represented the applicable portion of the unrecognized actuarial loss which had previously been included in accumulated other comprehensive income and which pertained to the settled benefit obligation . consolidated company outlook for 2017 we believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength as we seek to capitalize on the growing and largely unfilled need for our products and services . we believe the need for our products and services remains strong , and we intend to continue protecting our solid margins and returns through our pricing and risk actions . we continue to invest in our infrastructure and our employees , with a focus on quality and simplification of processes and offerings . our strategy is centered on market expansion , enhancing the customer experience , providing an innovative product portfolio of financial protection choices , and investing in new solutions to further improve productivity . our outlook for 2017 is for continued solid premium growth trends in our core businesses , with strong persistency and a disciplined approach to sales growth . we expect to have generally stable benefits experience due to our focus on disciplined pricing , risk selection , and management of renewals . we will maintain our commitment to expense discipline and improving our operational efficiencies . the low interest rate environment continues to place pressure on our profit margins and could unfavorably impact the adequacy of our reserves for some products . tax reform may impact our operating results or the statutory capital of our u.s. insurance subsidiaries . our reported consolidated financial results may also continue to be unfavorably impacted by the weakening of the british pound sterling . we continue to analyze and employ strategies that we believe will help us navigate the current environment and allow us to maintain solid operating margins and significant financial flexibility to support the needs of our businesses , while also continuing to return capital to our shareholders . we have substantial leverage to rising interest rates and an improving economy which generates payroll growth and wage inflation . we believe that consistent operating results , combined with the implementation of strategic initiatives and the effective deployment of capital , will allow us to meet our long-term financial objectives . further discussion is included in `` reconciliation of non-gaap financial measures , '' `` consolidated operating results , '' `` segment results , '' `` investments , '' and `` liquidity and capital resources '' contained herein in this item 7 and in the `` notes to consolidated financial statements '' contained herein in item 8. reconciliation of non-gaap and other financial measures we analyze our performance using non-gaap financial measures . a non-gaap financial measure is a numerical measure of a company 's performance , financial position , or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with gaap . story_separator_special_tag these reserves relate primarily to our non-interest sensitive products , including our individual disability and voluntary benefits products in our unum us segment ; individual disability products in our unum uk segment ; disability and cancer and critical illness policies in our colonial life segment ; and individual disability , long-term care , and other products in our closed block segment . the reserves are calculated based on assumptions that were appropriate at the date the policy was issued and are not subsequently modified unless the policy reserves become inadequate ( i.e . loss recognition occurs ) . persistency assumptions are based on our actual historical experience adjusted for future expectations . claim incidence and claim resolution rate assumptions related to mortality and morbidity are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations . discount rate assumptions are based on our current and expected net investment returns . in establishing policy reserves , we use assumptions that reflect our best estimate while considering the potential for adverse variances in actual future experience , which results in a total policy reserve balance that has an embedded reserve for adverse deviation . we do not , however , establish an explicit and separate reserve as a provision for adverse deviation from our assumptions . we perform loss recognition tests on our policy reserves annually , or more frequently if appropriate , using best estimate assumptions as of the date of the test , without a provision for adverse deviation . we group the policy reserves for each major product line within a segment when we perform the loss recognition tests . if the policy reserves determined using these best estimate assumptions are higher than our existing policy reserves net of any deferred acquisition cost balance , the existing policy reserves are increased or deferred acquisition costs are reduced to immediately recognize the deficiency . thereafter , the policy reserves for the product line are calculated using the same method we used for the loss recognition testing , referred to as the gross premium valuation method , wherein we use our best estimate as of the gross premium valuation ( loss recognition ) date rather than the initial policy issue date to determine the expected future claims , commissions , and expenses we will pay and the expected future gross premiums we will receive . because the key policy reserve assumptions for policy persistency , mortality and morbidity , and discount rates are all locked in at policy issuance based on assumptions appropriate at that time , policy reserve assumptions are generally not changed due to a change in claim status from active to disabled subsequent to policy issuance . depending on the funding mechanism , a full policy reserve is held during disability reflecting continued funding of the full policy reserve during a disability claim , or a fractional policy reserve is held reflecting that the individual policyholder would need to recover before he or she can again generate future claims for a separate occurrence . the policy reserves build up and release over time based on assumptions made at the time of policy issuance such that the reserve is eliminated as policyholders either reach the terminal age for coverage , die , or voluntarily lapse the policy . policy reserves for unum us , unum uk , and colonial life products are determined using the net level premium method as prescribed by gaap . in applying this method , we use , as applicable by product type , morbidity and mortality incidence rate assumptions , claim resolution rate assumptions , and policy persistency assumptions , among others , to determine our expected future claim payments and expected future premium income . we then apply an interest , or discount , rate to determine the present value of the expected future claims and claim expenses we will pay and the expected future premiums we will receive , with a provision for profit allowed . policy reserves for our closed block segment include certain older policy forms for individual disability , individual and group long-term care , and certain other products , all of which are no longer actively marketed . the reserves for individual disability and individual and group long-term care are determined using the gross premium valuation method . key assumptions are persistency , mortality and morbidity , claim incidence , claim resolution rates , commission rates , and maintenance expense rates . for long-term care , premium rate increases are also a key assumption . we apply an interest , or discount , rate to determine the present value of the expected future claims , commissions , and expenses we will pay as well as the expected future premiums we will receive , with no provision for future profit . the interest rate is based on our expected net investment returns on the investment portfolio supporting the reserves for these blocks of business . under the gross premium valuation method , we do not include an embedded provision for the risk of adverse deviation from these assumptions . gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient in the future . policy reserves for certain other products , excluding individual disability and individual and group long-term care , which are no longer actively marketed and are reported in our closed block segment represent $ 5.8 billion on a gross basis . we have ceded $ 5.0 billion of these other products ' policy reserves to reinsurers . the ceded reserve balance is reported in our consolidated 38 balance sheets as a reinsurance recoverable . we continue to service a block of group pension products , which we have not ceded , and the policy reserves for these products are based on expected mortality rates and retirement rates . expected future payments are discounted at interest rates reflecting the anticipated investment returns for the assets supporting the liabilities .
| executive summary 2016 operating performance and capital management for 2016 , we reported net income of $ 931.4 million , or $ 3.95 per diluted common share , compared to net income of $ 867.1 million , or $ 3.50 per diluted common share , in 2015 . net income includes net realized investment gains and losses and non-operating retirement-related gains or losses . excluding these items , after-tax operating income for 2016 was $ 926.2 million , or $ 3.92 per diluted common share , compared to $ 901.0 million , or $ 3.64 per diluted common share , in 2015 . see `` reconciliation of non-gaap and other financial measures '' contained herein in this item 7 for further discussion and a reconciliation of these items . our unum us segment reported an increase in operating income of 7.6 percent in 2016 compared to 2015 , with growth in premium income and overall favorable benefits experience , partially offset by lower net investment income . the benefit ratio for our unum us segment for 2016 was 69.2 percent , compared to 70.1 percent in 2015 . unum us sales were generally consistent in 2016 compared to 2015 , aided by our acquisition in 2016 of a provider of dental and vision insurance in the u.s. workplace . persistency continues to be strong and is consistent with our expectations . our unum uk segment reported an increase in operating income , as measured in unum uk 's local currency , of 3.0 percent in 2016 compared to 2015 , with an increase in premium income and net investment income , partially offset by less favorable benefits experience . premium income in local currency increased 3.6 percent in 2016 relative to 2015 . the benefit ratio for unum uk was 69.4 percent in 2016 compared to 68.5 percent in 2015 .
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you can identify these forward-looking statements by words such as “ may , ” “ will , ” “ would , ” “ should , ” “ could , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ plan ” and other similar expressions . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements . such risks and uncertainties include , among others , those discussed in “ item 1a : risk factors ” of this annual report on form 10-k , as well as in our consolidated financial statements , related notes , and the other information appearing elsewhere in this report and our other filings with the sec . we do not intend , and undertake no obligation , to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . you should read the following management 's discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included in this report . overview ebay is a global commerce platform and payments leader . we enable commerce through ebay , the world 's largest online marketplace , which allows users to buy and sell in nearly every country on earth ; through paypal , which enables individuals and businesses to securely , easily and quickly send and receive online payments ; and through gsi , which facilitates ecommerce , multichannel retailing and interactive marketing for global enterprises . x.commerce brings together the technology assets and developer communities of ebay , paypal and magento , an ecommerce storefront platform , to support ebay inc. 's mission of enabling commerce . we also reach millions through specialized marketplaces such as stubhub , the world 's largest ticket marketplace , and ebay classifieds sites , which together have a presence in more than 1,000 cities around the world . we have three reportable business segments : marketplaces , payments and gsi . our marketplaces segment includes our ebay.com platform and its localized counterparts and our other online trading platforms , such as our online classifieds businesses and stubhub . our payments segment is comprised of paypal , bill me later and zong . our gsi segment was added upon the completion of our acquisition of gsi commerce , inc. ( gsi ) on june 17 , 2011. the results of our new gsi segment have been included in our consolidated results of operations from the acquisition date . in 2011 , net revenues increased 27 % to $ 11.7 billion compared to $ 9.2 billion in 2010 , driven primarily by a 29 % increase in paypal net total payment volume ( tpv ) and a 13 % increase in marketplaces gross merchandise volume , or gmv , excluding vehicles , as well as the impact from gsi , which we acquired in june 2011. we achieved an operating margin of 20 % in 2011 compared to 22 % in 2010. this reduction in operating margin was driven primarily by the impact of acquisitions . our diluted earnings per share increased to $ 2.46 in 2011 , a $ 1.10 increase compared to 2010 , driven primarily by a gain resulting from the sale of our remaining 30 % interest in skype and growth in net revenue , partially offset by the impact of a loss on a divested business , acquisitions and a higher tax rate . we generated cash flow from operations of approximately $ 3.3 billion in 2011 compared to $ 2.7 billion in 2010. our marketplaces segment total net revenues increased $ 921.1 million , or 16 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in gmv excluding vehicles of 13 % , the acquisition of brands4friends in the first quarter of 2011 and an increase in revenue attributable to our classifieds and advertising businesses . marketplaces segment operating margin decreased 0.7 percentage points in 2011 compared to 2010 due to the impact of acquisitions , primarily brands4friends . our payments segment total net revenues increased $ 976.5 million , or 28 % , in 2011 compared to 2010. the increase in total net revenues was driven primarily by a year-over-year increase in net tpv of 29 % , growth in bill me later revenue and the impact of acquisitions . our payments segment operating margin increased 1.2 percentage points in 2011 compared to 2010 due primarily to productivity gains , improvement in bill me later 's operating performance and favorable impact of regulatory changes , partially offset by higher transactions losses and investments in our platform . our gsi segment was formed as a result of our acquisition of gsi in june 2011. from the acquisition date through december 31 , 2011 , gsi contributed $ 590.1 million in revenue and had a segment operating margin of 14 % . in 2010 , net revenues increased 5 % to $ 9.2 billion compared to $ 8.7 billion in 2009. excluding 2009 revenue from skype ( sold in november 2009 ) of $ 620.4 million , net revenues would have increased 13 % , from $ 8.1 billion in 2009 to $ 9.2 billion in 2010. these increases were driven by net revenue growth of 23 % and 8 % in our payments and marketplaces businesses , respectively . we achieved an operating margin of 22 % in 2010 compared to 17 % in 2009 , driven primarily by the impact of a skype-related legal settlement charge in 2009 and lower amortization costs associated with our acquired intangible assets . story_separator_special_tag 57 marketing services and other revenues marketing services and other revenues increased $ 542.6 million , or 50 % , in 2011 compared to 2010 , and represented 14 % and 12 % of total net revenues in 2011 and 2010 , respectively . the increase in marketing services and other revenues was primarily due to the acquisitions of gsi and brands4friends and an increase in revenues attributable to our classifieds business and advertising business , as well as interest earned on our bill me later portfolio of receivables from loans . marketing services and other revenues increased $ 45.5 million , or 4 % , in 2010 compared to 2009 , and represented 12 % of total net revenues in both 2010 and 2009 . the increase in marketing services and other revenues was primarily attributable to our advertising and classifieds businesses , partially offset by the exclusion of marketing services and other revenues attributable to skype . summary of cost of net revenues the following table summarizes changes in cost of net revenues for the periods presented : replace_table_token_9_th ( 1 ) gsi was acquired in june 2011 . ( 2 ) represents costs associated with our x.commerce initiative , which was launched in conjunction with our acquisition of magento in the third quarter of 2011. cost of net revenues cost of net revenues consists primarily of costs associated with payment processing , customer support , site operations , fulfillment , inventory and skype telecommunications ( through november 2009 ) . significant components of these costs include bank transaction fees , credit card interchange and assessment fees , interest expense on indebtedness incurred to finance the purchase of consumer loan receivables related to bill me later accounts , employee compensation , contractor costs , facilities costs , depreciation of equipment and amortization expense . marketplaces marketplaces cost of net revenues increased $ 138.2 million , or 13 % , in 2011 compared to 2010 . the increase during 2011 was due primarily to the impact of acquiring brands4friends during the first quarter of 2011 and increased customer support costs associated with our gmv growth . marketplaces cost of net revenues as a percentage of marketplaces net revenues decreased during 2011 compared to the same period of the prior year due primarily to improved operating leverage in our site operation infrastructure , partially offset by the impact of acquisitions . in addition , marketplaces cost of net revenues as a percentage of marketplaces net revenues in 2010 was adversely impacted by the settlement of a lawsuit and the establishment of a reserve related to certain indirect tax positions ( recorded as a reduction in revenue ) . 58 marketplaces cost of net revenues increased $ 103.2 million , or 11 % , in 2010 compared to 2009 . the increase during 2010 was due primarily to the inclusion of a full year of costs attributable to gmarket and increased site operation costs . marketplaces cost of net revenues as a percentage of marketplaces net revenues increased slightly in 2010 compared to 2009 due primarily to the addition of gmarket , the settlement of a lawsuit and the establishment of a reserve related to certain indirect tax positions ( recorded as a reduction in revenue ) . payments payments cost of net revenues increased $ 372.3 million , or 25 % , in 2011 compared to 2010 due primarily to the impact of growth in net tpv . payments cost of net revenues as a percentage of payments net revenues decreased during 2011 , compared to 2010 due primarily to a lower transaction expense rate . the improvement in our transaction expense rate was driven primarily by the impact of certain regulatory changes , new payment processing arrangements , a favorable mix shift to lower cost international markets and a small improvement in funding mix . payments cost of net revenues increased $ 272.5 million , or 22 % , in 2010 compared to 2009 . the increase in cost of net revenues was primarily due to the impact from our growth in net tpv . payments cost of net revenues as a percentage of payments net revenues decreased slightly in 2010 compared to 2009 due primarily to improved leverage of our customer support infrastructure and existing site operations . gsi gsi cost of net revenues were $ 374.1 million during 2011 , which represents gsi 's cost of net revenues for the period from june 17 , 2011 ( the date the acquisition was completed ) through december 31 , 2011 . communications on november 19 , 2009 , we completed the sale of skype to an investor group . accordingly , skype 's cost of net revenue is not consolidated in our 2011 or 2010 results . summary of operating expenses , non-operating items and provision for income taxes the following table summarizes changes in operating expenses , non-operating items and provision for income taxes for the periods presented : replace_table_token_10_th sales and marketing sales and marketing expenses consist primarily of advertising costs and marketing programs ( both online and offline ) , employee compensation , contractor costs , facilities costs and depreciation on equipment . online marketing expenses represent traffic acquisition costs in various channels such as paid search , affiliates marketing and display advertising . offline advertising includes brand campaigns , buyer/seller communications and general public relations expenses . a significant portion of our sales and marketing expense is attributable to our online marketing programs , primarily paid search , which include keyword advertising and third party lead generation costs , in order to drive traffic to our marketplaces and payments websites . 59 sales and marketing expense increased by $ 488.2 million , or 25 % in 2011 compared to 2010 . the increase in sales and marketing expense was due primarily to higher marketing program costs , employee-related expenses ( including consultant costs , facility costs and equipment-related costs ) and the impact from acquisitions , primarily gsi . sales and marketing expense increased by $ 61.1 million , or 3 % in 2010 compared to 2009 .
| summary of net revenues we generate two types of net revenues : net transaction revenues and marketing services and other revenues . our net transaction revenues are derived principally from listing fees and final value fees ( which are fees payable on transactions completed on our marketplaces trading platforms ) , fees paid by merchants for payment processing services and ecommerce service fees . our marketing services revenues are derived principally from the sale of advertisements , revenue sharing arrangements , classifieds fees , marketing service fees and lead referral fees . other revenues are derived principally from interest and fees earned on the bill me later portfolio of receivables from loans , interest earned on certain paypal customer account balances and fees from contractual arrangements with third parties that provide services to our users . 54 the following table sets forth the breakdown of net revenues by type and geography for the periods presented . replace_table_token_6_th ( 1 ) includes communications segment revenue generated by skype until its sale on november 19 , 2009 . ( 2 ) represents revenues associated with our x.commerce initiative , which was launched in conjunction with our acquisition of magento in the third quarter of 2011. revenues are attributed to u.s. and international geographies based primarily upon the country in which the seller , payment recipient , customer , website that displays advertising , or other service provider , or until the sale of skype on november 19 , 2009 , the skype user 's internet protocol address , as the case may be , is located . because we generated the majority of our net revenues internationally in recent periods , including the years ended december 31 , 2011 , 2010 and 2009 , we are subject to the risks of doing business in foreign countries as discussed under “ item 1a : risk factors. ” in that regard , fluctuations in foreign currency exchange rates impact our results of operations .
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the total recognized compensation cost for an award with a contingent cash settlement feature shall at least equal the fair value of the award at the grant date . the fsp is applicable only for options or similar instruments issued as part of employee compensation arrangements . the guidance in this fsp shall be applied upon initial adoption story_separator_special_tag the following discussion is intended to help the reader understand our results of operations and financial condition and is provided as a supplement to , and should be read in conjunction with , our financial statements , the accompanying notes to the financial statements , and the other information included or incorporated by reference herein . overview we are a specialty finance company engaged in non-prime automobile finance . we provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources . financing arms of automobile manufacturers generally do not make these loans to non-prime borrowers , nor do many other traditional automotive lenders . non-prime borrowers generally pay higher interest rates and loan fees than do prime borrowers . we conduct our automobile finance business through our direct wholly-owned subsidiary uacc . we purchase and hold for investment non-prime automobile installment sales contracts , or automobile contracts , originated by independent and franchised automobile dealers . we fund our business through warehouse financing and periodic securitizations . we have a warehouse line of credit with deutsche bank to fund our ongoing operations . this facility was originally $ 200 million , and was increased to $ 250 million in the first quarter of 2005. in september 2004 , we closed our first securitization composed of a $ 420 million offering of automobile receivable backed securities . in april 2005 , we closed our second securitization composed of a $ 195 million offering of automobile receivable backed securities . in december 2005 , we closed our third securitization composed of a $ 225 million offering of automobile receivable backed securities . we plan to price a new securitization approximately every six months . our business strategy includes controlled expansion through a national retail branch network and branches are generally located in proximity to dealers and borrowers . the branch manager of each branch is responsible for underwriting and purchasing automobile contracts and providing focused servicing and collections . the branch network is closely managed and supervised by our regional managers and divisional vice presidents . we believe that our branch network operations enable branch managers to develop strong relationships with our primary customers , the automobile dealers . through our branches , we provide a high level of service to the dealers by providing consistent credit decisions , typically same-day funding and frequent management contact . we believe that this branch network and management structure also enhances our risk management and collection functions . critical accounting policies we have established various accounting policies , which govern the application of accounting principles generally accepted in the united states of america in the preparation of our consolidated financial statements . our accounting policies are integral to understanding the results reported . for a further discussion of our accounting policies , see note 4. summary of significant accounting policies to our notes to consolidated financial statements in this form 10-k. certain accounting policies require us to make significant estimates and assumptions , which have a material impact on the carrying value of certain assets and liabilities , and we consider these to be critical accounting policies . the estimates and assumptions we use are based on historical experience and other factors , which we believe to be reasonable under the circumstances . actual results could differ significantly from these estimates and assumptions , which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . the following is a brief description of our current accounting policies involving significant management valuation judgments . securitization transactions the transfer of our automobile contracts to the securitization trust is treated as a secured financing under accounting principles generally accepted in the united states of america , also known as gaap . for gaap 24 purposes , the contracts are retained on the balance sheet with the securities issued to finance the contracts recorded as securitization notes payable . we record interest income on the securitized contracts and interest expense on the notes issued through the securitization transactions . as servicer of these contracts , we remit funds collected from the borrowers on behalf of the trustee to the trustee and direct the trustee how the funds should be invested until the distribution dates . we have retained an interest in the securitized contracts , and have the ability to receive future cash flows as a result of that retained interest . allowance for loan losses our loan loss allowances are monitored by management based on a variety of factors including an assessment of the credit risk inherent in the portfolio , prior loss experience , the levels and trends of nonperforming loans , current and prospective economic conditions and other factors . management also undertakes a review of various quantitative and qualitative analyses . quantitative analyses include the review of charge-off trends by loan type , analysis of cumulative losses and evaluation of credit loss experienced by credit tier and geographic location . other quantitative analyses include the concentration of any credit tier , the level of nonperformance and the percentage of delinquency . qualitative analysis includes trends in charge-offs over various time periods and at various statistical midpoints and high points , the severity of depreciated values of repossession and trends in the economy generally or in specific geographic locations . for automobile contracts purchased prior to january 1 , 2003 , we contributed all or a portion of the original discount to allowance for loan losses to estimate the expected losses over the life of the loan . story_separator_special_tag because of the increasing regulatory requirements associated with financing our non-prime automobile finance business mainly with insured deposits of the bank , we announced a plan in 2004 for the bank to exit its federal thrift charter and we also reduced our reliance on insured deposits of the bank by shifting the funding source of our business to securitizations and warehouse funding . 26 in july 2004 , the bank adopted a plan of voluntary dissolution to dissolve and ultimately exit its federal thrift charter . the office of thrift supervision , or the ots , conditionally approved the plan in august 2004 , subject to the bank satisfying certain conditions imposed by the ots . pursuant to the bank 's plan of voluntary dissolution , we completed the sale of the bank 's three retail branches located in california in september 2004 , the sale of the bank 's brokered deposits in september 2004 , and the sale of the bank 's outstanding internet certificates of deposit in february 2005. we have included the net gain on these sales , net of costs associated with the sales , as discontinued operations in our consolidated statement of operations . on march 7 , 2005 , we received confirmation that the fdic terminated the insured status of the bank effective february 7 , 2005. on march 8 , 2005 , we received confirmation from the ots that the bank 's federal charter was cancelled effective february 11 , 2005. in connection with the bank 's plan of voluntary dissolution and to facilitate its dissolution , we irrevocably guaranteed all of the bank 's remaining obligations . the normal net operating costs and interest expense on deposits of the bank have not been reclassified as discontinued operations from prior periods because the associated loans funded by these deposits are not discontinued and the cost of the replacement funds from the securitization and the warehouse line are very similar to the net cost of deposits including operating costs . story_separator_special_tag on loans totaled $ 32.5 million at december 31 , 2005 compared with $ 24.8 million at december 31 , 2004 , representing 4.88 % of automobile contracts at december 31 , 2005 and 4.74 % at december 31 , 2004. the increase in the allowance for loan losses and unearned discounts on loans was due primarily to a $ 142.0 million increase in automobile contracts outstanding , which increased to $ 666.2 million at december 31 , 2005 from $ 524.2 million at december 31 , 2004. a provision for loan losses is charged to operations based on our regular evaluation of loans held for investments and the adequacy of the allowance for loan losses . while management believes it has adequately provided for losses and does not expect any material loss on its loans in excess of allowances already recorded , no assurance can be given that economic or other market conditions or other circumstances will not result in increased losses in the loan portfolio . for further information , see critical accounting policies. 29 annualized net charge-offs to average loans were 4.51 % for the year ended december 31 , 2005 compared with 5.24 % for the year ended december 31 , 2004. the decrease in net charge-offs to average loans was due primarily to a $ 133.0 million increase in average automobile installment contracts . for more information , see critical accounting policies. non-interest income non-interest income increased $ 1.2 million to $ 4.3 million in 2005 from $ 3.1 million in 2004 , due principally to an increase in net gain on sale of securities of $ 2.4 million . non-interest expense non-interest expense increased $ 9.6 million to $ 64.5 million in 2005 from $ 54.9 million in 2004. this increase was driven primarily by an increase in salaries , employee benefit costs and occupancy expenses associated with the growth of our automobile finance business . during 2005 , we continued with the planned expansion of our automobile finance operations , resulting in an increase to 723 employees in 107 branches as of december 31 , 2005 , from 591 employees in 87 branches as of december 31 , 2004. during 2004 we recognized a loss in market value of $ 2.2 million on derivative instruments used to hedge our interest rate risk in our fixed rate loan portfolio . for more information , see critical accounting policies. income taxes income taxes increased $ 5.2 million to $ 18.3 million in 2005 from $ 13.1 million in 2004. this increase occurred primarily as a result of a $ 12.2 million increase in taxable income from continuing operations before income taxes . comparison of operating results for the years ended december 31 , 2004 and december 31 , 2003 general in 2004 we reported net income of $ 23.7 million , or $ 1.31 per diluted share , compared with $ 13.9 million , or $ 0.79 per diluted share for 2003. during the third quarter of 2004 , we shifted the funding source of our automobile finance business from retail and wholesale deposits of the bank to the public capital markets through securitizations and warehouse facilities . the effect of this change in our funding source on our balance sheet has been a decline in deposit liabilities and a corresponding increase in securitized borrowings and warehouse liabilities . interest income in 2004 increased to $ 137.2 million compared with $ 97.8 million in 2003 while net interest income increased to $ 110.4 million in 2004 from $ 76.5 million in 2003. gross automobile receivables were $ 528.8 million at december 31 , 2004 compared to $ 405.1 million at december 31 , 2003 , accounting for much of the increase in interest income and net interest income .
| results of operations comparison of operating results for the years ended december 31 , 2005 and december 31 , 2004 general in 2005 we reported net income of $ 26.7 million , or $ 1.43 per diluted share , compared with $ 23.7 million , or $ 1.31 per diluted share for 2004. the increase in net income was due primarily to a $ 26.2 million increase in net interest income before provision for loan losses , which increased to $ 136.6 million in 2005 from $ 110.4 million in 2004 , and a $ 1.2 million increase in non-interest income , partially offset by a $ 9.6 million increase in non-interest expense , a $ 5.7 million increase in the provision for loan losses , a $ 5.2 million increase in income taxes and a $ 4.1 million decrease in income from discontinued operations . net interest income was favorably impacted by the continued expansion and growth of our automobile finance business . automobile contracts purchased increased $ 93.5 million to $ 461.5 million in 2005 from $ 368.0 million in 2004 , as a result of the growth of our automobile finance business . interest income interest income increased to $ 174.6 million in 2005 from $ 137.2 million in 2004 due primarily to a $ 133.0 million increase in average automobile contracts and a 137 basis point increase in average interest on securities and short term investments , partially offset by a $ 538.3 million decrease in average securities . the increase in automobile contracts principally resulted from the purchase of additional automobile contracts in existing and new markets consistent with the planned growth of these operations .
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we were founded in 1971 by our current executive chairman , richard agree , and our common stock was listed on the nyse in 1994. our assets are held by , and all of our operations are conducted through , directly or indirectly , the operating partnership , of which we are the sole general partner and in which we held a 99.2 % interest as of december 31 , 2019. as of december 31 , 2019 , our portfolio consisted of 821 properties located in 46 states and totaling approximately 14.6 million square feet of gla . as of december 31 , 2019 , our portfolio was approximately 99.6 % leased and had a weighted average remaining lease term of approximately 10.0 years . substantially all of our tenants are subject to net lease agreements . a net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes , insurance and maintenance . we elected to be taxed as a reit for federal income tax purposes commencing with our taxable year ended december 31 , 1994. we believe that we have been organized and have operated in a manner that has allowed us to qualify as a reit for federal income tax purposes and we intend to continue operating in such a manner . recent accounting pronouncements refer to “ note 2 – summary of significant accounting policies ” in the consolidated financial statements for a summary and anticipated impact of each accounting pronouncement on the company 's financial statements . critical accounting policies the preparation of our financial statements in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) requires us to make estimates and assumptions that are subjective in nature and , as a result , our actual results could differ materially from our estimates . some of these estimates and assumptions require application of difficult , subjective , and or complex judgment , often about the effect of matters that are inherently uncertain and that may change in subsequent periods , including those relating to the policies below . this summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in note 2 to our consolidated financial statements . accounting for acquisitions of real estate the acquisition of property for investment purposes is typically accounted for as an asset acquisition . we allocate the purchase price to land , building and identified intangible assets and liabilities , based in each case on their relative estimated fair values and without giving rise to goodwill . intangible assets and liabilities represent the value of in-place leases and above- or below-market leases . above- and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition and the company 's estimate of current market lease rates for the property . in making estimates of fair values , we may use a number of sources , including data provided by independent third parties , as well as information obtained by the company as a result of our due diligence , including expected future cash flows of the property and various characteristics of the markets where the property is located . the use of different assumptions in the allocation of the purchase price of the acquired properties could affect the timing of recognition of the related revenue and expenses . 25 impairments we review our real estate investments for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through operations plus estimated disposition proceeds . events or circumstances that may occur include , but are not limited to , significant changes in real estate market conditions , estimated residual values , or our ability or expectation to re-lease or sell properties that are vacant or become vacant . management determines whether an impairment in value has occurred by comparing the estimated future cash flows ( undiscounted and without interest charges ) , including the residual value of the real estate , with the carrying cost of the individual asset . an asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and an impairment charge is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value . the valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis , analysis of recent comparable sales transactions , and purchase offers received from third parties . the company may consider a single valuation technique or multiple valuation techniques , as appropriate , when estimating the fair value of its real estate . the expected cash flows of a property are dependent on estimates and other factors subject to change , including ( 1 ) changes in the national , regional , and or local economic climates and or market conditions , ( 2 ) competition from other retail , ( 3 ) increases in operating costs , ( 4 ) bankruptcy and or other changes in a tenant 's condition , and ( 5 ) expected holding period . these factors could cause our expected future cash flows from a property to change , and , as a result , an impairment could be considered to have occurred . determination of the fair value of a property for purposes of measuring impairment involves significant judgment . story_separator_special_tag expenses , payment of principal and interest on our outstanding indebtedness , dividends and distributions to our shareholders and op unit holders , and future property acquisitions and development . 27 we expect to meet our short-term liquidity requirements through cash provided from operations and borrowings under our revolving credit facility . as of december 31 , 2019 , available cash and cash equivalents was $ 42.2 million . story_separator_special_tag the atm forward offerings are required to be settled by certain dates in december 2020. after considering shares already sold under the 2019 atm program including the outstanding atm forward offerings , the company had $ 220.1 million of availability remaining under the 2019 atm program as of december 31 , 2019 . 29 debt the below table summarizes the company 's outstanding debt as of december 31 , 2019 and december 31 , 2018 ( in thousands ) : replace_table_token_7_th ( 1 ) the annual interest rate of the credit facility assumes one-month libor as of december 31 , 2019 of 1.86 % . ( 2 ) interest rate includes the effects of variable interest rates that have been swapped to fixed interest rates . ( 3 ) mortgage paid off early in september 2019. original maturity date of january 2020. senior unsecured revolving credit facility in december 2019 , the company entered into the credit agreement . the credit agreement provides for a $ 500.0 million unsecured revolving credit facility , a $ 65.0 million unsecured term loan facility ( the “ $ 65 million term loan ” ) and a $ 35.0 million unsecured term loan facility ( the “ $ 35 million term loan ” , and together with the $ 65 million term loan , the “ 2024 term loan facilities ” ) . the credit agreement amended and restated in its entirety the company 's previous amended and restated credit agreement dated december 15 , 2016. the credit agreement provides $ 600.0 million unsecured borrowing capacity , composed of the revolving credit facility , which matures on january 15 , 2024 , as well as the 2024 term loan facilities , which mature on january 15 , 2024. subject to certain terms and conditions set forth in the agreement , the company ( i ) may request additional lender commitments 30 under any or all facilities of up to an additional aggregate of $ 500.0 million and ( ii ) may elect , for an additional fee , to extend the maturity date of the revolving credit facility by six months up to two times , for a maximum maturity date of january 15 , 2025. no amortization payments are required under the credit agreement , and interest is payable in arrears no less frequently than quarterly . all borrowings under the revolving credit facility ( except swing line loans ) bear interest at a rate per annum equal to , at the option of the company , ( i ) libor plus a margin that is based upon the company 's credit rating , or ( ii ) the base rate ( which is defined as the greater of the rate of interest as publicly announced from time to time by pnc bank , national association , as its prime rate , the federal funds open rate plus 0.50 % , or the daily eurodollar rate plus 1.0 % ) plus a margin that is based upon the company 's credit rating . the margins for the revolving credit facility range in amount from 0.775 % to 1.450 % for libor-based loans and 0.00 % to 0.45 % for base rate loans , depending on the company 's credit rating . the margins for the revolving credit facility are subject to improvement based on the company 's leverage ratio , provided its credit rating meets a certain threshold . the company and richard agree , the executive chairman of the company , are parties to a reimbursement agreement dated november 18 , 2014. pursuant to the reimbursement agreement , mr. agree has agreed to reimburse the company for any loss incurred under the revolving credit facility in an amount not to exceed $ 14.0 million to the extent that the value of the operating partnership 's assets available to satisfy the operating partnership 's obligations under the revolving credit facility is less than $ 14.0 million . unsecured term loan facilities in july 2016 , the company completed a $ 40.0 million unsecured term loan facility that matures july 2023 ( the “ 2023 term loan ” ) . borrowings under the 2023 term loan are priced at libor plus 85 to 165 basis points , depending on the company 's credit rating . the company entered into an interest rate swap agreement to fix libor at 140 basis points until maturity . pursuant to the credit agreement , the company has outstanding the 2024 term loan facilities . borrowings under the 2024 term loan facilities bear interest at a rate per annum equal to , at the option of the company , ( i ) libor plus a margin that is based upon the company 's credit rating or ( ii ) the base rate ( which is defined as the greater of the rate of interest as publicly announced from time to time by pnc bank , national association , as its prime rate , the federal funds open rate plus 0.50 % , or the daily eurodollar rate plus 1.0 % ) plus a margin that is based upon the company 's credit rating . the margins for the 2024 term loan facilities range in amount from 0.85 % to 1.65 % for libor-based loans and 0.00 % to 0.65 % for base rate loans , depending on the company 's credit rating . the company has utilized existing interest rate swaps to fix libor at 2.0904 % for the $ 65.0 million term loan and at 2.1970 % for the $ 35.0 million term loan . in october 2019 , the company entered into new interest rate swap agreements to fix libor at 143 basis points for both the $ 65.0 million and $ 35.0 million term loans , through their 2024 maturity dates . in december 2018 , the company entered into a $ 100.0 million unsecured term loan facility that matures january 2026 ( the “ 2026 term loan ” ) .
| results of operations overall the company 's real estate investment portfolio grew from approximately $ 1.7 billion in gross investment amount representing 645 properties with 11.2 million square feet of gross leasable space as of december 31 , 2018 to approximately $ 2.2 billion in gross investment amount representing 821 properties with 14.6 million square feet of gross leasable space at december 31 , 2019. the company 's real estate investments were made throughout the periods presented and were not all outstanding for the entire period ; accordingly , a portion of the increase in rental income between periods is related to recognizing revenue in 2019 on acquisitions that were made during 2018. similarly , the full rental income impact of acquisitions made during 2019 will not be seen until 2020. acquisitions during the year ended december 31 , 2019 , the company acquired 186 retail net lease assets for approximately $ 702.9 million , which includes acquisition and closing costs . these properties are located in 40 states and are leased to 56 different tenants operating in 22 diverse retail sectors for a weighted average lease term of approximately 11.7 years . the underwritten weighted average capitalization rate on the company 's 2019 acquisitions was approximately 6.9 % . 1 dispositions during the year ended december 31 , 2019 , the company sold 16 properties for net proceeds of $ 65.5 million and recorded a net gain of $ 13.3 million . during the year ended december 31 , 2018 , the company sold 21 properties for net proceeds of $ 65.8 million and recorded a net gain of $ 11.2 million . the weighted average capitalization rate on the company 's 2019 dispositions was approximately 7.2 % .
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the md & a is provided as a supplement to , and should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” and `` note about forward-looking statements '' 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 . we generally refer to loans , customers and other information and data associated with each of our brands ( rise , elastic and today card ) as elevate 's loans , customers , information and data , irrespective of whether elevate directly originates the credit to the customer or whether such credit is originated by a third party . overview we provide online credit solutions to consumers in the us who are not well-served by traditional bank products and who are looking for better options than payday loans , title loans , pawn and storefront installment loans . non-prime consumers now represent a larger market than prime consumers but are risky to underwrite and serve with traditional approaches . we 're succeeding at it - and doing it responsibly - with best-in-class advanced technology and proprietary risk analytics honed by serving more than 2.5 million customers with $ 8.8 billion in credit . our current online credit products , rise , elastic and today card , reflect our mission to provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features . we call this mission `` good today , better tomorrow . '' prior to june 29 , 2020 , we provided services in the united kingdom ( `` uk '' ) through our wholly-owned subsidiary , elevate credit international limited ( “ ecil ” ) under the brand name ‘ sunny . ' during the year ended december 31 , 2018 , ecil began to receive an increased number of customer complaints initiated by claims management companies ( `` cmcs '' ) related to the affordability assessment of certain loans . the cmcs ' campaign against the high cost lending industry increased significantly during the third and fourth quarters of 2018 and continued through 2019 and into the first half of 2020 , resulting in a significant increase in affordability claims against all companies in the industry over this period . the financial conduct authority ( `` fca '' ) , a regulator in the uk financial services industry , began regulating the cmcs in april 2019 in order to ensure that the methods used by the cmcs are in the best interests of the consumer and the industry . separately , the fca asked all industry participants to review their lending practices to ensure that such companies are using an appropriate affordability and creditworthiness analysis . however , there continued to be a lack of clarity within the regulatory environment in the uk . this lack of clarity , coupled with the ongoing impact of the coronavirus disease 2019 ( `` covid-19 '' ) on the uk market for sunny , led the ecil board of directors to place ecil into administration under the uk insolvency act 1986 and appoint insolvency practitioners from kpmg llp to take control and management of the uk business . as a result , we have deconsolidated ecil and are presenting its results as discontinued operations . we earn revenues on the rise installment loans , on the rise and elastic lines of credit and on the today card credit card product . our revenue primarily consists of finance charges and line of credit fees . finance charges are driven by our average loan balances outstanding and by the average annual percentage rate ( “ apr ” ) associated with those outstanding loan balances . we calculate our average loan balances by taking a simple daily average of the ending loan balances outstanding for each period . line of credit fees are recognized when they are assessed and recorded to revenue over the life of the loan . we present certain key metrics and other information on a “ combined ” basis to reflect information related to loans originated by us and by our bank partners that license our brands , republic bank , finwise bank and capital community bank ( `` ccb '' ) , as well as loans originated by third-party lenders pursuant to cso programs , which loans originated through cso programs are not recorded on our balance sheets in accordance with us gaap . see “ —key financial and operating metrics ” and “ —non-gaap financial measures. ” we use our working capital , funds provided by third-party lenders pursuant to cso programs and our credit facility with victory park management , llc ( `` vpc ” and the `` vpc facility '' ) to fund the loans we directly make to our rise customers and provide working capital . the vpc facility has a maximum total borrowing amount available of $ 218 million at december 31 , 2020. see “ —liquidity and capital resources—debt facilities. ” 64 we also license our rise installment loan brand to two banks . beginning in the fourth quarter of 2018 , we started licensing our rise installment loan brand to a third-party lender , finwise bank , which originates rise installment loans in 18 states . finwise bank initially provides all of the funding , retains a percentage of the balances of all of the loans originated and sells the remaining loan participation in those rise installment loans to a third-party spv , ef spv , ltd. ( `` ef spv '' ) . story_separator_special_tag the credit quality metrics we monitor include net charge-offs as a percentage of revenues , the combined loan loss reserve as a percentage of outstanding combined loans , total provision for loan losses as a percentage of revenues and the percentage of past due combined loans receivable – principal . 65 margin expansion . we aim to manage our business to achieve a long-term operating margin of 20 % . while our operating margins may exceed 20 % in certain years , such as in 2020 when we incurred lower levels of direct marketing expense and materially lower credit losses due to a lack of customer demand for loans resulting from the effects of covid-19 , we do not expect our operating margin to increase beyond that level over the long-term , as we intend to pass on any improvements over our targeted margins to our customers in the form of lower aprs . we believe this is a critical component of our responsible lending platform and over time will also help us continue to attract new customers and retain existing customers . impact of covid-19 the spread of covid-19 since march 2020 has created a global public health crisis that has resulted in unprecedented uncertainty , volatility and disruption in financial markets and in governmental , commercial and consumer activity in the united states and globally , including the markets that we serve . governmental responses to the pandemic have included orders closing businesses not deemed essential and directing individuals to restrict their movements , observe social distancing and shelter in place . these actions , together with responses to the pandemic by businesses and individuals , have resulted in decreases in commercial and consumer activity , temporary closures of many businesses that have led to a loss of revenues and an increase in unemployment , material decreases in business valuations in numerous industries , disrupted global supply chains , market volatility , changes in consumer behavior related to pandemic fears , related emergency response legislation and an expectation that federal reserve policy will maintain a low interest rate environment for the foreseeable future . during the second half of 2020 , regions of the united states were experiencing various levels of restrictions and closures , but overall , personal and business activities still have not returned to their previous normal levels as the virus continues to impact the population . as covid-19 has continued to impact our office locations , our employee base is currently working in a hybrid remote working environment in which employees may continue to work remotely or return to the office on a limited basis . we have sought to ensure our employees feel secure in their jobs , have flexibility in their work location and have the resources they need to stay safe and healthy . as an 100 % online lending solutions provider , our technology and underwriting platform has continued to serve our customers and the bank originators that we support without any material interruption in services . in response to the covid-19 pandemic , we , along with the banks we support , have also expanded our payment flexibility tools to provide payment assistance programs to certain customers who meet the program 's qualifications . these tools include a deferral of payments for an initial period of 30 to 60 days , which we may extend for an additional 30 days , for generally a maximum of 180 days on a cumulative basis . the customer will return to their normal payment schedule after the end of the deferral period with the extension of their maturity date equivalent to their deferral period not to generally exceed an additional 180 days . for rise installment loans , finance charges continue to accrue at a lower effective apr over the expected extended term of the loan considering the deferral periods provided . for elastic lines of credit , no fees accrue during the payment deferral period . as a result , the average apr of our products decreased due to the impact of the covid-19 pandemic and the payment assistance tools that have been implemented . as of december 31 , 2020 , 8.7 % of customers have been provided relief through a covid-19 payment deferral program for a total of $ 34.6 million in loans with deferred payments . this compares to $ 38.7 million in loans with deferred payments , or 10.4 % of customers , as of september 30 , 2020. we believe that our customers are currently managing through the current crisis and returning to repayment status by meeting their next scheduled payment due while in the programs and continuing to meet their scheduled payments once they exit the programs . both we and the bank originators are closely monitoring the performance of the payment assistance tools and key credit quality indicators such as payment defaults , continued payment deferrals , and line of credit utilization . while we initially anticipated that the covid-19 pandemic would have a negative impact on our credit quality , instead the monetary stimulus programs provided by the us government to our customer base have generally allowed customers to continue making payments on their loans . at the beginning of the pandemic , we expected an increase in net charge-offs as compared to prior periods . however , net charge-offs as a percentage of revenue during the third and fourth quarter of 2020 were at a historical low . further , we believe the allowance for loan losses is adequate to absorb the losses inherent in the portfolio as of december 31 , 2020 , including loans that are part of the payment assistance tools . both we , and the bank originators we support , have also implemented underwriting changes to address credit risk associated with loan originations during the economic crisis created by the covid-19 pandemic and have reduced loan origination applications and loan origination volume since the beginning of the covid-19 pandemic in march 2020 .
| results of operations the following table sets forth our consolidated income statements data for each of the periods indicated . effective june 29 , 2020 , ecil was placed into administration in the uk , and we deconsolidated ecil and present it as discontinued operations for all periods presented . replace_table_token_15_th 82 replace_table_token_16_th comparison of the years ended december 31 , 2020 and 2019 revenues replace_table_token_17_th revenues decreased by $ 173.5 million , or 27 % , from $ 638.9 million for the year ended december 31 , 2019 to $ 465.3 million for the year ended december 31 , 2020. total revenue from both the rise and elastic products decreased for the year ended december 31 , 2020 compared to the same time period in 2019. this decrease was partially offset by an increase in total revenue for the today card due to the growth of this portfolio during the year ended december 31 , 2020. the decrease in other revenues is due to a decrease in marketing and licensing fees related to the rise cso programs as our cso partners stopped originating loans in ohio in april 2019 and in texas in october 2020 . 83 the tables below break out this change in revenue ( including cso fees and cash advance fees ) by product : replace_table_token_18_th _ ( 1 ) includes loans originated by third-party lenders through the cso programs , which are not included in our consolidated financial statements .. ( 2 ) average combined loans receivable - principal is calculated using daily combined loans receivable – principal balances . not a financial measure prepared in accordance with us gaap . see reconciliation table accompanying this release for a reconciliation of non-gaap financial measures to the most directly comparable financial measure calculated in accordance with us gaap .
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in addition , united comprises approximately the entire balance of ual 's assets , liabilities and operating cash flows . when appropriate , ual and united are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of ual and united are separately disclosed and explained . we sometimes use the words `` we , '' `` our , '' `` us , '' and the `` company '' in this report for disclosures that relate to all of ual and united . 2018 financial highlights 2018 net income was $ 2.1 billion , or $ 7.70 diluted earnings per share , as compared to $ 2.1 billion , or $ 7.06 diluted earnings per share , in 2017. revenue for 2018 increased $ 3.5 billion over 2017 due to a 4.9 % growth in asms and a prasm increase of 4.3 % in 2018 compared to 2017 . aircraft fuel cost for 2018 increased 34.6 % over 2017 mainly due to higher fuel prices . in 2018 , ual repurchased approximately 17.5 million shares of its common stock for $ 1.2 billion . as of december 31 , 2018 , the company had approximately $ 1.8 billion remaining to purchase shares under its share repurchase program . ual ended 2018 with $ 6.0 billion in unrestricted liquidity , which consisted of unrestricted cash , cash equivalents , short-term investments and available capacity under the revolving credit facility of its amended and restated credit and guaranty agreement ( as amended , the `` credit agreement '' ) . 2018 operational highlights rpms for 2018 increased 6.4 % as compared to 2017 , and asms increased 4.9 % from the prior year , resulting in a load factor of 83.6 % in 2018 versus 82.4 % in 2017. for 2018 and 2017 , the company recorded u.s. department of transportation on-time arrival rates of 79.8 % and 81.9 % , respectively , and mainline completion factors of 99.2 % and 99.0 % , respectively . outlook set forth below is a discussion of matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical operating results and or from our anticipated results of operations described in the forward-looking statements in this report . see part i , item 1a. , risk factors , of this report and the factors described under `` forward-looking information '' below for additional discussion of these and other factors that could affect us . growth strategy . in 2018 , the company completed the first year of its multi-year growth strategy , increasing asms 4.9 % compared to 2017. our priorities for 2019 are delivering top-tier operational reliability and customer service while continuing to execute on our growth plan by strengthening our domestic network through strategic and efficient growth and investing in our people and product . fuel . the company 's average aircraft fuel price per gallon including related taxes was $ 2.25 in 2018 as compared to $ 1.74 in 2017 . based on the company 's projected fuel consumption in 2019 , a one-dollar change in the price of a barrel of crude oil would change the company 's projected fuel expense by approximately $ 104 million . 24 story_separator_special_tag except percentage changes ) : replace_table_token_12_th the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : 27 increase ( decrease ) in 2017 from 2016 ( a ) : domestic atlantic pacific latin total passenger revenue ( in millions ) $ 885 $ 117 $ ( 144 ) $ 173 $ 1,031 passenger revenue 4.4 % 2.0 % ( 3.2 ) % 5.8 % 3.1 % average fare per passenger 0.2 % 1.5 % ( 0.1 ) % 4.0 % ( 0.3 ) % yield ( 0.3 ) % 1.1 % ( 2.4 ) % 4.1 % 0.2 % prasm ( 0.5 ) % 1.6 % ( 6.0 ) % 3.3 % ( 0.4 ) % passengers 4.2 % 0.5 % ( 3.1 ) % 1.7 % 3.4 % rpms ( traffic ) 4.7 % 0.9 % ( 0.9 ) % 1.6 % 2.8 % asms ( capacity ) 4.9 % 0.4 % 2.9 % 2.4 % 3.5 % passenger load factor ( points ) ( 0.2 ) 0.4 ( 3.0 ) ( 0.7 ) ( 0.5 ) ( a ) see part ii , item 6 , selected financial data , of this report for the definition of these statistics . passenger revenue increased $ 1.0 billion , or 3.1 % , in 2017 as compared to 2016 , primarily due to a 2.8 % increase in traffic . prasm decreased 0.4 % in 2017 as compared to 2016 . the decline in prasm was driven by factors including more aggressive low-cost carrier pricing in our hub markets , temporary share loss during roll-out of our basic economy pricing , and softer demand in china and guam . our revenue in 2017 was negatively impacted by severe storms during the third quarter . cargo revenue increased $ 180 million , or 19.3 % , in 2017 as compared to 2016 due to higher year-over-year international freight volume and yield . operating expense the table below includes data related to the company 's operating expense for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_13_th salaries and related costs increased $ 765 million , or 7.5 % , in 2017 as compared to 2016 , primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016 , and a 2.5 % increase in average full-time equivalent employees , partially offset by a decrease in profit sharing and other employee incentives . aircraft fuel expense increased $ 1.1 billion , or 18.9 % , in 2017 as compared to 2016 , primarily due to increased fuel prices and a 3.5 % increase in capacity . story_separator_special_tag excluding the non-cash impairment of the newark slots , operating income for 2017 was approximately $ 1.2 billion lower than 2016. working capital changes reduced cash flow from operations by an additional $ 1.2 billion year-over-year in 2017 as compared to 2016. the following were significant working capital items in 2017 : $ 0.9 billion decrease in advanced purchase of miles due to increased utilization of pre-purchased miles . $ 0.4 billion increase in prepayments for maintenance contracts . investing activities 2018 compared to 2017 the company 's capital expenditures were $ 4.2 billion and $ 4.0 billion in 2018 and 2017 , respectively . the company 's capital expenditures for both years were primarily attributable to the purchase of aircraft , aircraft improvements , facility and fleet-related costs and the purchase of information technology assets . on november 29 , 2018 , united , as lender , entered into a term loan agreement ( the `` synergy loan agreement '' ) with affiliates of synergy aerospace corporation ( `` synergy '' ) , as borrower and guarantor , respectively , and on november 30 , 2018 , pursuant to the synergy loan agreement , united provided a secured $ 456 million term loan to synergy . synergy is the majority shareholder of avianca holdings s.a. ( `` avh '' ) , the parent company of avianca . the loan was made in conjunction with a revenue-sharing joint business agreement among united , avianca and copa airlines as described in part 1 , item 1 of this report . for additional information regarding the synergy loan agreement and related agreements , see notes 9 and 13 to the financial statements included in part ii , item 8 of this report . in april 2018 , through a wholly-owned subsidiary , the company invested $ 138 million in azul linhas aéreas brasileiras s.a. ( `` azul '' ) thus increasing its preferred equity stake in azul to approximately 8 % ( representing approximately 2 % of the total capital stock of azul ) . 30 2017 compared to 2016 the company 's capital expenditures were $ 4.0 billion and $ 3.2 billion in 2017 and 2016 , respectively . the company 's capital expenditures for both years were primarily attributable to the purchase of aircraft , aircraft improvements , facility and fleet-related costs and the purchase of information technology assets . financing activities significant financing events in 2018 were as follows : share repurchases the company used $ 1.2 billion of cash to purchase approximately 17.5 million shares of its common stock during 2018 . as of december 31 , 2018 , the company had approximately $ 1.8 billion remaining to purchase shares under its share repurchase program . debt issuances during 2018 , united received and recorded $ 1.2 billion of proceeds as debt related to enhanced equipment trust certificate ( `` eetc '' ) offerings created in 2018 to finance the purchase of aircraft . during 2018 , united borrowed approximately $ 424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018 . debt and capital lease principal payments during the year ended december 31 , 2018 , the company made debt and capital lease principal payments of $ 1.9 billion . significant financing events in 2017 were as follows : share repurchases the company used $ 1.8 billion of cash to purchase approximately 27.8 million shares of its common stock during 2017 , completing its july 2016 repurchase authorization . in december 2017 , ual 's board of directors authorized a new $ 3.0 billion share repurchase program to acquire ual 's common stock . as of december 31 , 2017 , the company had approximately $ 3.0 billion remaining to purchase shares under its share repurchase program . debt issuances during 2017 , united received and recorded $ 1.8 billion of proceeds as debt related to enhanced equipment trust certificate ( `` eetc '' ) offerings created in 2016 and 2017 to finance the purchase of aircraft . in 2017 , ual issued , and united guaranteed , ( i ) $ 400 million aggregate principal amount of unsecured 4.25 % senior notes due october 1 , 2022 , and ( ii ) $ 300 million aggregate principal amount of unsecured 5 % senior notes due february 1 , 2024. in 2017 , united and ual , as borrower and guarantor , respectively , increased the term loan under the credit agreement by approximately $ 440 million . during 2017 , united borrowed approximately $ 497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. debt and capital lease principal payments during the year ended december 31 , 2017 , the company made debt and capital lease principal payments of $ 1.0 billion . significant financing events in 2016 were as follows : share repurchases the company used $ 2.6 billion of cash to purchase 50.3 million shares of its common stock during 2016 under its share repurchase programs . 31 debt issuances in 2016 , united completed two eetc offerings for a total principal amount of $ 2.0 billion . of the $ 2.0 billion , united received and recorded $ 708 million of proceeds as debt as of december 31 , 2016 to finance the purchase of 17 aircraft . in 2016 , united borrowed approximately $ 369 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016. debt and capital lease principal payments during the year ended december 31 , 2016 , the company made debt and capital lease principal payments of $ 1.4 billion . for additional information regarding these liquidity and capital resource matters , see notes 3 , 10 , 11 and 12 to the financial statements included in part ii , item 8 of this report . for information regarding non-cash investing and financing activities , see the company 's statements of consolidated cash flows . credit ratings .
| results of operations 2018 compared to 2017 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_6_th the table below presents selected passenger revenue and operating data of the company , broken out by geographic region , expressed as year-over-year changes : replace_table_token_7_th passenger revenue increased $ 3.2 billion , or 9.4 % , in 2018 as compared to 2017 , primarily due to a 6.4 % increase in traffic . prasm increased 4.3 % in 2018 as compared to 2017 . the increase in prasm was driven by improvements in scheduling , higher corporate demand , increases in close-in bookings in the domestic markets and premium cabin demand improvements in the atlantic and pacific markets . cargo revenue increased $ 123 million , or 11.0 % , in 2018 as compared to 2017 , primarily due to freight volume and higher yield in the atlantic and pacific markets . other operating revenue increased $ 150 million , or 6.8 % , in 2018 as compared to 2017 , primarily due to increased revenue related to mileageplus miles sales . 25 operating expense the table below includes data related to the company 's operating expense for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_8_th salaries and related costs increased $ 517 million , or 4.7 % , in 2018 as compared to 2017 , primarily due to higher pay rates , higher benefit expenses ( primarily health and pension costs ) , and a 0.7 % increase in average full-time employees . aircraft fuel expense increased $ 2.4 billion , or 34.6 % , in 2018 as compared to 2017 , primarily due to increased fuel prices and a 4.9 % increase in capacity .
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the company 's internal price verification procedures and reviews of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment to the prices obtained from the pricing service . fair values of debt securities that do not trade on a regular basis in active markets but are priced using other observable inputs are classified as level 2. fair value estimates for level 1 and level 2 equity securities are based on quoted market prices for actively traded equity securities and or other market data for the same or comparable instruments and transactions in establishing the prices . the fair values of level 3 investments in corporate bonds , which are not a significant portion of our investments , are estimated using valuation techniques that rely heavily on management assumptions and qualitative observations . throughout the procedures discussed above in relation to the company 's processes for validating third-party pricing information , the company validates the understanding of assumptions and inputs used in security pricing and determines the proper classification in the hierarchy based on that understanding . 52 assets under management . assets under management consists of debt securities and other investments held to fund costs associated with the aarp program and are priced and classified using the same methodologies as the company 's investments in debt and equity securities . long-term debt . the fair values of the company 's long-term debt are estimated and classified using the same methodologies as the company 's investments in debt securities . the following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the story_separator_special_tag the following discussion should be read together with the accompanying consolidated financial statements and notes to the consolidated financial statements thereto included in item 8 , “ financial statements and supplementary data. ” readers are cautioned that the statements , estimates , projections or outlook contained in this report , including discussions regarding financial prospects , economic conditions , trends and uncertainties contained in this item 7 , may constitute forward-looking statements within the meaning of the pslra . these forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements . a description of some of the risks and uncertainties can be found further below in this item 7 and in part i , item 1a , “ risk factors. ” discussions of year-over-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” of the company 's form 10-k for the fiscal year ended december 31 , 2018 . 24 executive overview general unitedhealth group is a diversified health care company dedicated to helping people live healthier lives and helping make the health system work better for everyone . through our diversified businesses , we leverage core competencies in data analytics and health information ; advanced technology ; and clinical expertise . these core competencies are deployed within two distinct , but strategically aligned , business platforms : health benefits operating under unitedhealthcare and health services operating under optum . we have four reportable segments across our two business platforms , unitedhealthcare and optum : unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state and unitedhealthcare global ; optumhealth ; optuminsight ; and optumrx . further information on our business and reportable segments is presented in part i , item 1 , “ business ” and in note 14 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data. ” business trends our businesses participate in the united states , south america and certain other international health markets . in the united states , health care spending has grown consistently for many years and comprises 18 % of gross domestic product ( gdp ) . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . the rate of market growth may be affected by a variety of factors , including macro-economic conditions and regulatory changes , which could impact our results of operations , including our continued efforts to control health care costs . pricing trends . to price our health care benefit products , we start with our view of expected future costs . we frequently evaluate and adjust our approach in each of the local markets we serve , considering relevant factors , such as product positioning , price competitiveness and environmental , competitive , legislative and regulatory considerations , including minimum mlr thresholds . we will continue seeking to balance growth and profitability across all of these dimensions . the commercial risk market remains highly competitive in both the small group and large group segments . we expect broad-based competition to continue as the industry adapts to individual and employer needs . the aca , which includes three distinct taxes ( aca tax ) , has an annual , nondeductible insurance industry tax ( health insurance industry tax ) to be levied proportionally across the insurance industry for risk-based health insurance products . a provision in the 2018 federal budget imposed a one year moratorium for 2019 on the collection of the health insurance industry tax . pricing for contracts that cover some portion of calendar year 2020 reflect the return of the health insurance industry tax . the aca tax was permanently repealed by congress , effective january 1 , 2021. medicare advantage funding continues to be pressured , as discussed below in “ regulatory trends and uncertainties. story_separator_special_tag 2019 results of operations compared to 2018 results story_separator_special_tag style= '' padding-left:0px ; text-indent:0px ; line-height : normal ; padding-top:10px ; '' > moody 's s & p global fitch a.m. best ratings outlook ratings outlook ratings outlook ratings outlook senior unsecured debt a3 stable a+ stable a- stable a- positive commercial paper p-2 n/a a-1 n/a f1 n/a amb-1 n/a the availability of financing in the form of debt or equity is influenced by many factors , including our profitability , operating cash flows , debt levels , credit ratings , debt covenants and other contractual restrictions , regulatory requirements and economic and market conditions . a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital . share repurchase program . as of december 31 , 2019 , we had board authorization to purchase up to 72 million shares of our common stock . for more information on our share repurchase program , see note 10 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data. ” dividends . in june 2019 , the company 's board of directors increased the company 's quarterly cash dividend to shareholders to an annual rate of $ 4.32 compared to $ 3.60 per share . for more information on our dividend , see note 10 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data. ” 31 contractual obligations and commitments the following table summarizes future obligations due by period as of december 31 , 2019 , under our various contractual obligations and commitments : replace_table_token_7_th ( a ) includes interest coupon payments and maturities at par or put values . the table also assumes amounts are outstanding through their contractual term . see note 8 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” for more detail . ( b ) includes fixed or minimum commitments under existing purchase obligations for goods and services , including agreements that are cancelable with the payment of an early termination penalty and remaining capital commitments for venture capital funds and other funding commitments . excludes agreements that are cancelable without penalty and excludes liabilities to the extent recorded in our consolidated balance sheets as of december 31 , 2019 . ( c ) includes obligations associated with contingent consideration and payments related to business acquisitions , certain employee benefit programs , amounts accrued for guaranty fund assessments , unrecognized tax benefits , and various long-term liabilities . due to uncertainty regarding payment timing , obligations for employee benefit programs , charitable contributions , future settlements , unrecognized tax benefits and other liabilities have been classified as “ thereafter. ” ( d ) includes commitments for redeemable shares of our subsidiaries . when the timing of the redemption is indeterminable , the commitment has been classified as “ thereafter. ” we do not have other significant contractual obligations or commitments that require cash resources . however , we continually evaluate opportunities to expand our operations , which include internal development of new products , programs and technology applications and may include acquisitions . off-balance sheet arrangements as of december 31 , 2019 , we were not involved in any off-balance sheet arrangements , which have or are reasonably likely to have a material effect on our financial condition , results of operations or liquidity . recently issued accounting standards see note 2 of notes to the consolidated financial statements in part ii , item 8 “ financial statements and supplementary data ” for a discussion of new accounting pronouncements that affect us . critical accounting estimates critical accounting estimates are those estimates that require management to make challenging , subjective or complex judgments , often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods . critical accounting estimates involve judgments and uncertainties that are sufficiently sensitive and may result in materially different results under different assumptions and conditions . medical costs payable medical costs and medical costs payable include estimates of our obligations for medical care services that have been rendered on behalf of insured consumers , but for which claims have either not yet been received or processed . depending on the health care professional and type of service , the typical billing lag for services can be up to 90 days from the date of service . approximately 90 % of claims related to medical care services are known and settled within 90 days from the date of service and substantially all within twelve months . as of december 31 , 2019 , our days outstanding in medical payables was 51 days , calculated as total medical payables divided by total medical costs times the number of days in the period . in each reporting period , our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods . if the revised estimate of prior period medical costs is less than the previous estimate , we will decrease reported medical costs in the current period ( favorable development ) . if the revised estimate of prior period medical costs is more than the previous estimate , we will increase reported medical costs in the current 32 period ( unfavorable development ) . medical costs in 2019 , 2018 and 2017 included favorable medical cost development related to prior years of $ 580 million , $ 320 million and $ 690 million , respectively . in developing our medical costs payable estimates , we apply different estimation methods depending on the month for which incurred claims are being estimated .
| consolidated financial results revenue the increase in revenue was primarily driven by the increase in the number of individuals served through medicare advantage ; pricing trends ; and organic and acquisition growth across the optum business , primarily due to expansion in pharmacy care services and care delivery , partially offset by the moratorium of the health insurance industry tax in 2019. medical costs and mcr medical costs increased due to growth in people served through medicare advantage and medical cost trends , partially offset by increased prior year favorable medical development . the mcr increased due to the revenue effects of the health insurance industry tax moratorium . 27 reportable segments see note 14 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” for more information on our segments . the following table presents a summary of the reportable segment financial information : replace_table_token_3_th unitedhealthcare the following table summarizes unitedhealthcare revenues by business : replace_table_token_4_th 28 the following table summarizes the number of individuals served by our unitedhealthcare businesses , by major market segment and funding arrangement : replace_table_token_5_th fee-based commercial group business increased primarily due to an acquisition . medicare advantage increased due to the growth in people served through individual and employer-sponsored group medicare advantage plans . the decrease in people served through medicaid was primarily driven by the proactive withdrawal from the iowa market as well as by states adding new carriers to existing programs and managing eligibility , partially offset by increases in dual special needs plans . the decrease in people served internationally is a result of our continued affordability efforts and underwriting discipline . unitedhealthcare 's revenue and earnings from operations increased due to growth in the number of individuals served through commercial and medicare advantage , including a greater mix of people with a higher acuity needs .
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this discussion should be read in conjunction with our accompanying consolidated financial statements and the notes thereto . see note 2 in the accompanying consolidated financial statements for an overview of new accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements . overview during october 2013 , the board of directors of liberty interactive corporation and its subsidiaries ( “ liberty ” ) authorized a plan to distribute to the stockholders of liberty 's liberty ventures common stock shares of a wholly-owned subsidiary liberty tripadvisor holdings , inc. ( “ tripco ” or the “ company ” ) ( the “ tripco spin-off ” ) . tripco holds its subsidiary tripadvisor , inc. ( “ tripadvisor ” ) and held its former subsidiary , buyseasons , inc. ( “ buyseasons ” ) until buyseasons was sold on june 30 , 2017. the tripco spin-off was completed on august 27 , 2014 and was effected as a pro-rata dividend of shares of tripco to the stockholders of series a and series b liberty ventures common stock of liberty . the tripco spin-off is intended to be tax-free and has been accounted for at historical cost due to the pro rata nature of the distribution to shareholders of liberty ventures common stock . the financial information represents a combination of the historical results of tripadvisor and buyseasons as discussed in note 1 in the accompanying consolidated financial statements . these financial statements refer to the combination of tripadvisor and buyseasons as “ tripco , ” “ the company , ” “ us , ” “ we ” and “ our ” in the notes to the consolidated financial statements . all significant intercompany accounts and transactions have been eliminated in the consolidated financial statements . our “ corporate and other ” category includes our interest in buyseasons , until its disposition on june 30 , 2017 , and corporate expenses . strategies and challenges executive summary results for tripco are largely dependent upon the operating performance of tripadvisor . therefore , the executive summary below contains the strategies and challenges of tripadvisor for an understanding of the business objectives of tripadvisor . tripadvisor 's growth strategy tripadvisor seeks to achieve its mission of helping people around the world plan , book and experience the perfect trip by : leveraging its user-generated content and global brand to attract users to tripadvisor websites and applications ; providing users with the best user experience throughout all phases of the travel journey ; deepening its partnerships with travel partners , by providing them with a global platform of advertising opportunities to generate qualified leads and bookings ; and investing in technology , product development , marketing , and other strategic areas that tripadvisor believes can improve its long-term business prospects . · drive user engagement with tripadvisor 's platform . since tripadvisor 's founding , the tripadvisor brand has become a globally-recognized travel brand , one that is synonymous with travel reviews and research and increasingly finding the best prices and booking . tripadvisor believes that its user-generated content and its brand have enabled tripadvisor to build a large , highly engaged and loyal community of travelers who view tripadvisor as a valuable resource to help them discover , plan and book their travel experiences , and for millions of users , tripadvisor gives them an interactive platform to share their travel experiences . tripadvisor seeks to amplify its global brand and raise user awareness for , and engagement with , its expanded product offerings as tripadvisor aims to attract users to its websites and applications through ii-3 various channels , including domain direct and various online and offline marketing channels , including search engines through search engine optimization and search engine marketing , and recently , through television brand advertising . · deliver the best user experience possible on its platform . tripadvisor believes that giving users more value throughout their tripadvisor experience is key to its future success . to accomplish this , tripadvisor has made and will continue to make product improvements in order to provide a more enjoyable and engaging end-to-end user experience throughout all phases of the travel journey – from inspiration and discovery , to researching , price shopping and booking , to in-destination activities and places to eat , and , finally , to sharing the details of these travel experiences on tripadvisor . these enhancements include having grown the number of hotels , inns , b & bs and specialty lodging , vacation rentals , restaurants , activities and attractions listed on tripadvisor 's platform to approximately 7.5 million worldwide as of december 31 , 2017. in addition to listings and content , tripadvisor has provided users more options to price compare and book their travel experiences . during 2017 , tripadvisor launched a more engaging hotel shopping experience that focused on helping hotel shoppers find the best prices on tripadvisor websites and applications . in order to better serve travelers needs when they are in-destination , tripadvisor has continued to rapidly expand its bookable supply in attractions and restaurants . tripadvisor believes that its continued focus on delivering an increasingly more robust user experience will ultimately result in more repeat usage on its platform , more value for its partners , and greater monetization for its business . tripadvisor seeks to quickly identify what users need to conduct their travel research and booking and to deliver product enhancements quickly . · deepen relationships with its travel partners . tripadvisor is a global platform consisting of listing and advertising opportunities that help generate impressions , brand awareness , qualified leads and bookings for travel partners . tripadvisor believes that continuing to grow the number of listings and bookable supply , especially in its in-destination attractions and restaurants businesses , will enable tripadvisor to not only serve users in more moments during more trips , but also help partners drive transactions for their business . story_separator_special_tag mobile phones currently generate significantly lower revenue per hotel shopper compared to desktop and tablet devices . tripadvisor believes that this monetization difference is due to a number of factors , including the reduced ability to achieve marketing attribution on the mobile phone for facilitating traffic to partner websites and applications ; more limited advertising opportunities on smaller screen devices ; tripadvisor 's historic positioning as a place to read reviews ; and general consumer purchasing patterns on mobile phones resulting in lower booking intent , lower conversion rates , lower cost-per-click bids from its travel partners , and lower average gross booking value . as a result , tripadvisor 's growth in hotel shoppers on mobile phones has remained a headwind against tripadvisor 's overall revenue per hotel shopper and tripadvisor-branded click-based and transaction revenue . the general trend of increasing traffic to tripadvisor websites and apps on mobile phones reduces its ability to grow tripadvisor-branded display-based advertising revenue , as tripadvisor believes prioritizing and preserving a cleaner user experience over increasing advertising units on smaller screen devices is the most appropriate way to engage more users on tripadvisor 's mobile phone app . tripadvisor continues to prioritize investment in product development in order to improve the mobile user experience and to improve mobile phone traffic acquisition to increase its user base . tripadvisor believes that , over the long-term , these efforts will result in increased usage and engagement , conversion of hotel shoppers to bookings for its hotel advertising partners and higher monetization rates for tripadvisor . ii-5 non-hotel segment tripadvisor 's ongoing product efforts to deliver an end-to-end user experience extend to its non-hotel segment , which includes its attractions , restaurants , and vacation rentals businesses . tripadvisor 's key growth strategies have been to grow users , improve products and grow bookable supply . tripadvisor continued to deliver on those objectives during the year ended december 31 , 2017 , as monthly unique users to these pages on tripadvisor websites and applications continued to grow , tripadvisor enhanced its product experience on all devices and grew bookable supply on its platform in its attractions and restaurants businesses . notably , tripadvisor has been able to increasingly leverage strong user growth on the tripadvisor-branded platform to drive increased bookings in its attractions business . additionally , tripadvisor 's attractions and restaurants businesses have both experienced increased engagement and growth on mobile phones . in vacation rentals , as the business continues to shift from tripadvisor 's subscription model to its free-to-list model , tripadvisor has focused on delivering high-quality supply for users in order to drive conversion for partners on its platform . tripadvisor continued to work to improve content and overall user experience across each business . continued successful execution of key growth strategies and increased marketing and operating efficiencies primarily contributed to this segment 's revenue and profit growth during the year ended december 31 , 2017 , as compared to the same period in 2016. results of operations—consolidated general . we provide in the tables below information regarding our historical consolidated operating results and other income and expense , as well as information regarding the contribution to those items from our reportable segment . the “ corporate and other ” category consists of those assets or businesses which we do not disclose separately , such as buyseasons ( through june 30 , 2017 ) . for a more detailed discussion and analysis of the financial results of the principal reporting segment , see “ results of operations—tripadvisor ” below . story_separator_special_tag expense increased $ 3 million for the year ended december 31 , 2017 when compared to the same period in 2016 primarily due to higher average outstanding borrowings and effective interest rates during 2017. interest expense for corporate and other decreased $ 3 million for the year ended december 31 , 2017 when compared to the same period in 2016 due to lower interest rates on outstanding borrowings . interest expense decreased $ 3 million for the year ended december 31 , 2016 when compared to the same period in 2015. tripadvisor 's interest expense increased $ 2 million for the year ended december 31 , 2016 when compared to the same period in 2015 primarily due to an increase of $ 3 million in interest imputed on tripadvisor 's financing obligation related to its corporate headquarters lease , partially offset by a decrease in interest incurred due to lower average outstanding borrowings . interest expense for corporate and other decreased $ 5 million for the year ended december 31 , 2016 when compared to the same period in 2015 due to lower interest rates on outstanding borrowings . realized and unrealized gains ( losses ) on financial instruments , net . realized and unrealized gains ( losses ) on financial instruments , net is primarily comprised of the change in the fair value of the variable postpaid forward . gain ( loss ) on dispositions , net . on june 30 , 2017 , tripco sold buyseasons . the sale resulted in an $ 18 million loss . in august 2015 , tripadvisor sold its 100 % interest in a chinese subsidiary to an unrelated third party , resulting in a $ 20 million gain . other , net . the primary components of other , net are income and interest earned on marketable securities offset by net foreign exchange losses . other , net expenses decreased $ 6 million and increased $ 1 million for the years ended december 31 , 2017 and 2016 , respectively , when compared to the corresponding prior year periods , primarily due to transactions gains and losses at tripadvisor as a result of the fluctuation of foreign exchanges rates . income taxes . the company had income tax benefits of $ 229 million , $ 1 million and $ 10 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively .
| operating results replace_table_token_4_th revenue . our consolidated revenue increased $ 37 million and decreased $ 33 million for the years ended december 31 , 2017 and 2016 , respectively , as compared to the corresponding prior year periods . revenue for tripadvisor increased $ 76 million and decreased $ 12 million for the years ended december 31 , 2017 and 2016 , respectively , as compared to the corresponding prior year periods . revenue for buyseasons , the only consolidated subsidiary in corporate and other until its disposition on june 30 , 2017 , decreased $ 39 million and $ 21 million for the years ended december 31 , 2017 and 2016 , respectively , as compared to the corresponding prior periods . the decrease in revenue for buyseasons for the year ended december 31 , 2017 as compared to the corresponding prior year period was attributable to declines in buyseasons ' sales and the disposition of buyseasons mid-year . the decrease in revenue for buyseasons for the year ii-6 ended december 31 , 2016 as compared to the corresponding prior year period was due to a decrease in retail sales resulting from a decision to shift to a dropship business model , partially offset by revenue from its online marketplace and dropship channels . see “ results of operations—tripadvisor ” below for a more complete discussion of the results of operations of tripadvisor . operating income ( loss ) . our consolidated operating income decreased $ 1,815 million and increased $ 8 million for the years ended december 31 , 2017 and 2016 , respectively , as compared to the corresponding prior year periods . the primary driver of the decrease in operating income for 2017 is a result of impairments of $ 1,798 million related to goodwill and trademarks that were recorded in conjunction with the acquisition of tripadvisor .
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we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on our financial statements . the accounting policies that we view as critical to us are those relating to estimates and judgments regarding ( a ) the determination of the adequacy of the allowance for loan losses , ( b ) acquisition accounting and valuation of covered loans and related indemnification asset , ( c ) the valuation of goodwill and the useful lives applied to intangible assets , ( d ) the valuation of employee benefit plans and ( e ) income taxes . allowance for loan losses on loans not covered by loss share the allowance for loan losses is management 's estimate of probable losses in the loan portfolio . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . prior to the fourth quarter of 2012 , we measured the appropriateness of the allowance for loan losses in its entirety using ( a ) asc 450-20 which includes quantitative ( historical loss rates ) and qualitative factors ( management adjustment factors ) such as ( 1 ) lending policies and procedures , ( 2 ) economic outlook and business conditions , ( 3 ) level and trend in delinquencies , ( 4 ) concentrations of credit and ( 5 ) external factors and competition ; which are combined with the historical loss rates to create the baseline factors that are allocated to the various loan categories ; ( b ) specific allocations on impaired loans in accordance with asc 310-10 ; and ( c ) the unallocated amount . the unallocated amount was evaluated on the loan portfolio in its entirety and was based on additional factors , such as ( 1 ) trends in volume , maturity and composition , ( 2 ) national , state and local economic trends and conditions , ( 3 ) the experience , ability and depth of lending management and staff and ( 4 ) other factors and trends that will affect specific loans and categories of loans , such as a heightened risk in agriculture , credit card and commercial real estate loan portfolios . as of december 31 , 2012 , we refined our allowance calculation . as part of the refinement process , we evaluated the criteria previously applied to the entire loan portfolio , and used to calculate the unallocated portion of the allowance , and applied those criteria to each specific loan category . for example , the impact of national , state and local economic trends and conditions was evaluated by and allocated to specific loan categories . after this refinement , the allowance is calculated monthly based on management 's assessment of several factors such as ( 1 ) historical loss experience based on volumes and types , ( 2 ) volume and trends in delinquencies and nonaccruals , ( 3 ) lending policies and procedures including those for loan losses , collections and recoveries , ( 4 ) national , state and local economic trends and conditions , ( 5 ) concentrations of credit within the loan portfolio , ( 6 ) the experience , ability and depth of lending management and staff and ( 7 ) other factors and trends that will affect specific loans and categories of loans . we establish general allocations for each major loan category . this category also includes allocations to loans which are collectively evaluated for loss such as credit cards , one-to-four family owner occupied residential real estate loans and other consumer loans . general reserves have been established , based upon the aforementioned factors and allocated to the individual loan categories . allowances are accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan , including accrued interest , exceeds the discounted amount of expected future collections of interest and principal or , alternatively , the fair value of loan collateral . any immaterial residual reserves are distributed among the loan portfolio categories based on their percent composition of the entire portfolio . 21 acquisition accounting , acquired loans we account for our acquisitions under asc topic 805 , business combinations , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk . loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in asc topic 820 , exclusive of the shared-loss agreements with the fdic . the fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . we evaluate loans acquired in accordance with the provisions of asc topic 310-20 , nonrefundable fees and other costs . the fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method . these loans are not considered to be impaired loans . we evaluate purchased impaired loans in accordance with the provisions of asc topic 310-30 , loans and debt securities acquired with deteriorated credit quality . purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected . story_separator_special_tag see reconciliation of non-gaap measures and table 21 – reconciliation of core earnings ( non-gaap ) for additional discussion of non-gaap measures . on november 25 , 2013 , we closed the transaction to acquire metropolitan national bank ( “ metropolitan ” or “ mnb ” ) , headquartered in little rock , arkansas . during the first quarter of 2014 we completed the system integration and branch consolidation associated with the metropolitan acquisition . as a result of the mnb combination and in concert with the systems conversion , we closed 27 branches with footprints that overlap other branches . we also entered into a definitive agreement and plan of merger with delta trust & banking corporation ( “ delta trust ” ) , also headquartered in little rock , including its wholly-owned bank subsidiary delta trust & bank . we finalized our acquisition of delta trust on august 31 , 2014 , and completed the systems conversion on october 24 , 2014. the metropolitan and delta trust franchises , headquartered in little rock , fit nicely into our footprint by expanding our presence in central and northwest arkansas , the two leading growth market in our home state . both banks have a rich history of providing exemplary customer service to the communities in which they have served . with the operational system conversions of metropolitan and delta trust with our flagship institution , simmons first national bank ( “ simmons bank ” ) , we are able to provide customers with innovative products , exceptional customer service and convenience throughout the combined service area . during the second quarter of 2014 , we entered into a definitive agreement and plan of merger with community first bancshares , inc. ( “ community first ” ) , headquartered in union city , tennessee , including its wholly-owned bank subsidiary first state bank ( “ first state ” ) . during the second quarter we also entered into a definitive agreement and plan of merger with liberty bancshares , inc. ( “ liberty ” ) , headquartered in springfield , missouri , including its wholly-owned bank subsidiary liberty bank . we completed both of these transactions on february 27 , 2015. these two acquisitions will add approximately $ 1.9 billion in loans , $ 2.4 billion in deposits and $ 3.0 billion in total assets to our balance sheet in the first quarter of 2015 , increasing our combined company to approximately $ 7.6 billion in total assets . we are very pleased with the core earnings results in 2014. we reported record core earnings and record core earnings per share for 2014. as a result of acquisitions and efficiency initiatives in recent reporting periods , we have and will continue to recognize one-time revenue and expense items which may skew our short-term core business results but provide long-term performance benefits . our focus continues to be improvement in core operating income . we are also pleased with the positive trends in our balance sheet , as reflected in our organic loan growth of over 12 % during the past year as well as our growth from acquisitions , which enabled us to produce a net interest margin of 4.47 % . stockholders ' equity as of december 31 , 2014 was $ 494.3 million , book value per share was $ 27.38 and tangible book value per share was $ 20.15. our ratio of stockholders ' equity to total assets was 10.7 % and the ratio of tangible stockholders ' equity to tangible assets was 8.1 % at december 31 , 2014. the company 's tier i leverage ratio of 8.8 % , as well as our other regulatory capital ratios , remain significantly above the “ well capitalized ” . see table 18 – risk-based capital for regulatory capital ratios . we believe our stock , even after the recent market increase in our stock value , continues to be an excellent investment . we increased our quarterly dividend from $ 0.22 to $ 0.23 per share , beginning with the first quarter of 2015. on an annual basis , the $ 0.92 per share dividend results in a return in excess of 2.1 % , based on our recent stock price . total loans , including loans acquired , were $ 2.7 billion at december 31 , 2014 , an increase of $ 332 million , or 13.8 % , from the same period in 2013. acquired loans increased by $ 21 million , net of discounts , while legacy loans ( all loans excluding acquired loans ) grew $ 311 million , or 17.9 % . excluding the $ 98 million in loan balances that migrated from acquired loans , legacy loans grew $ 213 million , or 12.2 % . we are encouraged by the continued growth in our legacy loan portfolio throughout 2014. we have had very good legacy loan growth again this year , particularly from the new lenders we have attracted in our targeted growth markets . their production has exceeded our expectations for 2013 and 2014 . 23 despite the continued challenges in the economy , we continue to have good asset quality . the allowance for loan losses as a percent of total loans was 1.41 % at december 31 , 2014. non-performing loans equaled 0.63 % of total loans . non-performing assets were 1.25 % of total assets . the allowance for loan losses was 223 % of non-performing loans . the company 's net charge-offs for 2014 were 0.30 % of total loans . excluding credit cards , net charge-offs for 2014 were 0.22 % of total loans . total assets were $ 4.6 billion at december 31 , 2014 compared to $ 4.4 billion at december 31 , 2013 , an increase of $ 260 million primarily due to the delta trust acquisition . subsidiary bank consolidation we have completed the consolidation of our subsidiary banks into simmons first national bank ( “ simmons bank ” ) , headquartered in pine bluff , arkansas .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 22. table 22 : quarterly results replace_table_token_27_th item
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there may be additional payments required due to a working capital adjustment 39 provision in the agreement . this acquisition is expected to increase our retail propane gross margin and operating income . the acquisition will also result in an increase in our interest expense due to the utilization of our acquisition facility to fund the acquisition . pending acquisition on may 18 , 2012 , we entered into a merger agreement with high sierra energy , lp , or high sierra , and our general partner entered into a merger agreement with high sierra energy gp , llc , the general partner of high sierra . high sierra is a denver , colorado based limited partnership with three core business segments : crude oil gathering , transportation and marketing ; water treatment , disposal , recycling and transportation ; and natural gas liquids transportation and marketing . upon completion of the mergers , we expect that we will be able to provide multiple services to upstream customers with our combined fleet of more than 3,000 rail cars , 18 natural gas liquids terminals , three crude oil terminals , over 90 trucks and a substantial wholesale marketing and supply network . we and our general partner will pay aggregate merger consideration of $ 693 million less high sierra 's net indebtedness and unpaid transaction expenses . high sierra unitholders will be entitled to receive 82 % of the aggregate merger consideration consisting of our common units , based on a value of $ 21.50 per common unit , and $ 100 million in cash . the members of the general partner of high sierra will be entitled to receive 18 % of the aggregate merger consideration consisting of membership interests in our general partner and $ 50 million in cash . we expect to the close the mergers in june 2012 , subject to the satisfaction or waiver of certain conditions to closing , including that we have obtained financing to complete the mergers on terms reasonably acceptable to us and customary regulatory approvals . recent weather conditions the demand for propane is heavily influenced by the weather , especially during the winter heating season . during our fiscal year ended march 31 , 2012 , the winter was unusually warm , which significantly reduced demand for propane in our areas of operation . spot market prices for propane declined during the period from october 2011 january 2012 , and then remained relatively stable during february and march of 2012. margins from our wholesale supply and marketing operations during the fourth quarter of fiscal 2012 benefitted from the declining prices , due in part to fixed price forward sale contracts . as the price of propane declined , purchases reduced our average cost of inventory and our average cost per gallon sold . to the extent we had committed to sell inventory at fixed prices , the lower average cost resulted in increased margins . margins from our wholesale supply and marketing operations during the fourth quarter of fiscal 2012 also benefitted from certain commodity swaps we had entered into to protect against the risk of a decline in the value of inventory . the lower-than-normal demand for propane during the recent winter may result in our wholesale and retail customers having more supply on hand than they normally would at the end of the heating season , which could reduce their need to purchase product in fiscal 2013. this could also result in continued downward pressure on product prices , which could reduce margins from our wholesale supply and marketing operations in fiscal 2013. in addition , increased shale gas production and limitations on export infrastructure could also put downward pressure on product prices . continued low demand could also put pressure on the ability of customers to perform under their purchase commitments and payment obligations . story_separator_special_tag of operations of ngl supply for the six months ended september 30 , 2010. as described above , the consolidated statement of operations for the year ended march 31 , 2011 is divided into two six-month periods . the financial statements for the first six months of that fiscal year were those of ngl supply , and the financial statements for the last six months of that fiscal year are those of ngl energy partners lp . year ended march 31 , 2012 of ngl energy partners lp compared to six months ended march 31 , 2011 of ngl energy partners lp the following table shows our operating income for the periods indicated ( in thousands ) : replace_table_token_10_th 43 revenues and cost of sales . operating revenues and cost of sales were significantly higher during the year ended march 31 , 2012 than during the six months ended march 31 , 2011 , due in part to the osterman , semstream , pacer , and north american combinations . three of these acquisitions significantly expanded our retail propane customer base . the semstream combination significantly expanded our midstream business , resulting in increased throughput revenue . this acquisition also facilitated an increase in our wholesale supply and marketing activities , as the acquisition of semstream 's terminals and leased rail cars gave us considerably more flexibility in the wholesale markets we can serve . in addition , the year ended march 31 , 2012 included twelve months of activity , whereas the six months ended march 31 , 2011 included only six months of activity . operating and general and administrative expenses . operating and general and administrative expense was significantly higher during the year ended march 31 , 2012 than during the six months ended march 31 , 2011 , due primarily to business combinations . story_separator_special_tag in addition , the year ended march 31 , 2012 included twelve months of activity , whereas the six months ended march 31 , 2011 included only six months of activity . depreciation and amortization . depreciation and amortization expense was significantly higher during the year ended march 31 , 2012 than during the six months ended march 31 , 2011 , due primarily to business combinations . in the business combination accounting , we recorded a significant amount of property , plant and equipment and customer relationship intangible assets . in addition , the year ended march 31 , 2012 included twelve months of activity , whereas the six months ended march 31 , 2011 included only six months of activity . due to the limitations inherent in comparing a twelve month period to a six month period , we have provided supplemental information below to compare the first and last six months of fiscal 2012 and 2011 to the corresponding periods in the prior years . where possible , we have identified the changes from period to period that are attributable to acquisitions . this is not possible for the wholesale supply and marketing operations acquired in our business combination with semstream ; for product purchases and sales subsequent to the combination date , it is not possible to determine which of the transactions are attributable to our historical operations and which are attributable to the operations acquired from semstream . six months ended march 31 , 2012 for ngl energy partners lp compared to six months ended march 31 , 2011 for ngl energy partners lp volumes sold or throughput the following table summarizes the volume of gallons sold by our retail propane and wholesale supply and marketing segments and the throughput volume for our midstream segment for the six months ended march 31 , 2012 and the six months ended march 31 , 2011 , respectively : replace_table_token_11_th ( * ) although the semstream combination enabled us to significantly expand our wholesale supply and marketing operations , it is not possible to determine which of the volumes sold subsequent to the combination were specifically attributable to this combination and which were attributable to our historical wholesale business . 44 operating income by segment our operating income by segment is as follows : replace_table_token_12_th retail propane the following table compares the operating results of our retail propane segment for the periods indicated : replace_table_token_13_th revenues . propane sales for the six months ended march 31 , 2012 increased $ 82.0 million as compared to propane sales of $ 67.2 million for the six months ended march 31 , 2011. the increase in propane sales is due primarily to the impact of our osterman combination in october 2011 , our pacer combination in january 2012 , and our north american combination in february 2012. excluding the impact of these combinations , propane sales were lower during the six months ended march 31 , 2012 as compared to the six months ended march 31 , 2011 , due primarily to a decline in volumes from 34.9 million gallons during the six months ended march 31 , 2011 to 30.4 million gallons during the six months ended march 31 , 2012. the decrease in volumes was due primarily to unusually warm weather during the heating season , which reduced demand . the decrease in volumes was partially offset by an increase in the average price per gallon from $ 1.92 during the six months ended march 31 , 2011 to $ 2.08 during the six months ended march 31 , 2012. our acquired osterman , pacer , and north american operations generated sales volumes of 34.8 million gallons at an average price of $ 2.46 per gallon . the average selling price per gallon for the acquired operations was higher than the average selling price for our historical operations , due in part to the fact that the markets served by the acquired operations are , in general , farther away from the primary areas of propane supply than are the markets served by our historical operations . cost of sales . propane cost of sales for the six months ended march 31 , 2012 increased $ 54.1 million as compared to propane cost of sales of $ 44.7 million for the six months ended march 31 , 2011. the increase in propane cost of sales is due primarily 45 to the impact of our osterman combination in october 2011 , our pacer combination in january 2012 , and our north american combination in february 2012. excluding the impact of these combinations , propane cost of sales was lower during the six months ended march 31 , 2012 as compared to the six months ended march 31 , 2011 , due primarily to a decline in volumes from 34.9 million gallons during the six months ended march 31 , 2011 to 30.4 million gallons during the six months ended march 31 , 2012. the decrease in volumes was due primarily to unusually warm weather during the heating season , which reduced demand . the decrease in volumes was partially offset by an increase in the average cost per gallon sold from $ 1.28 during the six months ended march 31 , 2011 to $ 1.43 during the six months ended march 31 , 2012. our acquired osterman , pacer , and north american operations generated sales volumes of 34.8 million gallons at an average cost of $ 1.58 per gallon . the average cost per gallon for the acquired operations was higher than the average cost for our historical operations , due in part to the fact that the markets served by the acquired operations are , in general , farther away from the primary areas of propane supply than are the markets served by our historical operations . gross margin . gross margin of our retail propane operation increased $ 32.6 million during the six months ended march 31
| consolidated results of operations the following table summarizes our historical consolidated statements of operations for the year ended march 31 , 2012 and the six months ended march 31 , 2011 , and ngl supply 's consolidated statements of operations for the six months ended september 30 , 2010 and the fiscal year ended march 31 , 2010. replace_table_token_6_th all information herein related to periods prior to october 2010 represents the results of operations of ngl supply . see the detailed discussion of revenues , cost of sales , gross margin , operating expenses , general and administrative expenses , depreciation and amortization and operating income by operating segment below . set forth below is a discussion of significant changes in the non-segment related corporate other income and expenses during the respective periods . 40 interest expense the interest expense of ngl energy partners lp consists of interest on borrowings under a revolving credit facility , letter of credit fees and amortization of debt issuance costs . see note 9 to our consolidated financial statements as of march 31 , 2012 included elsewhere in this annual report for additional information on our long-term debt . the change in interest expense during the periods presented is due primarily to fluctuations of the average outstanding debt balance , the average interest rate and the amortization of debt issuance costs , as follows : replace_table_token_7_th the increased levels of debt outstanding during the periods from fiscal 2010 through fiscal 2012 are due primarily to borrowings to finance the acquisitions of businesses . interest and other income our non-operating other income consists of the following : replace_table_token_8_th the gain on sale of assets during the six months ended september 30 , 2010 represents the proceeds from sale of certain salvaged propane tanks , vehicles and other miscellaneous equipment . sales of assets in the other periods presented were not significant . income tax provision we qualify as a partnership for income taxes .
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new shares of class b common stock may be issued only to , and registered in the name of , mr. fertitta or his affiliates ( including all successors , assigns and permitted transferees ) ( collectively , the “ permitted class b owners ” ) . we may not issue additional story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements , and the notes thereto , included elsewhere in report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results and the timing of events may differ materially from those expressed or implied in such forward- looking statements as a result of various factors , including those set forth in “ cautionary note regarding forward-looking statements ” and “ risk factors. ” overview golden nugget online gaming , inc. ( formerly known as landcadia holdings ii , inc. or “ gnog ” , the “ company ” , “ we ” , “ our ” or “ us ” ) is an online gaming , or igaming , and digital sports entertainment company focused on providing our customers with the most enjoyable , realistic and exciting online gaming experience in the market . we currently operate in new jersey and michigan where we offer patrons the ability to play their favorite casino games and bet on live-action sports events . we were one of the first online gaming operators to enter the new jersey market in 2013 and we commenced operations in michigan on january 22 , 2021. we are authorized by the new jersey division of gaming enforcement ( “ dge ” ) and the michigan gaming control board ( “ mgcb ” ) to operate interactive real money online gaming in new jersey and michigan . we operate as an umbrella partnership c-corporation , or “ up-c , ” meaning that substantially all of our assets are held indirectly through golden nugget online gaming llc ( “ gnog llc ” ) , our indirect subsidiary , and our business is conducted through gnog llc . acquisition transaction as of may 9 , 2019 , we were a blank check company formed under the laws of the state of delaware for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or other similar business combination with one or more businesses . on december 29 , 2020 , we completed the acquisition transaction and changed our name to golden nugget online gaming , inc. the acquisition transaction was accounted for as a reverse recapitalization and the reported amounts from operations prior to the acquisition transaction are those of gnog llc . ( see note 3 in the notes to the consolidated financial statements ) . the historical financial information of landcadia holdings ii , inc. ( a special purpose acquisition company , or “ spac ” ) prior to the closing of the acquisition transaction has not been reflected in the financial statements as these historical amounts have been determined to be not useful information to a user of our financial statements . spacs deposit the proceeds from their initial public offerings into a segregated trust account until a business combination occurs , where such funds are then used to pay consideration for the acquiree and or to pay stockholders who elect to redeem their shares of common stock in connection with the business combination . the operations of a spac , until the closing of a business combination , other than income from the trust account investments and transaction expenses , are nominal . accordingly , no other activity in the company was reported for periods prior to december 29 , 2020 besides gnog llc 's operations . 46 covid-19 during march 2020 , a global pandemic was declared by the world health organization related to the rapidly growing outbreak of a novel strain of coronavirus ( covid-19 ) . the pandemic has significantly impacted the economic conditions around the world , accelerating during the last half of march 2020 , as federal , state and local governments react to the public health crisis . the direct impact on us is primarily through an increase in new patrons utilizing online gaming due to closures of land-based casinos and suspensions , postponement and cancellations of major sports seasons and sporting events , although sports betting accounted for less than 1 % of our revenues for 2020. land based casinos reopened in july with significant restrictions , which eased over time . however , virus cases began to increase and capacity restrictions were reinstituted . as a result , the ultimate impact of this pandemic on our financial and operating results is unknown and will depend , in part , on the length of time that these disruptions exist and the subsequent behavior of new patrons after land-based casinos reopen fully . a significant or prolonged decrease in consumer spending on entertainment or leisure activities could have an adverse effect on the demand for the company 's product offerings , reducing cash flows and revenues , and thereby materially harming the company 's business , financial condition and results of operations . in addition , a recurrence of covid-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest . as steps taken to mitigate the spread of covid-19 have necessitated a shift away from a traditional office environment for many employees , the company has business continuity programs in place to ensure that employees are safe and that the business continues to function with minimal disruptions to normal work operations while employees work remotely . the company will continue to monitor developments relating to disruptions and uncertainties caused by covid-19 . operations developments on february 24 , 2021 , we announced that we had entered into a definitive agreement with tioga downs race track , llc . story_separator_special_tag the provision for income taxes increased $ 1.2 million , or 26.6 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 as a result the increase in pre- tax income for the year . the effective tax rate for the year ended december 31 , 2019 was 33.8 % compared to 39.7 % in the prior year comparable period . this decrease is attributable to a decrease in deferred state income taxes associated with new jersey state income tax rate reductions . liquidity and capital resources we measure liquidity in terms of our ability to fund the cash requirements of our business operations , including working capital and capital expenditure needs , contractual obligations and other commitments , with cash flows from operations and other sources of funding . our current working capital needs relate mainly to launching our igaming and sports wagering product offerings in new markets , as well as compensation and benefits for our employees . our ability to expand and grow our business will depend on many factors , including working capital needs and the evolution of our operating cash flows . in the next twelve months , we expect to spend approximately $ 25.0 million in licensing and market access fees to expand operations to pennsylvania , west virginia , illinois , virginia and other states . we also expect to incur losses in these new markets as we grow our business of an additional $ 30.0 million to $ 40.0 million in the next twelve months . we expect to become profitable in these new markets by the end of the third year of operations . 51 further expansion into new markets will likely require additional capital either from affiliates or third parties and based on our financial performance , we believe we will have access to that capital . the future economic environment , however , could limit our ability to raise capital by issuing new equity or debt securities on acceptable terms or at all , and lenders may be unwilling to lend funds on acceptable terms or at all in the amounts that would be required to supplement cash flows to support our expansion plans . the sale of additional equity investments or convertible debt securities would result in dilution to our stockholders and may not be available on favorable terms or at all , particularly in light of the current conditions in the financial and credit markets . additional debt would result in increased expenses and would likely impose new restrictive covenants which may be similar or different than those restrictions contained in the covenants under our current credit agreement . our liquidity is subject to various risks including the risks identified in “ risk factors ” of this annual report . immediately following the acquisition transaction , we had $ 80.0 million in cash . pursuant to the redemption of our public warrants that closed on march 8 , 2021 , we raised an additional $ 110.2 million and issued 9.6 million additional shares of our class a common stock . capital expenditures have historically not been significant uses of cash and are not expected to be going forward . credit agreement . we are party to the credit agreement by and among lf llc , as parent , us , as borrower , the lenders from time-to-time party thereto ( “ lenders ” ) , and jefferies finance llc , as agent for the lenders ( “ agent ” ) . the credit agreement provides for senior secured term loans in the aggregate amount of $ 300.0 million . after giving effect to the acquisition transaction , including the debt repayment , the aggregate principal amount of indebtedness under the credit agreement is $ 150.0 million . as of the closing of the acquisition transaction , the outstanding senior secured term loans under the credit agreement are set to mature on october 4 , 2023. all outstanding term loans bear interest on the daily balance thereof , at our option , at either ( 1 ) an adjusted libor or ( 2 ) a base rate , in each case plus an applicable margin . the applicable margin is 12.0 % with respect to libor loans and 11.0 % with respect to base rate loans . following the closing of the acquisition transaction , a portion of the amount payable on the outstanding term loans will be provided by payments made by lf llc to gnog llc under the second a & r intercompany note , which as of closing , will require payments in an amount equal to six percent ( 6 % ) per annum on the outstanding principal balance of the second a & r intercompany note , payable on a quarterly basis as provided for therein in return for additional class b common stock and holdco class b units . none of such payments will reduce the principal balance on the second a & r intercompany note , rather such payments , and the related equity issuances , are treated as capital transactions for accounting purposes . on december 31 , 2020 , the company agreed that it would , in lieu of lf llc , pay the required interest payment of $ 2.3 million to gnog llc due on such date under the second a & r intercompany note . as a result of the company making such payment , no shares of class b common stock or holdco class b units were issued to lf llc under the holdco llc agreement . the credit agreement was amended on june 12 , 2020 and june 29 , 2020 to amend certain provisions to permit our subsidiary gnog holdco and lf llc to enter into the purchase agreement and consummate the acquisition transaction including , but not limited to , amendments to permit the formation of gnog holdco , the merger of gnog inc. into gnog llc , and the sale by lf llc of the equity in gnog holdco . outlook .
| results of operations replace_table_token_0_th year ended december 31 , 2020 compared to year ended december 31 , 2019 revenues . gaming . gaming revenues increased $ 32.2 million , or 67.6 % , to $ 79.9 million from $ 47.7 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the increase was primarily the result of higher table game and slot revenue during the current year period resulting from an increase in new patrons using online gaming in light of the casino closures stemming from the outbreak of covid-19 . other . other revenues increased $ 3.5 million , or 45.0 % , to $ 11.2 million from $ 7.7 million for the year ended december 31 , 2020 compared to the comparable prior year period . market access and live dealer studio broadcast revenues increased $ 2.9 million , or 48.3 % , as royalties with existing partners increased and the addition of a new partner when compared to the prior year period . reimbursable revenues under these arrangements also increased by $ 0.6 million , or 34.2 % . operating costs and expenses . labor . labor expense increased $ 1.9 million , or 27.1 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , primarily as a result of the addition of more dealers in our live dealer studio and an increase in bonus expense . gaming taxes . gaming taxes increased $ 7.3 million , or 72.6 % , for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 as a direct result of the increase in gaming revenue for the period . royalty and licenses fees .
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the company does not amortize goodwill but evaluates goodwill for impairment on an annual basis or more frequently if events or circumstances occur that would indicate a reduction in fair value of the company . such indicators include , but are not limited to , events or circumstances such as a significant adverse change in the business climate , unanticipated story_separator_special_tag disclosure regarding private securities litigation reform act of 1995 this report contains certain forward-looking statements with respect to our future performance that involve risks and uncertainties . various factors could cause actual results to differ materially from those projected in such statements . these factors include , but are not limited to : concentration of sales to certain customers , changes in our relationship with any of our major customers , the increasing customer pressure for lower prices and more favorable payment and other terms , the increasing demands on our working capital , the significant strain on working capital associated with large remanufactured core inventory purchases from customers , our ability to obtain any additional financing we may seek or require , our ability to achieve positive cash flows from operations , potential future changes in our previously reported results as a result of the identification and correction of errors in our accounting policies or procedures or the potential material weaknesses in our internal controls over financial reporting , lower revenues than anticipated from new and existing contracts , our failure to meet the financial covenants or the other obligations set forth in our bank credit agreement and the bank 's refusal to waive any such defaults , any meaningful difference between projected production needs and ultimate sales to our customers , increases in interest rates , changes in the financial condition of any of our major customers , the impact of high gasoline prices , the potential for changes in consumer spending , consumer preferences and general economic conditions , increased competition in the automotive parts industry , including increased competition from chinese and other offshore manufacturers , difficulty in obtaining used cores and component parts or increases in the costs of those parts , political , criminal or economic instability in any of the foreign countries where we conduct operations , currency exchange fluctuations , unforeseen increases in operating costs and other factors discussed herein and in our other filings with the sec . management overview the aftermarket for automobile parts is divided into two markets . the first market is the do-it-yourself ( “ diy ” ) market , which is generally serviced by the large retail chain outlets . consumers who purchase parts from the diy channel generally install parts into their vehicles themselves . in most cases , this is a cheaper alternative than having the repair performed by a professional installer . the second market is the professional installer market , commonly known as the do-it-for-me ( “ difm ” ) market . this market is serviced by the retail chains , traditional warehouse distributors and the dealer networks . generally , the consumer in this channel is a professional parts installer . we remanufacture and produce new alternators and starters for import and domestic cars , light trucks , heavy duty , agricultural and industrial applications . these products are distributed to both the diy and difm markets . our products are distributed predominantly throughout the united states and canada . our products are sold to the largest auto parts retail chains in the united states and canada , including advance , autozone , genuine parts ( napa ) , o'reilly automotive and pep boys . in addition , our products are sold to various traditional warehouses for the professional installers , and to major automobile manufacturers for both their aftermarket programs and their warranty replacement programs ( “ oes ” ) . auto parts retail chains in total , currently account for approximately 36 % of the north american after-market for remanufactured alternators and starters . demand and replacement rates for after-market remanufactured alternators and starters generally increase with increases in miles driven and the age of vehicles . according to industry statistics , both the average age of vehicles on the road and miles driven in north america have increased during fiscal 2011 as compared to fiscal 2010. we have coverage for almost every alternator and starter used by any automobile light and heavy duty truck as well as most industrial and agricultural vehicles or equipment . we have warehousing strategically located around north america and in mexico to allow us to be able to complete distribution to almost any customer in north america . while we continually seek to diversify our customer base , we currently derive , and have historically derived , a substantial portion of our sales from a small number of large customers . during fiscal 2011 , sales to our four largest customers constituted approximately 81 % of our net sales . to mitigate the risk associated with this concentration of sales , we have increasingly sought to enter into longer-term customer agreements with our major customers . these longer-term agreements typically require us to commit a significant amount of our working capital to build inventory and increase production . in addition , they typically include marketing and other allowances that adversely impact near-term revenue . such agreements with new customers may also require us to incur certain changeover expenses . 17 during fiscal 2011 , we made secured loans in the approximate aggregate amount of $ 4,863,000 to fenwick automotive products limited ( “ fenco ” ) , a privately-owned toronto-based manufacturer , remanufacturer and distributor of new and remanufactured aftermarket auto parts . in connection with these loans , we had an option to acquire a substantial ownership interest in fenco . in may 2011 , pursuant to a purchase agreement with fapl holdings inc. ( “ fapl ” ) , fenco 's parent company , and certain other individuals , we acquired all of the outstanding equity of fapl 's subsidiaries . story_separator_special_tag inventory unreturned is valued in the same manner as our finished goods inventory . long-term core inventory long-term core inventory consists of : used cores purchased from core brokers and held in inventory at our facilities , used cores returned by our customers and held in inventory at our facilities , used cores returned by end-users to customers but not yet returned to us are classified as remanufactured cores until they are physically received by us , remanufactured cores held in finished goods inventory at our facilities ; and 19 remanufactured cores held at customer locations as a part of the finished goods sold to the customer . for these remanufactured cores , we expect the finished good containing the remanufactured core to be returned under our general right of return policy or a similar used core to be returned to us by the customer , in each case , for credit . long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand . the cost and market value of used cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arms length transactions . long-term core inventory recorded at average historical purchase prices is primarily made up of used cores for newer products related to more recent automobile models or products for which there is a less liquid market . we must purchase these used cores from core brokers because our customers do not have a sufficient supply of these newer used cores available for the core exchange program . approximately 15 % to 20 % of used cores are obtained in core broker transactions and are valued based on average purchase price . the average purchase price of used cores for more recent automobile models is retained as the cost for these used cores in subsequent periods even as the source of these used cores shifts to our core exchange program . long-term core inventory is recorded at the lower of cost or market value . in the absence of sufficient recent purchases , we use core broker price lists to assess whether used core cost exceeds used core market value on an item by item basis . the primary reason for the insufficient recent purchases is that we obtain most of our used core inventory from the customer core exchange program . we classify all of our core inventories as long-term assets . the determination of the long-term classification is based on our view that the value of the cores is not consumed or realized in cash during our normal operating cycle , which is one year for most of the cores recorded in inventory . according to guidance provided under the fasb asc , current assets are defined as “ assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. ” we do not believe that core inventories , which we classify as long-term , are consumed because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect the core inventories to be consumed , and thus we do not expect to realize cash , until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . however , historically for approximately 4.5 % of finished goods sold , our customer will not send us a used core to obtain the credit we offer under our core exchange program . therefore , based on our historical estimate , we derecognize the core value for these finished goods upon sale , as we believe they have been consumed and we have realized cash . we realize cash for only the core exchange program shortfall of approximately 4.5 % . this shortfall represents the historical difference between the number of finished goods shipped to customers and the number of used cores returned to us by customers . we do not realize cash for the remaining portion of the cores because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect to realize cash for the remaining portion of these cores until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . for these reasons , we concluded that it is more appropriate to classify core inventory as long-term assets . long-term core inventory deposit the long-term core inventory deposit account represents the value of remanufactured cores we have purchased from customers , which are held by the customers and remain on the customers ' premises . the purchase is made through the issuance of credits against that customer 's receivables either on a one time basis or over an agreed-upon period . the credits against the customer 's receivable are based upon the remanufactured core purchase price previously established with the customer . at the same time , we record the long-term core inventory deposit for the remanufactured cores purchased at its cost , determined as noted under long-term core inventory . the long-term core inventory deposit is stated at the lower of cost or market . the cost is established at the time of the transaction based on the then current cost , determined as noted under long-term core inventory . the difference between the credit granted and the cost of the long-term core inventory deposit is treated as a sales allowance reducing revenue . when the purchases are made over an agreed-upon period , the long-term core inventory deposit is recorded at the same time the credit is issued to the customer for the purchase of the remanufactured cores .
| results of operations the following table summarizes certain key operating data for the periods indicated : replace_table_token_3_th ( 1 ) finished goods inventory turnover is calculated by dividing the cost of goods sold for the year by the average between beginning and ending non-core finished goods inventory values , for each fiscal year . we believe that this provides a useful measure of our ability to turn production into revenues . ( 2 ) return on equity is computed as net income for the fiscal year divided by shareholders ' equity at the beginning of the fiscal year and measures our ability to invest shareholders ' funds profitably . 26 following is our results of operation , reflected as a percentage of net sales : replace_table_token_4_th fiscal 2011 compared to fiscal 2010 net sales . net sales during fiscal 2011 increased by $ 14,060,000 , or 9.6 % , to $ 161,285,000 compared to net sales during fiscal 2010 of $ 147,225,000. the increase in our net sales was primarily due to increased sales to our existing and several new customers we acquired during fiscal 2011. in addition , our fiscal 2011 net sales reflect the full year impact of net sales to customers we acquired as a result of our august 2009 acquistion . also , we recorded revenue , net of cost , of $ 378,000 in connection with our consignment agreement . cost of goods sold/gross profit . cost of goods sold as a percentage of net sales decreased during fiscal 2011 to 68.1 % from 71.9 % in fiscal 2010 , resulting in a corresponding increase in our gross profit percentage of 3.8 % to 31.9 % during fiscal 2011 from 28.1 % during fiscal 2010. the increase in the gross profit percentage was primarily due to lower per unit manufacturing costs during fiscal 2011 as compared to fiscal 2010. general and administrative .
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revenues in 2020 , lease revenue decreased $ 30.0 million , or 3.5 % , a result of fewer railcars and locomotives on lease , lower lease rates , and lower boxcar revenue . other revenue decreased $ 0.4 million , due to lower lease termination fees , offset by higher repair revenue . in 2019 , lease revenue decreased $ 5.1 million , or 0.6 % . the decrease was due to lower lease rates , higher rental abatement attributable to more railcars in the maintenance network , and fewer locomotives on lease in 2019 , partially offset by more railcars on lease . other revenue increased $ 28.1 million , due to higher repair revenue and higher lease termination fees in 2019. expenses in 2020 , maintenance expense decreased $ 3.2 million . the decrease resulted primarily from fewer repairs performed by the railroads on gatx-owned railcars and lower volumes of repairs on boxcars at third-party shops . depreciation expense increased $ 1.7 million due to the timing of new railcar investments and dispositions . operating lease expense decreased $ 5.1 million , resulting from the purchase of railcars previously on operating leases . other operating expense increased $ 3.4 million , due to higher switching , freight , and storage costs . 32 in 2019 , maintenance expense increased $ 13.2 million , driven by more tank qualifications in 2019 , as expected , as well as more repairs performed by the railroads on gatx-owned railcars . depreciation expense increased $ 8.4 million due to new railcar investments , including the railcars acquired from ecn capital corporation in 2018. operating lease expense increased $ 4.8 million , primarily a result of the elimination of deferred gain amortization for sale-leaseback transactions in accordance with the new lease accounting standard adopted in 2019. other operating expense decreased $ 3.4 million , primarily due to lower switching , storage , and freight costs . other income ( expense ) in 2020 , net gain on asset dispositions decreased $ 16.3 million , due to fewer railcars sold , partially offset by lower net scrapping losses . the amount and timing of disposition gains is dependent on a number of factors and will vary from year to year . net interest expense increased $ 5.4 million , primarily driven by a higher average debt balance and a higher average interest rate . in 2019 , net gain on asset dispositions decreased $ 21.7 million , resulting from lower asset remarketing gains and lower net scrapping gains . net scrapping gains were lower in 2019 due to certain railcars and locomotives scrapped at a loss , as well as lower scrap prices per ton . see `` note 25. financial data of business segments '' in part ii , item 8 of this form 10-k , for further details of the components of net gain on asset dispositions . net interest expense increased $ 9.3 million , driven by a higher average debt balance and a higher average interest rate . investment volume during 2020 , investment volume was $ 642.0 million compared to $ 502.2 million in 2019 , and $ 737.4 million in 2018. we acquired 5,103 railcars in 2020 , compared to 3,225 railcars in 2019 , and 7,489 railcars , including 2,832 railcars purchased as part of the ecn capital corporation transaction , in 2018. our investment volume is predominantly composed of acquired railcars , but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities . as a result , the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period . in addition , the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased , which may include tank cars and freight cars , as well as newly manufactured railcars or those purchased in the secondary market . rail international segment summary rail international , composed primarily of gatx rail europe ( `` gre '' ) , produced strong operating results in 2020. demand for railcars in europe remained relatively stable during the year , and renewal rates for most car types increased slightly . covid-19 did not have a material impact on gre 's financial results in 2020. however , gre experienced delays in new railcar investments throughout the year due to covid-19 related interruptions at railcar manufacturing facilities . although gre received lease restructuring requests from certain customers during the year , requests dissipated in the second half of the year , and requests that were approved did not have a significant impact on gre 's financial results . gre expects ongoing pressure on future railcar utilization and lease rates , the magnitude and duration of which are still uncertain . in 2018 , gre recorded $ 9.5 million of expenses attributable to the closure of a railcar maintenance facility in germany . our rail operations in india ( `` gri '' ) continued to focus on investment opportunities , diversification of its fleet , and developing relationships with customers , suppliers and the indian railways . while covid-19 did not have a material impact on gri 's financial results in 2020 , gri did experience delays in new railcar investments due to covid-19 related interruptions at railcar manufacturing facilities . gri expects continued fleet growth and diversification in 2021. during 2020 , our rail operations in russia ( `` rail russia '' ) focused on managing its existing fleet , which consisted of 380 railcars , and maintaining strong relationships with its customer base . 33 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_11_th gre fleet data at december 31 , 2020 , gre 's wholly owned fleet consisted of approximately 26,300 cars . fleet utilization was 98.1 % at the end of 2020 , story_separator_special_tag revenues in 2020 , lease revenue decreased $ 30.0 million , or 3.5 % , a result of fewer railcars and locomotives on lease , lower lease rates , and lower boxcar revenue . other revenue decreased $ 0.4 million , due to lower lease termination fees , offset by higher repair revenue . in 2019 , lease revenue decreased $ 5.1 million , or 0.6 % . the decrease was due to lower lease rates , higher rental abatement attributable to more railcars in the maintenance network , and fewer locomotives on lease in 2019 , partially offset by more railcars on lease . other revenue increased $ 28.1 million , due to higher repair revenue and higher lease termination fees in 2019. expenses in 2020 , maintenance expense decreased $ 3.2 million . the decrease resulted primarily from fewer repairs performed by the railroads on gatx-owned railcars and lower volumes of repairs on boxcars at third-party shops . depreciation expense increased $ 1.7 million due to the timing of new railcar investments and dispositions . operating lease expense decreased $ 5.1 million , resulting from the purchase of railcars previously on operating leases . other operating expense increased $ 3.4 million , due to higher switching , freight , and storage costs . 32 in 2019 , maintenance expense increased $ 13.2 million , driven by more tank qualifications in 2019 , as expected , as well as more repairs performed by the railroads on gatx-owned railcars . depreciation expense increased $ 8.4 million due to new railcar investments , including the railcars acquired from ecn capital corporation in 2018. operating lease expense increased $ 4.8 million , primarily a result of the elimination of deferred gain amortization for sale-leaseback transactions in accordance with the new lease accounting standard adopted in 2019. other operating expense decreased $ 3.4 million , primarily due to lower switching , storage , and freight costs . other income ( expense ) in 2020 , net gain on asset dispositions decreased $ 16.3 million , due to fewer railcars sold , partially offset by lower net scrapping losses . the amount and timing of disposition gains is dependent on a number of factors and will vary from year to year . net interest expense increased $ 5.4 million , primarily driven by a higher average debt balance and a higher average interest rate . in 2019 , net gain on asset dispositions decreased $ 21.7 million , resulting from lower asset remarketing gains and lower net scrapping gains . net scrapping gains were lower in 2019 due to certain railcars and locomotives scrapped at a loss , as well as lower scrap prices per ton . see `` note 25. financial data of business segments '' in part ii , item 8 of this form 10-k , for further details of the components of net gain on asset dispositions . net interest expense increased $ 9.3 million , driven by a higher average debt balance and a higher average interest rate . investment volume during 2020 , investment volume was $ 642.0 million compared to $ 502.2 million in 2019 , and $ 737.4 million in 2018. we acquired 5,103 railcars in 2020 , compared to 3,225 railcars in 2019 , and 7,489 railcars , including 2,832 railcars purchased as part of the ecn capital corporation transaction , in 2018. our investment volume is predominantly composed of acquired railcars , but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities . as a result , the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period . in addition , the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased , which may include tank cars and freight cars , as well as newly manufactured railcars or those purchased in the secondary market . rail international segment summary rail international , composed primarily of gatx rail europe ( `` gre '' ) , produced strong operating results in 2020. demand for railcars in europe remained relatively stable during the year , and renewal rates for most car types increased slightly . covid-19 did not have a material impact on gre 's financial results in 2020. however , gre experienced delays in new railcar investments throughout the year due to covid-19 related interruptions at railcar manufacturing facilities . although gre received lease restructuring requests from certain customers during the year , requests dissipated in the second half of the year , and requests that were approved did not have a significant impact on gre 's financial results . gre expects ongoing pressure on future railcar utilization and lease rates , the magnitude and duration of which are still uncertain . in 2018 , gre recorded $ 9.5 million of expenses attributable to the closure of a railcar maintenance facility in germany . our rail operations in india ( `` gri '' ) continued to focus on investment opportunities , diversification of its fleet , and developing relationships with customers , suppliers and the indian railways . while covid-19 did not have a material impact on gri 's financial results in 2020 , gri did experience delays in new railcar investments due to covid-19 related interruptions at railcar manufacturing facilities . gri expects continued fleet growth and diversification in 2021. during 2020 , our rail operations in russia ( `` rail russia '' ) focused on managing its existing fleet , which consisted of 380 railcars , and maintaining strong relationships with its customer base . 33 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_11_th gre fleet data at december 31 , 2020 , gre 's wholly owned fleet consisted of approximately 26,300 cars . fleet utilization was 98.1 % at the end of 2020 ,
| comparison of reported results in 2020 , net loss from discontinued operations , net o f taxes , was $ 2.2 million , co mpared to net income of $ 30.4 million in 2019. the variance was driven by the timing of the sale of the asc business in the second quarter of 2020. the net casualty gain recorded in 2019 , noted above , also contributed to the variance . in 2019 , net income from discontinued operations , net of taxes , was $ 30.4 million , compared to net income of $ 20.8 million in 2018. the variance was driven by the net casualty gain recorded in 2019 , noted above , as well as favorable operating conditions and more efficient fleet performance in 2019. balance sheet discussion assets total assets were $ 8.9 billion at december 31 , 2020 , compared to $ 8.3 billion at december 31 , 2019. the increase in total assets was primarily driven by an increase in operating assets at rail north america and rail international , the trifleet acquisition at other and higher investment in the rrpf affiliates , partially offset by a decrease resulting from the sale of asc . 41 the following table shows total balance sheet assets by segment as of december 31 ( in millions ) : replace_table_token_19_th gross receivables receivables of $ 148.7 million at december 31 , 2020 decreased $ 7.5 million from december 31 , 2019 , primarily due to the timing of payments by customers . allowance for losses as of december 31 , 2020 , allowance for losses totaled $ 6.5 million , or 8.7 % of rent and other receivables , compared to $ 6.2 million , or 9.4 % , at december 31 , 2019. both balances related entirely to general allowances . see `` note 19. allowance for losses '' in part ii , item 8 of this form 10-k. operating assets and facilities net operating assets and facilities increased $ 713.4 million from 2019.
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you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements for the fifty-two weeks ended december 31 , 2017 , january 1 , 2017 and january 3 , 2016 included in this annual report on form 10-k. some of the information contained in this discussion and analysis include forward-looking statements . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below as well as in other sections of this annual report on form 10-k , particularly in “ business , ” “ risk factors ” and “ special note regarding forward-looking statements. ” we make no guarantees regarding outcomes , and assume no obligation to update the forward-looking statements herein , except as may be required by law . basis of presentation the company 's policy is that fiscal years end on the sunday closest to the end of the calendar year end . our 2017 fiscal year ended on december 31 , 2017 , the 2016 fiscal year ended on january 1 , 2017 , and our 2015 fiscal year ended on january 3 , 2016 . the company 's operations are classified in one reportable business segment . although we have expanded the products that we manufacture and sell to include components used in the appliance , hvac and water heater industries , products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries . all of our manufacturing locations have similar capabilities , and most plants serve multiple markets . the manufacturing operations for our automotive , appliance , hvac and water heater products share management and labor forces and use common personnel and strategies for new product development , marketing and the sourcing of raw materials . we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ” ; and disclose certain executive compensation and related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years from our initial public offering , or until the earliest to occur of ( 1 ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1.0 billion , ( 2 ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter or ( 3 ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three year period . story_separator_special_tag as such , the company will move existing port huron production to our manufacturing facilities in london , ontario , auburn hills , michigan , and louisville , kentucky . the company will provide the affected employees severance pay , health benefits continuation and job search assistance . the company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as the closing did not represent a strategic shift in the company 's operations and the company will have continuing cash flows from the production being moved to other facilities within the company . the company currently estimates that it will incur approximately $ 0.1 million in employee termination costs . at this time , the company estimates the ranges of amounts of other major types of costs expected to be incurred in connection with the closure to be approximately $ 0.1 million to $ 0.2 million . tax cut and jobs act on december 22 , 2017 the tax cuts and jobs act ( the “ act ” ) was signed into law . the act changed many aspects of u.s. corporate income taxation and included the reduction of the corporate income tax rate from 35 % to 21 % . the act also included implementation of a territorial system and imposition of a one-time tax on deemed repatriated earnings of foreign subsidiaries . story_separator_special_tag acquisition of great lakes on august 31 , 2015 , the company acquired the business and substantially all of the assets of great lakes foam technologies , inc. ( “ great lakes ” ) , a michigan based polyurethane manufacturer , for total net cash consideration of $ 11.95 million , with a portion being held in escrow to fund the obligations of great lakes and for its stockholders to indemnify unique against certain claims , losses and liabilities . great lakes manufactures components for application in a wide range of end-markets including the automotive , off-road vehicles , industrial equipment , medical and office equipment industries . great lakes is engaged in the manufacture of components from molded polyurethane , including components for automotive applications , industrial equipment , off-road vehicles , office furniture , medical applications and packaging . the company believes that the acquisition will augment its existing product offerings and potentially enable it to access new customers and increase sales to certain of its existing customers . murfreesboro facility closure on october 27 , 2015 , the company announced its intention to close its manufacturing facility in murfreesboro , tennessee . the company ceased operations at the murfreesboro facility in january of 2016. approximately 30 positions were eliminated as a result of the closing . the company 's decision resulted from the tight labor market in murfreesboro and the struggle to staff production levels to meet the ongoing growth strategy for the products manufactured at the plant . the company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as the closing did not represent a strategic shift in the company 's operations and the company will have continuing cash flows from the production being moved to other facilities within the company . the company provided employees severance pay , health benefits continuation and job search assistance . the company incurred approximately $ 0.1 million in one-time employee termination costs and $ 0.3 million in other costs related to the closure , which primarily consists of moving existing production equipment from murfreesboro to other company facilities . the expenses were recorded to the restructuring expense line in continuing operations in the company 's statement of operations.the building qualified as held for sale , and was presented properly as such in the consolidated balance sheet as a current asset . on october 31 , 2016 , the company sold the building and received net proceeds from the sale of $ 2.18 million resulting in a gain on the sale of $ 0.15 million . comparison of results of operations for the fifty-two weeks ended december 31 , 2017 and the fifty-two weeks ended january 1 , 2017 in 2016 , we acquired substantially all of the assets of intasco corporation , a canadian based tape manufacturer , for a purchase price of $ 21.03 million , net of cash acquired , at closing , with a portion being held in escrow to fund the obligations of intasco corporation and its stockholders to indemnify unique against certain claims , losses and liabilities . on the same date , we purchased 100 % of the outstanding capital stock of its u.s. subsidiary , intasco usa , inc. , a united states based tape manufacturer , for a purchase price of $ 0.89 million paid by the issuance of 70,797 shares of the company 's common stock , par value $ 0.001 per share . the purchase price was paid with borrowings under a new credit facility which replaced the company 's existing facility . for the fifty-two weeks ended december 31 , 2017 , our financial results include the intasco business for the entire period . for the fifty-two weeks ended january 1 , 2017 , our financial results include the transaction 30 related expenses from the acquisition and the results of operations of the intasco business from apri1 29 , 2016 through january 1 , 2017 . fifty-two weeks ended december 31 , 2017 and fifty-two weeks ended january 1 , 2017 net sales fifty-two weeks ended december 31 , 2017 fifty-two weeks ended january 1 , 2017 ( in thousands ) net sales $ 175,288 $ 170,463 net sales for the fifty-two weeks ended december 31 , 2017 were approximately $ 175.29 million compared to $ 170.46 million for the fifty-two weeks ended january 1 , 2017 . the increase in net sales for the fifty-two weeks ended december 31 , 2017 is attributable to our increased market penetration and content per vehicle and new product introductions , as well as a full 52 weeks of sales from the intasco business . the acquisition occurred on april 29 , 2016 , and therefore only 35 weeks of intasco sales are included for the fifty-two weeks ended january 1 , 2017 . this growth was partially offset by an approximately 4 % overall decline in north american vehicle production during the fifty-two weeks ended december 31 , 2017 period as compared to production during the fifty-two weeks ended january 1 , 2017 . cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . replace_table_token_3_th cost of sales as a percent of net sales replace_table_token_4_th cost of sales as a percentage of net sales for the fifty-two weeks ended december 31 , 2017 increased to 77.2 % from 76.8 % for the fifty-two weeks ended january 1 , 2017 . the increase in cost of sales as a percentage of net sales was attributable to higher direct labor and benefits and manufacturing overhead as a percentage of net sales , partially offset by lower material costs as a percentage of net sales .
| overview unique is engaged in the engineering and manufacture of multi-material foam , rubber and plastic components utilized in noise , vibration and harshness , acoustical management , water and air sealing , decorative and other functional applications . the 27 company combines a long history of organic growth with some more recent strategic acquisitions to diversify both product capabilities and markets served . unique 's markets served are the north america automotive and heavy duty truck , as well as the appliance , water heater and hvac markets . sales are conducted directly with major automotive and heavy duty truck , appliance , water heater and hvac oems , or indirectly through the tier 1 suppliers of these oems . the company has its principal executive offices in auburn hills , michigan and has sales , engineering and production facilities in auburn hills , michigan , concord , michigan , lafayette , georgia , louisville , kentucky , evansville , indiana , ft. smith , arkansas , bryan , ohio , port huron , michigan , monterrey , mexico , queretaro , mexico and london , ontario . the company also has an independent client sales representative who maintains offices in baldham , germany . subsequent to the 2017 fiscal year-end we announced we will be closing the ft. smith and port huron facilities in 2018. please refer to note 8 for further information . unique derives the majority of its net sales from the sales of foam , rubber plastic , and tape adhesive related automotive products . these products are produced from a variety of manufacturing processes including die cutting , compression molding , thermoforming , reaction injection molding , and fusion molding . we believe unique has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings .
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we serve both u.s. and international customers with products and services that have defense , civil and commercial applications , with our principal customers being agencies of the u.s. government . in 2016 , 71 % of our $ 47.2 billion in net sales were from the u.s. government , either as a prime contractor or as a subcontractor ( including 59 % from the department of defense ( dod ) ) , 27 % were from international customers ( including foreign military sales ( fms ) contracted through the u.s. government ) and 2 % were from u.s. commercial and other customers . our main areas of focus are in defense , space , intelligence , homeland security and information technology , including cybersecurity . we operate in four business segments : aeronautics , missiles and fire control ( mfc ) , rotary and mission systems ( rms ) and space systems . we organize our business segments based on the nature of products and services offered . we operate in an environment characterized by both increasing complexity in global security and continuing economic pressures in the u.s. and globally . a significant component of our strategy in this environment is to focus on program execution , improving the quality and predictability of the delivery of our products and services and placing security capability quickly into the hands of our u.s. and international customers at affordable prices . recognizing that our customers are resource constrained , we are endeavoring to develop and extend our portfolio domestically in a disciplined manner with a focus on adjacent markets close to our core capabilities , as well as growing our international sales . we continue to focus on affordability initiatives . we also expect to continue to invest in technologies to fulfill new mission requirements for our customers and invest in our people so that we have the technical skills necessary to succeed without limiting our ability to return substantially all of our free cash flow 1 to our investors in the form of dividends and share repurchases . we expect 2017 net sales will increase in the mid-single digit range from 2016 levels . the projected growth is driven by increased production and sustainment volume on the f-35 program at aeronautics as well as increased volume at mfc and rms , partially offset by decreased volume at space systems . operating profit margin is expected to decline from 2016 levels primarily driven by higher volume on the f-35 program , which is dilutive to our overall profit margin , contract mix at mfc , lower awe management limited ( awe ) earnings as a result of the non-cash gain recognized in 2016 related the consolidation of awe , amortization of awe intangible assets in 2017 and lower equity earnings at space systems . accordingly , we expect 2017 segment operating profit margin will decline from our 2016 margin to just above 10 % . our outlook for 2017 assumes the u.s. government continues to support and fund our key programs , consistent with the government fiscal year ( gfy ) 2017 budget . changes in circumstances may require us to revise our assumptions , which could materially change our current estimate of 2017 net sales and operating profit margin . for additional information related to trends in net sales and operating profit at our business segments , see the business segment results of operations discussion below . we expect the 2017 fas/cas pension adjustment to be approximately $ 880 million , which incorporates a year end 2016 discount rate of 4.125 % , a 25 basis point decrease from the end of 2015 ; an actual investment return during 2016 of approximately 5.0 % ; a 50 basis point reduction in our long-term rate of return assumption from 8.00 % to 7.50 % ; and the revised longevity assumptions released on october 20 , 2016 by the society of actuaries . we do not expect to make contributions to our legacy qualified defined benefit pension plans in 2017. portfolio shaping activities we continuously strive to strengthen our portfolio of products and services to meet the current and future needs of our customers . we accomplish this in part by our independent research and development activities and through acquisition , divestiture and internal realignment activities . we selectively pursue the acquisition of businesses and investments at attractive valuations that will expand or complement our current portfolio and allow access to new customers or technologies . we also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization . in pursuing our business strategy , we routinely conduct discussions , evaluate targets and enter into agreements regarding possible acquisitions , divestitures , ventures and equity investments . 1 we define free cash flow as cash from operations as determined under u.s. generally accepted accounting principles ( gaap ) , less capital expenditures as presented on our consolidated statements of cash flows . 27 business developments acquisition of sikorsky aircraft corporation on november 6 , 2015 , pursuant to a stock purchase agreement , dated as of july 19 , 2015 by and between us and united technologies corporation ( utc ) and certain wholly-owned subsidiaries of utc , we completed the acquisition of sikorsky aircraft corporation ( sikorsky ) for $ 9.0 billion , net of cash acquired . sikorsky , a global company primarily engaged in the design , manufacture , service and support of military and commercial helicopters , has become a wholly-owned subsidiary of ours , aligned under the rms business segment . we funded the acquisition with new debt issuances , commercial paper and cash on hand . we and utc made a joint election under section 338 ( h ) ( 10 ) of the internal revenue code , which treats the transaction as an asset purchase for tax purposes . story_separator_special_tag additionally , we paid $ 898 million during 2014 for acquisitions of businesses and investments in affiliates , net of cash acquired , primarily related to the following acquisitions : systems made simple a provider of health information technology solutions , which was included in our divesture of the is & gs business ; zeta associates , inc. a designer of systems that enable collection , processing , safeguarding and dissemination of information for intelligence and defense communities , which is included in our space systems business segment ; and industrial defender a provider of cybersecurity solutions for control systems in the oil and gas , utility and chemical industries , which was included in our divesture of the is & gs business . for additional information , see note 3 acquisitions and divestitures included in our notes to consolidated financial statements . industry considerations u.s. government funding constraints the u.s. government has not yet passed an annual budget for government fiscal year ( gfy ) 2017. accordingly , the u.s. government is currently operating under a continuing resolution funding measure through april 28 , 2017. under this continuing resolution , partial-year funding at amounts consistent with appropriated levels for fiscal year 2016 are available , subject to certain restrictions , however , new spending initiatives are not authorized . our key programs continue to be supported and funded despite the continuing resolution financing mechanism . however , during periods covered by continuing resolutions , or until regular annual appropriation bills are passed , we may experience delays in procurement of products and services due to lack of funding and those delays may affect our results of operations , financial position and cash flows . during 2016 , president obama 's administration and both houses of congress proposed budget plans for gfy 2017 that were broadly divergent in how they would be implemented , but set overall national defense spending limits at amounts consistent with the current limit imposed by the bipartisan budget act of 2015. significant differences remain in the various proposed budgets ' funding sources and the potential use of overseas continuing operations funds for additional dod-based budget . while we can not predict budget resolution timing , we are hopeful that congressional deliberations can be concluded as soon as possible . a substantial delay would require an extension of the continuing resolution to enable continuation of government operations beyond april 28 , 2017. while we think it is unlikely , a continuing resolution and its associated budget constraints could be extended for the full 2017 fiscal year should the varying budget positions remain unresolved . in the event of a full year continuing resolution , we would anticipate some level of impact against our 2017 orders and associated backlog level , but minimal impact to sales , earnings and cash flows in 2017 as a large portion of our backlog work is already funded from prior fiscal years , or we could face a government shutdown of unknown duration . we anticipate there will continue to be a significant amount of debate and negotiations within the u.s. government over defense spending for gfy 2017 and beyond . in the context of these negotiations , it is possible that existing cuts to government programs could be kept in place , replaced with different spending cuts , and or replaced with a package of broader reforms to reduce the federal deficit . however , we continue to believe that our portfolio of products and services will continue to be well supported in a strategically focused allocation of budget resources . international business a key component of our strategic plan is to grow our international sales . to accomplish this growth , we continue to focus on strengthening our relationships internationally through partnerships and joint technology efforts . we conduct business with international customers through each of our business segments . in our aeronautics business segment , there continues to be strong international interest in the f-35 program , which includes commitments from the u.s. government and eight international partner countries and three international customers , 29 as well as expressions of interest from other countries . the u.s. government and the eight partner countries continue to work together on the design , testing , production and sustainment of the f-35 . the international commitment to the program continues to grow . for example , denmark formally committed in 2016 to 27 f-35a variant aircraft . japan received its first f-35a variant and two f-35a variant aircraft arrived in israel . additionally in 2016 , aeronautics received an undefinitized contract modification to the low rate initial production ( lrip ) 10 advance acquisition contract , which included 35 international orders . other areas of international expansion at our aeronautics business segment include the f-16 and c-130j programs . aeronautics received a contract in 2016 with korea for f-16 upgrades , extending work beyond 2020. the c-130j super hercules aircraft continued to draw interest from various international customers , including contracts in 2016 from france and israel . our mfc business segment continues to generate significant international interest , most notably in the air and missile defense product line , which produces the patriot advanced capability-3 ( pac-3 ) and terminal high altitude area defense ( thaad ) systems . the pac-3 is an advanced missile defense system designed to intercept incoming airborne threats . during 2016 , we received orders for pac-3 systems from qatar , the republic of korea , the kingdom of saudi arabia , taiwan and the united arab emirates ( uae ) . thaad is an integrated system designed to protect against short- and intermediate-range ballistic missiles . uae is an international customer for thaad , and other countries in the middle east , europe and the asia-pacific region have also expressed interest in our air and missile defense systems . additionally , we continue to see international demand for our tactical missile and fire control products .
| consolidated results of operations since our operating cycle is primarily long term and involves many types of contracts for the design , development and manufacture of products and related activities with varying delivery schedules , the results of operations of a particular year , or year-to-year comparisons of sales and profits , may not be indicative of future operating results . the following discussions of comparative results among years should be reviewed in this context . all per share amounts cited in these discussions are presented on a per diluted share basis , unless otherwise noted . 31 our consolidated results of operations were as follows ( in millions , except per share data ) : replace_table_token_4_th ( a ) for the year ended december 31 , 2015 , operating profit includes $ 45 million of operating loss at sikorsky , which is less than 1 % of consolidated operating profit in 2015. sikorsky 's operating loss is net of intangible amortization and adjustments required to account for the acquisition of this business in the fourth quarter of 2015. certain amounts reported in other income , net , primarily our share of earnings or losses from equity method investees , are included in the operating profit of our business segments . accordingly , such amounts are included in our discussion of our business segment results of operations . net sales we generate sales from the delivery of products and services to our customers . product sales are predominantly generated in each of our business segments and most of our service sales are generated in our rms and aeronautics business segments . our consolidated net sales were as follows ( in millions ) : replace_table_token_5_th substantially all of our contracts are accounted for using the percentage-of-completion method .
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for a more detailed description of the risks affecting our financial condition and results of operations , see risk factors in item 1a of this form 10-k. executive summary business overview we are a commercial finance company that specializes in lending to the limited service hospitality industry . in general , both the commercial finance and hospitality industries experienced turbulence during the last several years . we believe the economic environment is complicated and risky and will continue to present challenges to us and our industry in the near future . we are primarily a commercial mortgage lender that originates loans to small businesses that are principally collateralized by first liens on the real estate of the related business . our outstanding loans are predominantly ( 93.5 % at december 31 , 2011 ) to borrowers in the hospitality industry . we are organized as a reit . our loan underwriting is consistent and , among other things , typically requires ( 1 ) significant equity investments by the borrower in the property , ( 2 ) personal guarantees from the borrower , ( 3 ) operating experience by the borrower and ( 4 ) evidence of adequate repayment ability . we do not originate any higher-risk loans such as option arm products , junior lien mortgages , high loan-to-value ratio mortgages , interest only loans , subprime loans or loans with initial teaser rates . we also do not originate any residential loans . our business of originating loans is affected by general commercial real estate fundamentals and the overall economic environment . we have designed our strategy to be flexible so that we can adjust our loan activities in anticipation of , and in reaction to , changes in the commercial real estate capital and property markets and the overall economy as well as changes to the specific characteristics of the underlying real estate assets that serve as collateral for the majority of our investments . we are focusing our origination efforts on sba 7 ( a ) program loans which require less capital due to the ability to sell the government guaranteed portion of such loans . we utilize the sba 7 ( a ) program to originate small business loans , primarily secured by real estate , and then sell the government guaranteed portion to investors . we believe that our commercial lending business has strong long-term fundamentals . however , due to prolonged recessionary economic conditions , we have experienced , and may continue to experience , the following : loan origination limitations due to the lack of availability of longer-term liquidity ; reduced operating margins due to lack of economies of scale ; limited access to capital , and if such capital is available , at increased costs ; an increase in modifications to loan terms and troubled debt restructurings ; an increase in foreclosure proceedings ; an increase in the holding periods related to reo with a corresponding increase in expenses related to these assets ; an increase in loan loss reserves and asset impairments ; and reduced cash available for distribution to shareholders , particularly as our portfolio yield was reduced by lower variable interest rates , scheduled maturities , prepayments and non-performing loans . we seek to position ourselves to be able to take advantage of opportunities once market conditions permit and to maximize shareholder value over time . to do this , we will continue to focus on : paying dividends to our shareholders ; originating quality assets and earning interest and fees ; enhancing cash flows from our investment portfolio ; increasing our volume of sba 7 ( a ) program loan originations ; 23 repositioning and marketing of non-performing assets ; exploring alternative financing sources ; and exploring alternative strategic activities . we believe that these are the appropriate steps to position us for long-term growth . general economic environment commercial real estate and lodging industry economic conditions have subjected many of our borrowers to financial stress . the operations of the limited service hospitality properties collateralizing our loans were negatively impacted by the recent recessionary economic environment . as a result , we continue to experience issues related to our borrowers including payment delinquencies , slow pays , insufficient funds payments , non-payment or lack of timely payment of real estate taxes and franchise fees , requests for payment deferrals and modifications to loan terms , lack of cash flow , shortage of funds for franchise required improvements or maintenance issues jeopardizing continuation of franchises , terminating franchises , conversion to lesser franchises , deterioration of the physical property ( our collateral ) , and declining property values . as such , our litigation and foreclosure activity and related costs have increased . as part of our efforts to assist those borrowers who are experiencing negative cash flows , we temporarily or permanently modified the terms of certain loans receivable or we have allowed reduced payments . we are not yet able to determine if these concessions were , or will be , sufficient to improve those borrowers ' cash flows such that future modifications will not be necessary . we believe that economic conditions have recently begun to improve , including those associated with the hospitality industry . however , there can be no certainty that these improved economic conditions will benefit borrowers whose cash flow was not sufficient to cover their debt service without capital investment to continue to be able to make payments in accordance with their loan documents . there has been an increase in mortgage defaults and foreclosures in the broader commercial real estate market and these defaults may continue . the increase was due in part to credit market turmoil and declining property cash flows and property values . in addition , when foreclosures on commercial real estate properties increase , the property values typically decline even further as supply exceeds demand . we have experienced an increase in litigation ( including borrowers who have filed for bankruptcy reorganization ) and foreclosure activity . story_separator_special_tag as of march 5 , 2012 , we have expensed an additional $ 510,000 related to potential strategic alternatives consisting of $ 399,000 in legal fees , $ 87,000 in trust manager fees and $ 24,000 of other expenses . we have and will continue to execute our business strategy while the special committee conducts its review . the special committee has not set a definitive schedule to complete its evaluation and does not intend to disclose developments with respect to this evaluation unless and until the evaluation has been completed , unless otherwise determined by us or required by law . secondary market loan sales general during 2011 , we sold $ 27.4 million of the guaranteed portion of sba 7 ( a ) program loans . loans were sold for ( 1 ) cash premiums and 100 basis points ( 1 % ) ( the minimum spread required to be retained pursuant to sba regulations ) as the servicing spread on the sold portion of the loan or ( 2 ) future servicing spreads averaging 195 basis points ( including the 100 basis points required to be retained ) and cash premiums of 10 % ( i.e. , hybrid loan sales or hybrid ) . we did not sell any loans for future servicing spread and no cash premium during 2011 . 25 effective january 1 , 2010 , due to a change in accounting rules , we were required to permanently treat certain of the proceeds received from legally sold portions of loans ( those loans sold solely for future servicing spread and hybrid loan sales ) as secured borrowings ( debt ) for the life of the loan and 100 % of the loan is included in our loans receivable . we can no longer record premium income on these types of sales . on these loan sales , we receive a spread between the interest rate due to us from our borrowers and the rate payable to the purchasers of the guaranteed portions of the loans . cash premiums collected on hybrid loan sales are deferred and reflected as a liability on our consolidated balance sheet and amortized as a reduction to interest expense over the life of the loan . deferred cash premiums at december 31 , 2011 were $ 2.4 million . for tax purposes , since all secondary market loan sales are legal sales , we are required to record gains based on present value cash flow techniques consistent with the book accounting treatment utilized until january 1 , 2010. for tax purposes , we had gains of $ 1,399,000 during 2011 related to hybrid loan sales but will not recognize gain for book purposes . for book purposes , the cash premium is amortized as a reduction of interest expense over the life of the loan using the interest method or fully amortized upon payoff of the loan . we record income as we receive the excess spread as we service the sold portion of the loan . when we sell loans and retain servicing spreads greater than 100 basis points , management believes that the value of the future servicing spreads retained was greater than the foregone cash premiums . our secondary market loan sales were as follows : replace_table_token_9_th replace_table_token_10_th 26 the following highlights the difference between selling a loan for cash premium versus selling a loan for future excess spread versus selling a loan for a cash premium and future excess spread : replace_table_token_11_th ( 1 ) does not include the cash flow from the retained portion of the loan . loan portfolio information and statistics general loans funded during both 2011 and 2010 were $ 38.4 million . we anticipate loan fundings to be between $ 40 million and $ 50 million during 2012. at december 31 , 2011 and 2010 , our outstanding commitments to fund new loans were $ 14.3 million and $ 16.5 million , respectively . the majority of our commitments are for variable-rate sba 7 ( a ) loans which provide an interest rate match with our present sources of funds and these loans also provide an sba guarantee typically for 75 % to 85 % of the loan amount . we are also marketing to originate sbic loans . we continue to actively monitor and manage our potential problem loans . in certain instances , where it is likely to maximize our return , we will consider restructuring loans . as we continue to pursue ways of improving our overall recovery and repayment on these loans , we may experience reductions in net investment income and cash flow . liquidity for commercial properties including hospitality properties remains limited since banks remain hesitant to lend . loan activity in addition to our retained portfolio of $ 236.1 million at december 31 , 2011 , we service $ 61.3 million of aggregate principal balance remaining on secondary market loan sales that have been accounted for as sales . in addition , due to a change in accounting rules , beginning january 1 , 2010 , the aggregate principal balance remaining on loans that were sold in structured loan sale transactions were consolidated and included in our loans receivable . since we retain a residual interest in the cash flows from our sold loans , the performance of these loans impacts our profitability and our cash available for dividend distributions . therefore , we provide information on both our retained portfolio and our aggregate portfolio ( retained portfolio plus certain legally sold government guaranteed portions of sba 7 ( a ) program loan sales which are not recorded on our balance sheet ) . 27 information on our aggregate portfolio , including prepayment trends , was as follows : replace_table_token_12_th ( 1 ) portfolio outstanding before loan loss reserves and deferred commitment fees . ( 2 ) does not include balloon maturities of sba 504 program loans . ( 3 ) represents prepayments as a percentage of our aggregate portfolio outstanding as of the beginning of the applicable year .
| results of operations year ended december 31 , 2011 compared to the year ended december 31 , 2010 overview replace_table_token_19_th detailed comparative information on the composition of and changes in our revenues and expenses is provided below . revenues interest income remained relatively consistent from 2010 to 2011 , increasing by $ 34,000 to $ 13,571,000 during 2011. the average base libor charged our borrowers decreased from 34 basis points during 2010 to 31 basis points during 2011 while our weighted average loans receivable increased slightly to $ 233.2 million during 2011 compared to $ 231.5 million during 2010. premium income results from certain sales of the government guaranteed portion of sba 7 ( a ) program loans pursuant to secondary market loan sales . our premium income increased from $ 709,000 during 2010 to $ 1,450,000 during 2011. effective january 1 , 2010 , due to a change in accounting rules , we only record premium income related to sales for cash premiums and the 1 % minimum required servicing spread . during 2011 , we sold more loans for solely cash premiums and thus recorded more income than in the prior year . secondary market loan sales were as follows : replace_table_token_20_th premium income will not equal collected cash premiums because premium income represents the difference between the fair value attributable to the sale of the government guaranteed portion of the loan and the principal balance ( cost ) of the loan adjusted by costs of origination . from january 1 , 2012 to march 5 , 2012 , we sold $ 5.0 million ( government guaranteed portion ) of loans as hybrids and collected $ 500,000 in cash premiums which were deferred .
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the primary source of our operating revenue is provided by our truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services . we transport food and other consumer packaged goods that require a temperature-controlled or insulated environment , along with dry freight , across the united states and into and out of mexico and canada . our agreements with customers are typically for one year . our dedicated segment provides customized transportation solutions tailored to meet individual customers ' requirements , utilizing temperature-controlled trailers , dry vans and other specialized equipment within the united states . our agreements with customers range from three to five years and are subject to annual rate reviews . generally , we are paid by the mile for our truckload and dedicated services . we also derive truckload and dedicated revenue from fuel surcharges , loading and unloading activities , equipment detention and other accessorial services . the main factors that affect our truckload and dedicated revenue are the rate per mile we receive from our customers , the percentage of miles for which we are compensated , the number of miles we generate with our equipment and changes in fuel prices . we monitor our revenue production primarily through average truckload and dedicated revenue , net of fuel surcharges , per tractor per week . we also analyze our average truckload and dedicated revenue , net of fuel surcharges , per total mile , non-revenue miles percentage , the miles per tractor we generate , our fuel surcharge revenue , our accessorial revenue and our other sources of operating revenue . our intermodal segment transports our customers ' freight within the united states utilizing our temperature-controlled trailers and , beginning in september 2019 , our refrigerated containers , each on railroad flatcars for portions of trips , with the balance of the trips using our tractors or , to a lesser extent , contracted carriers . the main factors that affect our intermodal revenue are the rate per mile and other charges we receive from our customers . our brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the united states and into and out of mexico through marten transport logistics , llc , which was established in 2007 and operates pursuant to brokerage authority granted by the dot . we retain the billing , collection and customer management responsibilities . the main factors that affect our brokerage revenue are the rate per mile and other charges that we receive from our customers . operating results of our mrtn de mexico business which offers our customers door-to-door service between the united states and mexico with our mexican partner carriers is reported within our truckload and brokerage segments . in addition to the factors discussed above , our operating revenue is also affected by , among other things , the united states economy , inventory levels , the level of truck and rail capacity in the transportation market , a contracting driver market , severe weather conditions and specific customer demand . our operating revenue increased $ 55.7 million , or 7.1 % , in 2019 from 2018. our operating revenue , net of fuel surcharges , increased $ 58.5 million , or 8.6 % , compared with 2018. truckload segment revenue , net of fuel surcharges , increased 2.2 % from 2018 primarily due to an increase in our average number of tractors . dedicated segment revenue , net of fuel surcharges , increased 19.7 % from 2018 , primarily due to fleet growth driven by an increase in the number of dedicated contracts we have with our customers and an increase in our average revenue per tractor . intermodal segment revenue , net of fuel surcharges , decreased 9.1 % due to a reduced load volume . brokerage segment revenue increased 26.1 % due to an increase in load volume in 2019. fuel surcharge revenue decreased to $ 103.4 million in 2019 from $ 106.2 million in 2018. a shift of a portion of line haul revenue to fuel surcharge revenue , which began in mid-first quarter of 2018 as a result of changes in a number of customer agreements , reduced our revenue excluding fuel surcharges by $ 17.5 million in 2019 and by $ 12.9 million in 2018 , while increasing our fuel surcharge revenue by the same amounts . 15 our profitability is impacted by the variable costs of transporting freight for our customers , fixed costs , and expenses containing both fixed and variable components . the variable costs include fuel expense , driver-related expenses , such as wages , benefits , training , and recruitment , and independent contractor costs , which are recorded under purchased transportation . expenses that have both fixed and variable components include maintenance and tire expense and our cost of insurance and claims . these expenses generally vary with the miles we travel , but also have a controllable component based on safety , fleet age , efficiency and other factors . our main fixed costs relate to the acquisition and subsequent depreciation of long-term assets , such as revenue equipment and operating terminals . we expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment , along with any increases in fleet size . although certain factors affecting our expenses are beyond our control , we monitor them closely and attempt to anticipate changes in these factors in managing our business . for example , fuel prices have significantly fluctuated over the past several years . we manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers , as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals . story_separator_special_tag this category will vary depending upon the amount and rates , including fuel surcharges , we pay to third-party railroad and motor carriers , the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors . purchased transportation expense increased $ 14.3 million in total , or 9.9 % , in 2019 from 2018. amounts payable to carriers for transportation services we arranged in our brokerage segment increased $ 18.3 million to $ 90.7 million in 2019 from $ 72.3 million in 2018 , primarily due to an increase in brokerage revenue . amounts payable to railroads and drayage carriers for transportation services within our intermodal segment decreased $ 5.8 million to $ 59.3 million in 2019 from $ 65.0 million in 2018. this decrease was due to decreased intermodal revenue . the portion of purchased transportation expense related to independent contractors within our truckload and dedicated segments , including fuel surcharges , increased $ 1.8 million in 2019. we expect our purchased transportation expense to increase as we grow our intermodal and brokerage segments . fuel and fuel taxes decreased by $ 292,000 , or 0.2 % , in 2019 from 2018. net fuel expense ( fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors , outside drayage carriers and railroads ) increased $ 644,000 , or 2.2 % , to $ 30.1 million in 2019 from $ 29.4 million in 2018. fuel surcharges passed through to independent contractors , outside drayage carriers and railroads decreased to $ 12.1 million from $ 14.0 million in 2018. the united states department of energy , or doe , national average cost of fuel decreased to $ 3.06 per gallon from $ 3.18 per gallon in 2018. net fuel expense also decreased to 4.8 % of truckload , dedicated and intermodal segment revenue , net of fuel surcharges , from 4.9 % in 2018. we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers ' fuel purchases with national fuel centers , focusing on shorter lengths of haul , installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers . auxiliary power units , which we have installed in our company-owned tractors , provide climate control and electrical power for our drivers without idling the tractor engine . supplies and maintenance consist of repairs , maintenance , tires , parts , oil and engine fluids , along with load-specific expenses including loading/unloading , tolls , pallets and trailer hostling . our supplies and maintenance expense increased $ 5.9 million , or 14.4 % , from 2018 primarily due to higher outside repair and parts costs associated , in part , with operating a larger fleet . depreciation relates to owned tractors , trailers , containers , auxiliary power units , communication units , terminal facilities and other assets . the $ 6.6 million increase in depreciation was primarily due to an increase in the size of our fleet of tractors and trailers . we expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment , which will result in greater depreciation over the useful life . insurance and claims consist of the costs of insurance premiums and accruals we make for claims within our self-insured retention amounts , primarily for personal injury , property damage , physical damage to our equipment , cargo claims and workers ' compensation claims . these expenses will vary primarily based upon the frequency and severity of our accident experience , our self-insured retention levels and the market for insurance . the $ 456,000 decrease in insurance and claims in 2019 was primarily due to a decrease in the cost of our self-insured workers ' compensation claims , partially offset by increases in the cost of auto liability and physical damage claims related to our tractors and trailers . our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency , severity and timing of claims . gain on disposition of revenue equipment increased to $ 8.7 million in 2019 from $ 7.2 million in 2018 primarily due to an increase in our average gain for each tractor and trailer sold . future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment , which is beyond our control . 20 as a result of the foregoing factors , our operating income improved 8.7 % to $ 76.5 million in 2019 from $ 70.3 million in 2018. our operating expenses as a percentage of operating revenue , or “ operating ratio , ” was 90.9 % in 2019 and 91.1 % in 2018. the operating ratio for our truckload segment was 92.2 % in 2019 and 90.7 % in 2018 , for our dedicated segment was 88.3 % in 2019 and 91.7 % in 2018 , for our intermodal segment was 92.7 % in 2019 and 89.1 % in 2018 , and for our brokerage segment was 91.8 % in 2019 and 93.6 % in 2018. operating expenses as a percentage of operating revenue , with both amounts net of fuel surcharges , were 89.7 % in both 2019 and 2018. the increase in our other non-operating income was primarily due to additional interest income earned in 2019. our effective income tax rate decreased to 21.4 % in 2019 from 22.5 % in 2018 primarily due to a reduction in non-deductible expenses . as a result of the factors described above , net income improved 11.0 % to $ 61.1 million , or $ 1.11 per diluted share , in 2019 from $ 55.0 million , or $ 1.00 per diluted share , in 2018 .
| results of operations the following table sets forth for the years indicated certain operating statistics regarding our revenue and operations : replace_table_token_1_th ( 1 ) includes tractors driven by both company-employed drivers and independent contractors . independent contractors provided 92 , 46 and 60 tractors as of december 31 , 2019 , 2018 and 2017 , respectively . 17 comparison of year ended december 31 , 201 9 to year ended december 31 , 201 8 the following table sets forth for the years indicated our operating revenue , operating income and operating ratio by segment , along with the change for each component : replace_table_token_2_th ( 1 ) represents operating expenses as a percentage of operating revenue . our operating revenue increased $ 55.7 million , or 7.1 % , to $ 843.3 million in 2019 from $ 787.6 million in 2018. our operating revenue , net of fuel surcharges , increased $ 58.5 million , or 8.6 % , to $ 739.9 million in 2019 from $ 681.4 million in 2018. this increase was due to a $ 36.8 million increase in dedicated revenue , net of fuel surcharges , a $ 22.5 million increase in brokerage revenue , and a $ 7.0 million increase in truckload revenue , net of fuel surcharges , partially offset by a $ 7.8 million decrease in intermodal revenue , net of fuel surcharges . fuel surcharge revenue decreased to $ 103.4 million in 2019 from $ 106.2 million in 2018. a shift of a portion of line haul revenue to fuel surcharge revenue , which began in mid-first quarter of 2018 as a result of changes in a number of customer agreements , reduced our revenue excluding fuel surcharges by $ 17.5 million in 2019 and by $ 12.9 million in 2018 , while increasing our fuel surcharge revenue by the same amounts .
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we story_separator_special_tag the following management 's discussion and analysis should be read in conjunction with the selected financial data and the consolidated financial statements and related notes . overview we are a specialty insurance group with offices in the united states , the united kingdom , spain and ireland , underwriting business in approximately 180 countries . our shares trade on the new york stock exchange and closed at $ 31.90 on february 18 , 2011 , resulting in market capitalization of $ 3.7 billion . we underwrite a variety of relatively non-correlated specialty lines of business , including property and casualty , accident and health , surety , credit and aviation . insurance products are marketed through a network of independent agents and brokers , managing general agents and directly to consumers . in addition , we assume insurance written by other insurance companies . we manage our businesses through five underwriting segments and our investing segment . our underwriting segments are u.s. property & casualty , professional liability , accident & health , u.s. surety & credit and international . our business philosophy is to maximize underwriting profit while managing risk in order to preserve shareholders ' equity , grow book value and maximize earnings . we concentrate our insurance writings in selected specialty lines of business in which we believe we can achieve meaningful underwriting profit . we also rely on our experienced underwriting personnel and our access to and expertise in the reinsurance marketplace to limit or reduce risk . our business plan is shaped by our underlying business philosophy . as a result , our primary objective is to increase net earnings and grow book value , rather than to grow our market share or our gross written premium . key facts about our consolidated group as of and for the year ended december 31 , 2010 are as follows : our common shares closed at $ 28.94 per share . we had consolidated shareholders ' equity of $ 3.3 billion , with a book value per share of $ 28.67. we generated net earnings of $ 345.1 million , or $ 2.99 per diluted share . we produced total revenue of $ 2.3 billion , of which 89 % related to net earned premium and 9 % related to net investment income . our new property treaty business , which is susceptible to catastrophic events and large losses , generated $ 47.6 million of net earned premium and had a net loss ratio of 58.2 % , including catastrophic losses . we recognized gross losses of $ 44.0 million and net losses , after reinsurance , of $ 22.5 million from various large losses , mainly in our property treaty business , which are viewed as catastrophic events in the specialty insurance market . the catastrophic net losses increased our net loss ratio and our combined ratio by 1.1 percentage points . in addition , we recognized $ 31.7 million of gross losses for the deepwater horizon rig disaster , for which we had a minimal net loss due to significant facultative and treaty reinsurance . our net loss ratio , including the catastrophic losses , was 59.4 % and our combined ratio was 84.6 % . we increased our dividend for the 14th consecutive year and paid $ 63.2 million of dividends . we purchased $ 35.1 million of our common stock at an average cost of $ 26.99 per share . at year-end , we had $ 265.3 million shares remaining under our $ 300.0 million share buyback authorization . 38 we held a total investment portfolio of $ 5.7 billion , of which $ 5.2 billion were fixed income securities with an average rating of aa+ . the following sections discuss our key operating results . the reason for any significant variations between 2009 and 2008 are the same as those discussed for variations between 2010 and 2009 , unless otherwise noted . amounts in tables are in thousands , except for earnings per share , percentages , ratios and number of employees . reporting segment changes in the third quarter of 2010 , our chief executive officer , in the role of chief operating decision maker ( codm ) , completed the reorganization of hcc 's management structure in order to manage and evaluate the company 's operations from an insurance underwriting perspective , in line with our portfolio of insurance products . we have changed our segment reporting structure to reflect these changes . previously , we reported our results in the insurance company , agency , and other operations segments . we now report our results in the six operating segments identified above , each of which reports to an hcc executive who is responsible for the segment results . see note 12 , segments to the consolidated financial statements for additional discussion of our new reporting segments . in connection with our resegmentation , we changed the presentation of our consolidated income statement and redefined the calculation of our expense ratio . we previously presented reinsurance ceding commissions that exceeded policy acquisition costs as a component of fee and commission income , within total revenue . we now present all ceding commissions as an offset to policy acquisition costs , within total expense . we also now present an expense ratio for each reportable segment . all of our expense ratios are calculated using amounts included in our gaap consolidated financial statements . the formulas are as follows : consolidated expense ratio sum of other expense for each of our insurance segments , divided by the sum of segment revenue for each of our insurance segments . segment expense ratio segment other expense divided by segment revenue . story_separator_special_tag style= '' margin-top : 10pt ; font-size : 1pt '' > net investment income , which is included in our investing segment , increased 6 % in 2010 and 17 % in 2009 , primarily due to higher income from fixed income securities . story_separator_special_tag the percentage of policy acquisition costs to net earned premium was 15.8 % in 2010 , 15.1 % in 2009 and 15.4 % in 2008. the lower percentages in 2009 and 2008 primarily related to reinsurance profit commissions , which are recorded as a reduction of policy acquisition costs , of $ 1.6 million in 2010 , $ 10.6 million in 2009 and $ 13.6 million in 2008. in addition , we recorded a $ 3.8 million premium deficiency reserve in our international segment at year-end 2008 , which increased the amount of policy acquisition costs recognized in 2008 and reduced the amount recognized in 2009. other operating expense other operating expense , of which approximately 62 % relates to compensation and benefits of our employees , decreased 1 % in 2010 and increased 11 % in 2009. we had 1,883 employees at december 31 , 2010 , compared to 1,864 at december 31 , 2009 and 2008. in 2009 , we sold our u.k. reinsurance broker and our commercial marine agency business , which reduced our other operating expense in 2010. our other operating expense included $ 3.0 million in 2010 and $ 9.9 million in 2009 of direct costs related to dissolving the derivative contract and the mgic reinsurance contract , respectively , discussed above . in addition , our 2009 other operating expense was higher than 2008 due to compensation and other operating expenses related to businesses acquired in late 2008 and 2009 , as well as higher profit-related bonuses for our underwriters . the 2009 expense was partially offset by a $ 5.6 million benefit from reversal of a reserve for uncollectible reinsurance that was collected . we recognized $ 1.6 million of expense in 2010 , compared to gains of $ 0.6 million in 2009 and $ 1.9 million in 2008 , related to foreign currency conversion . other operating expense included $ 13.6 million , $ 16.0 million and $ 13.7 million in 2010 , 2009 and 2008 , respectively , of stock-based compensation expense , after the effect of the deferral and amortization of policy acquisition costs related to stock-based compensation for our underwriters . stock-based compensation expense was lower in 2010 due to the forfeiture of restricted stock grants by former employees and full vesting of certain stock options . in 2010 , we granted $ 25.0 million of restricted stock awards and units , with a weighted-average life of 5.7 years . at december 31 , 2010 , there was approximately $ 26.8 million of total unrecognized 44 compensation expense related to unvested options and restricted stock awards and units that is expected to be recognized over a weighted-average period of 3.8 years . interest expense interest expense on debt and short-term borrowings increased $ 5.2 million in 2010 and decreased $ 4.2 million in 2009. during 2008 and 2009 , we had $ 124.7 million of 1.30 % convertible notes outstanding and we borrowed and repaid our revolving loan facility ( the facility ) as needed . in the fourth quarter of 2009 , we issued $ 300.0 million of 6.30 % senior notes , with an effective interest rate of 6.37 % , and redeemed the convertible notes and repaid the facility . our 2010 interest expense includes $ 19.3 million for the senior notes . the higher interest expense in 2008 primarily related to more borrowings on the facility at a higher interest rate . interest on the facility was based on 30-day libor plus 25 basis points . income tax expense our income taxes are due to u.s. federal , state , local and foreign jurisdictions . our effective income tax rate was 29.5 % for 2010 , compared to 31.8 % for 2009 and 30.1 % for 2008. the lower effective rate in 2010 related to : 1 ) a benefit in 2010 from adjusting our tax accruals to the actual amount of taxes paid for 2009 , compared to expense in 2009 for a related adjustment of our 2008 tax accruals , 2 ) the reversal of certain liabilities for uncertain tax positions due to the expiration of various tax statutes and 3 ) the increased benefit from tax-exempt investment income relative to a lower pretax income base , which also lowered the effective rate in 2008. segment operations each of our insurance segments bears risk for insurance coverage written within its portfolio of insurance products . each segment generates income from premium written by our underwriting agencies , through third party agents and brokers , or on a direct basis . the insurance segments also write facultative or individual account reinsurance , as well as treaty reinsurance business . in some cases , we purchase reinsurance to limit the segments ' net losses from both individual and catastrophic risks . our segments maintain disciplined expense management and a streamlined management structure , which results in favorable expense ratios . the following provides operational information about our five underwriting segments and our investing segment . u.s. property & casualty segment our u.s. property & casualty segment writes specialty lines of insurance such as aviation , small account errors and omissions liability ( e & o ) , public risk , employment practices liability , title , residual value , disability , contingency , kidnap and ransom , difference in conditions , occupational accident and brown water marine . the products are written through our underwriting agencies , third party agents and brokers , or on a direct basis in the united states . the majority of the business is primary coverage , with reinsurance on certain product lines . certain products , including aviation , public risk and difference in conditions , have catastrophic exposure . claims for most products are reported and settled on a short to medium-term basis . 45 the following tables summarize the operations of the u.s. property & casualty segment .
| results of operations our results and key metrics for the past three years were as follows : replace_table_token_15_th in 2010 , we had $ 22.7 million of favorable development of our prior years ' net loss reserves , primarily from our : 1 ) u.k. professional liability business , 2 ) an assumed quota share contract , 3 ) aviation and 4 ) prior years ' hurricanes . we had favorable development of $ 53.5 million in 2009 and $ 82.4 million in 2008 , primarily from those same lines of businesses , as well as our directors ' and officers ' liability business in 2008. the redundancies in the three-year period primarily related to our 2002 2007 underwriting years . 39 in late 2009 , we began to write property treaty reinsurance business that covers catastrophic risks worldwide . in 2010 , we wrote $ 59.9 million of net premium , which generated $ 47.6 million of earned premium . this line , which is susceptible to catastrophic events and large losses such as those described in the next paragraph , had a net loss ratio of 58.2 % for 2010. in 2010 , we recognized gross losses of $ 44.0 million from various catastrophic events , the most significant of which was the chilean earthquake . after reinsurance , our pretax losses were $ 22.5 million . in 2008 , we incurred gross losses of $ 98.2 million from hurricanes gustav and ike ( referred to herein as the 2008 hurricanes ) . our 2008 pretax losses after reinsurance were $ 22.3 million , which included $ 19.4 million of losses reported in loss and loss adjustment expense and $ 2.9 million of premiums to reinstate our excess of loss reinsurance protection , which reduced net earned premium . over the last three years , we had an average combined ratio below 85 % . our net loss ratios reflected the favorable development and catastrophic losses mentioned above .
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the information within the tables is presented in thousands , except for number of shares and per share data . this discussion should be read in conjunction with the consolidated financial statements , notes to the consolidated financial statements and selected consolidated financial data . acronyms and abbreviations the acronyms and abbreviations identified below are used throughout item 7 . `` management 's discussion and analysis of financial condition and results of operations . '' the following is provided to aid the reader and provide a reference page when reviewing this section of the form 10-k. acadia trust : acadia trust , n.a. , a wholly-owned subsidiary of camden national corporation freddie mac : federal home loan mortgage corporation act : medicare prescription drug , improvement and modernization act gaap : generally accepted accounting principles in the united states afs : available-for-sale htm : held-to-maturity alco : asset/liability committee irs : internal revenue service all : allowance for loan losses libor : london interbank offered rate aoci : accumulated other comprehensive income ( loss ) ltip : long-term performance share plan asc : accounting standards codification mainehousing : maine state housing authority asu : accounting standards update management alco : management asset/liability committee bank : camden national bank , a wholly-owned subsidiary of camden national corporation mspp : management stock purchase plan boli : bank-owned life insurance msrs : mortgage servicing rights board alco : board of directors ' asset/liability committee non-agency : non-agency private issue collateralized mortgage obligation branch acquisition : the acquisition of 14 branches from bank of america , n.a . in 2012 , after divesting of one branch as required by the department of justice nrv : net realizable value branch divestiture : the divestiture of five franklin county branches in 2013 occ : office of the comptroller of the currency bsa : bank secrecy act oci : other comprehensive income ( loss ) ccta : camden capital trust a , an unconsolidated entity formed by camden national corporation ofac : office of foreign assets control cdars : certificate of deposit account registry system oreo : other real estate owned cds : certificate of deposits otti : other-than-temporary impairment csv : cash surrender value serp : supplemental executive retirement plans company : camden national corporation tdr : troubled-debt restructuring dcrp : defined contribution retirement plan ubct : union bankshares capital trust i , an unconsolidated entity formed by union bankshares company that was subsequently acquired by camden national corporation eps : earnings per share u.s. : united states of america fasb : financial accounting standards board usd : united states dollar fdic : federal deposit insurance corporation 2003 plan : 2003 stock option and incentive plan fhlb : federal home loan bank 2012 plan : 2012 equity and incentive plan fhlbb : federal home loan bank of boston 2013 repurchase plan : 2013 common stock repurchase program , approved by the company 's board of directors frb : federal reserve bank 2012 repurchase plan : 2012 common stock repurchase program , approved by the company 's board of directors 22 executive overview 2014 operating results . the company reported consolidated net income and diluted eps for the year ended december 31 , 2014 of $ 24.6 million and $ 3.28 per share , respectively , representing a $ 1.8 million , or 8 % , increase in net income and a $ 0.31 per share , or 10 % , increase in diluted eps over 2013. our solid earnings growth year-over-year is largely attributable to our strong loan production in 2014 as average loans increased $ 100.4 million , or 6 % , to $ 1.7 billion compared to 2013. complementing our strong earnings , we were able to increase shareholder value by repurchasing 181,355 shares of our common stock , or 2 % of shares outstanding , under the 2013 repurchase program , which contributed to the decrease in diluted weighted-average shares outstanding for 2014 . 23 december 31 , 2014 assets . total assets at december 31 , 2014 of $ 2.8 billion increased $ 186.0 million , or 7 % , since december 31 , 2013. asset growth was driven by strong loan growth of $ 192.2 million , or 12 % , for the year led by the commercial real estate and commercial portfolios . total loans at december 31 , 2014 were $ 1.8 billion compared to $ 1.6 billion at december 31 , 2013. the commercial real estate and commercial portfolios increased $ 99.6 million and $ 78.3 million , respectively , in 2014 compared to 2013. we saw more modest growth within our residential portfolio of $ 14.3 million over the same period . our loan growth is reflective of our investments made over the past three years , including the acquisition of 14 branches along maine 's interstate-95 corridor , which provided us an immediate larger presence in maine 's more prominent markets , the strategic hiring of several seasoned commercial and retail lenders , strengthening our credit underwriting and administration capabilities , and expanding our footprint outside of maine through the opening of a commercial loan office in manchester , new hampshire . 24 december 31 , 2014 deposits and borrowings . total deposits and borrowings at december 31 , 2014 of $ 2.5 billion increased $ 165.2 million , or 7 % , since december 31 , 2013. core deposits ( demand , interest checking , savings , and money market ) increased $ 25.8 million , while brokered deposits and borrowings increased $ 118.3 million and $ 46.9 million , respectively , to support our loan growth during the year . 25 2014 asset quality . our asset quality metrics improved steadily throughout 2014 as we continued to actively work through foreclosure proceedings as well as modest improvements within maine 's economy . our provision for credit losses for 2014 was $ 2.2 million , an increase of $ 192,000 , or 9 % , over 2013 , which was driven by our loan growth in 2014 of 12 % . story_separator_special_tag this extensive review takes into account the obligor 's repayment history and financial condition , collateral value , guarantor support , local economic and industry trends , and other factors relevant to the particular loan relationship . because the methodology is based upon historical experience and trends as well as management 's judgment , factors may arise that result in different estimations . significant factors that could give rise to changes in these estimates may include , but are not limited to , changes in economic conditions in our market area , concentration of risk , declines in local property values , and the results of regulatory examinations . while management 's evaluation of the all as of december 31 , 2014 determined the allowance to be appropriate , under adversely different conditions or assumptions , we may need to increase the allowance . monthly , management reviews the all to assess recent asset quality trends and impact on the company 's financial condition . quarterly , the all is brought before the bank 's board of directors for discussion , review , and approval . refer to `` —financial condition—asset quality '' for further discussion of our all process . the adequacy of the reserve for unfunded commitments is determined in a similar manner as the all , with the exception that management must also estimate the likelihood of these commitments being funded and becoming loans . this is accomplished by evaluating the historical utilization of each type of unfunded commitment and estimating the likelihood that the historical utilization rates could change in the future . purchase price allocation , impairment of goodwill and identifiable intangible assets . we record all acquired assets and liabilities at fair value , which is an estimate determined by the use of internal valuation techniques . we also may engage external valuation services to assist with the valuation of material assets and liabilities acquired , including , but not limited to , real estate and core deposit intangibles . as part of purchase accounting , we typically acquire goodwill and other intangible assets as part of the purchase price . these assets are subject to ongoing periodic impairment tests under differing accounting models . we did not acquire any businesses or assets that required us to account for such using purchase accounting for the years ended december 31 , 2014 or 2013. goodwill impairment evaluations are required to be performed at least annually , but may be required more frequently if certain conditions indicate a potential impairment may exist . our policy is to perform the goodwill impairment analysis annually as of november 30 th , or more frequently as warranted . the goodwill impairment evaluation is required to be performed at the reporting unit level - ( i ) banking and ( ii ) financial services - and is performed using the two-step process outlined in gaap . the banking reporting unit is representative of our core banking business line , while the financial services reporting unit is representative of our wealth management , trust and services business line . 28 for the year ended december 31 , 2014 , we performed step one of the annual goodwill impairment test for each reporting unit as of november 30 , 2014. in doing so , we compared the carrying value of each reporting unit to the internally-developed estimated fair value of each reporting unit using multiple valuation methodologies , including the income and market approach , and concluded that neither reporting unit was impaired . the use of different valuation techniques , estimates and or assumptions could produce different estimates of fair value . refer to note 5 of the consolidated financial statements for further discussion on our goodwill impairment assessment process and results for the years ended december 31 , 2014 and 2013. core deposit intangible assets have a finite life and are amortized over their estimated useful lives . core deposit intangible assets are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . core deposit intangible assets are measured for impairment utilizing a cost recovery model . we did not identify any events or circumstances that occurred during 2014 that would indicate that our core deposit intangible assets may be impaired and should be evaluated for such . valuation of oreo . periodically , we acquire property in connection with foreclosures or in satisfaction of debt previously contracted . the valuation of oreo properties is determined by calculating the estimated nrv of the property ( the estimated fair value of the property less estimated direct costs to sell ) . fair value of the property is determined by an appraisal or a broker 's opinion , as adjusted by management for known factors such as recent sales experience for similar properties in similar markets . estimated direct sales costs include broker and auctioneer fees and are estimated based on historical costs for such services . future adverse changes in market conditions , local economy , property valuations , and costs to sell the property can have an unfavorable impact on the valuation of the oreo property and can lead to write downs of the property impacting earnings and losses upon sale of the property . otti of investments . we record an investment impairment charge at the point we believe an investment has experienced a decline in value that is other-than-temporary . in determining whether an otti has occurred , we review information about the underlying investment that is publicly available , analysts ' reports , applicable industry data and other pertinent information , and assess our intent and ability to hold the security for the foreseeable future until recovered . the investment is written down to its current fair value at the time the impairment is deemed to have occurred . future adverse changes in market conditions , continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future .
| results of operations for the year ended december 31 , 2014 , we reported net income of $ 24.6 million compared to $ 22.8 million for the year ended december 31 , 2013 , and $ 23.4 million for the year ended december 31 , 2012. diluted eps for each of these years were $ 3.28 , $ 2.97 , and $ 3.05 , respectively . the major components of these results , which include net interest income , provision for credit losses , non-interest income , non-interest expense , and income taxes , are discussed below . net interest income net interest income is interest earned on loans , securities , and other interest-earning assets , plus net loan fees and origination costs , less the interest paid on interest-bearing deposits and borrowings . net interest income , which is our largest source of revenue accounting for approximately 76 % of total revenues , is affected by factors including , but not limited to : changes in interest rates , loan and deposit pricing strategies and competitive conditions , the volume and mix of interest-earning assets and interest-bearing liabilities , and the level of non-performing assets . net interest margin is calculated as net interest income on a fully-taxable equivalent basis as a percentage of average interest-earning assets . net interest margin for the years ended december 31 , 2014 , 2013 , and 2012 of 3.11 % , 3.20 % , and 3.36 % , respectively , has declined reflecting the challenging interest rate environment over the past several years . the historically low interest rate environment adversely affected our net interest income as new loans and investments earn the current market interest rates , while acceleration of borrower repayment of loans and investment cash flows are reinvested at lower interest rates coupled with the ongoing maturity of loans and investments at higher interest rates . 2014 vs. 2013 net interest income .
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level 2valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents ( dlas ) , including lysins and amurin peptides , as new medical modalities for the treatment of life-threatening , antibiotic-resistant infections . antibiotic-resistant infections account for 2,000,000 illnesses in the united states and 700,000 deaths worldwide each year . we intend to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms . dlas are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections . lysins are recombinantly-produced enzymes , that when applied to bacteria cleave a key component of the target bacteria 's peptidoglycan cell wall , resulting in rapid bacterial cell death . in addition to the speed of action and potent cidality , we believe lysins are differentiated by their other hallmark features , which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models . lysins also tend to have a targeted spectrum , meaning they kill only specific species of bacteria or closely related bacteria . amurin peptides are a new class of direct lytic agents , discovered in our laboratories , which disrupt the outer membrane of gram-negative bacteria , resulting in rapid bacterial cell death , offering a distinct mechanism of action from lysins . amurins are further differentiated from lysins by potent broad spectrum in vitro activity against a wide range of gram-negative pathogens in , including deadly , drug-resistant pseudomonas aeruginosa ( p. aeruginosa ) , klebsiella pneumoniae , escherichia coli , acinetobacter baumannii and enterobacter cloacae bacteria species as well as difficult to treat pathogens such as stenotrophomonas , achromobacter and burkholderia species . the highly differentiated properties of dlas have shown these agents to be complimentary to and synergistic with conventional antibiotics enabling the potential use of these agents in addition to conventional antibiotics with the goal of improving clinical outcomes compared to conventional antibiotics alone . the development of these compounds involves a novel clinical and regulatory strategy , using superiority design clinical trials with the goal of delivering significantly improved clinical 67 outcomes for the treatment of serious , antibiotic-resistant bacterial infections , including biofilm-associated infections . this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance . we have not generated any revenues and , to date , have funded our operations primarily through our ipo , our follow-on public offerings , private placements of securities , and grant funding received . on december 18 , 2019 , we completed an underwritten public offering of 2,565,000 shares of our common stock at a public offering price of $ 3.90 per share . on december 12 , 2019 , we completed an underwritten public offering of 3,715,000 shares of its common stock at a public offering price was $ 2.70 per share and a concurrent private placement of 1,111,111 shares of common stock to pfizer at a price of $ 2.70 per share . the combined net proceeds of both public offerings together with the private placement was $ 21.3 million after underwriting discounts and commissions and offering expenses payable by us . the preceding amounts of common stock have been adjusted to reflect the reverse stock split of our common stock at a ratio of 1-for-10 effected on february 3 , 2020. we have never been profitable and our net losses were $ 12.8 million , $ 37.7 million and $ 15.5 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we advance our product candidates through preclinical activities and clinical trials to seek regulatory approval and , if approved , commercialize such product candidates . accordingly , we will need additional financing to support our continuing operations . we expect to seek to fund our operations through public or private equity , debt financings , equity-linked financings , collaborations , strategic alliances , licensing arrangements , research grants or other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . financial operations overview revenue we have not generated any revenues to date . in the future , we may generate revenues from product sales . in addition , to the extent we enter into licensing or collaboration arrangements , we may have additional sources of revenue . story_separator_special_tag patients entering the study will be randomized 2:1 to either exebacase or placebo , with all patients receiving soc antibiotics . the primary efficacy endpoint of the study is clinical response at day 14 in patients with mrsa bacteremia , including right-sided endocarditis . secondary endpoints will include clinical response at day 14 in the all staph aureus patient group ( mrsa and methicillin-sensitive staph aureus ( mssa ) ) , 30-day all-cause mortality in mrsa patients , and clinical response at later timepoints . we will also evaluate the impact of treatment with exebacase on health resource utilization , including hospital length of stay , icu length of stay and 30-day readmission rates . we plan to conduct an interim futility analysis following the enrollment of approximately 60 % of the study population . the fda recently granted breakthrough therapy designation to exebacase for the treatment of mrsa bloodstream infections ( bacteremia ) , including right-sided endocarditis , when used in addition to soc anti-staphylococcal antibiotics in adult patients , based on the final data from the phase 2 superiority trial of exebacase . breakthrough therapy designation is a program designed by the fda to expedite the development and review of medicines for serious or life-threatening diseases where preliminary clinical evidence suggests that the investigational therapy may demonstrate substantial improvement on at least one clinically significant endpoint over available therapies . the breakthrough therapy designation provides additional benefits , such as intensified interactions with the fda and the potential for priority review , over the fast track designation granted to exebacase in august 2015. we performed a phase 3 simulation analysis using the actual phase 2 data to evaluate the clinical outcomes for the phase 2 patient population that meets the phase 3 inclusion criteria . in this simulated phase 3 population of 84 u.s. patients with documented staph aureus bacteremia , including right-sided endocarditis , who received a single iv infusion of blinded study drug , the clinical responder rate at day 14 was 83.7 % for patients treated with exebacase and 54.3 % for patients dosed with soc antibiotics alone , an improvement in responder rate of 29.4 % . the clinical responder rate at day 14 in the subset of patients with mrsa bacteremia including right-sided endocarditis was 82.6 % for patients treated with exebacase compared to 33.3 % for patients treated with soc antibiotics alone , an improvement in responder rate of 49.3 % . in the subset of patients with mssa bacteremia including right-sided , the clinical responder rate at day 14 was 84.6 % for patients treated with exebacase compared to 66.7 % for patients treated with soc antibiotics alone , an increase of 17.9 % . other programs we have developed a novel , engineered variant of exebacase , known as cf-296 , which we believe provides an additional opportunity for a potential targeted therapy for deep-seated , invasive biofilm-associated staph aureus infections . we are conducting further in vitro and in vivo characterization of cf-296 to determine the full profile of this compound . we have been awarded up to $ 7.2 million of funding from the military infectious diseases research program , united states army medical research and development command ( usamrdc ) over the course of three years to advance cf-296 through ind-enabling studies . we have discovered and engineered a new lysin product candidate , cf-370 , with potent activity in preclinical studies against antibiotic-resistant p. aeruginosa bacteria , a major cause of morbidity and mortality in patients with hospital acquired pneumonia and a major medical challenge for patients with cystic fibrosis . we have initiated ind-enabling activities and we expect cf-370 to be our next molecule in clinical studies . we have been awarded up to $ 3.3 million in funding from carb-x ( combating antibiotic-resistant bacteria biopharmaceutical accelerator ) in support of the advancement of anti-pseudomonal lysins . beyond our lysin programs , we continue our research to advance potential product candidates from our amurin peptide platform . we plan to initiate animal studies of our most promising amurins with the goal of moving this program to the clinic as soon as possible . we have been awarded up to $ 6.9 million of funding from carb-x to support the amurin peptide program . 70 to date , a large portion of our research and development work has related to the establishment of our platform technologies , the advancement of our research projects to discovery of clinical candidates , manufacturing and preclinical testing of our clinical candidates and clinical testing of exebacase . we currently expect to focus the majority of our resources on the exebacase program . as our pipeline progresses , we are able to further leverage our employee and infrastructure resources across multiple development programs well as research projects . in the years ended december 31 , 2019 , 2018 and 2017 , we recorded approximately $ 18.1 million , $ 22.4 million and $ 17.3 million , respectively , of research and development expenses . a breakdown of our research and development expenses by category is shown below . we do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related expenses , laboratory costs or depreciation to any particular project . accordingly , we do not allocate these expenses to individual projects or product candidates . however , we do allocate some portions of our research and development expenses in the product development , external research and licensing and professional fees categories to exebacase as shown below . the following table summarizes our research and development expenses by category for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_7_th the following table summarizes our research and development expenses by program for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_8_th we anticipate that our research and development expenses will increase substantially in connection with the commencement of additional clinical trials for our product candidates . however , the successful development of future product candidates is highly uncertain .
| results of operations for a discussion of our results of operations for the year ended december 31 , 2017 , including a year-to-year comparison between 2018 and 2017 , refer to part ii , item 7 , management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the year ended december 31 , 2018. comparison of years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_9_th research and development expenses research and development expense was $ 18.1 million for the year ended december 31 , 2019 , compared with $ 22.4 million for the year ended december 31 , 2018 , a decrease of $ 4.3 million . this decrease was primarily attributable to a $ 6.3 million decrease in expenditures on clinical trial costs as we completed the reporting of the phase 2 trial of exebacase early in 2019 as compared to the active recruiting period for the trial in 2018. we also recorded an additional $ 2.4 million in reimbursable grant expenses , including the new usamrdc grant for cf-296 and the carb-x grant for the amurin peptide program . these decreases were partially offset by an increase of $ 2.2 million relating to the cgmp manufacturing of exebacase in order to supply clinical trial material for the phase 3 disrupt trial , an increase of $ 1.8 million on the advancement of our other product candidates , including cf-370 to nomination as our next product candidate , and an increase of $ 0.4 million in licensing fees for the milestone paid to rockefeller upon completion of the phase 2 trial of exebacase .
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our strategic efforts to achieve this goal include continuously expanding our portfolio of aftermarket products and services , broadening the diversity of our commercial vehicle product offerings and extending our network of rush truck centers . our commitment to provide innovative solutions to service our customers ' needs continues to drive our strong aftermarket products and services revenues . our aftermarket products and services include a wide range of capabilities and products such as providing parts , service and collision repairs at certain of our rush truck centers , a fleet of mobile service units , technicians who work in our customers ' facilities , a proprietary line of commercial vehicle parts and accessories , vehicle upfitting , a broad range of diagnostic and analysis capabilities , a suite of telematics products and assembly services for specialized bodies and equipment . aftermarket products and services accounted for 66.7 % of our total gross profits in 2020. stock split on september 15 , 2020 , our board of directors declared a 3-for-2 stock split of our class a common stock and class b common stock , to be effected in the form of a stock dividend . on october 12 , 2020 , we distributed one additional share of stock for every two shares of class a common stock , par value $ 0.01 per share , and class b common stock , par value $ 0.01 per share , held by shareholders of record as of september 28 , 2020. all share and per share data in this form 10-k have been adjusted and restated to reflect the stock split as if it occurred on the first day of the earliest period presented . 31 the covid-19 pandemic and its impact on our business rush truck centers are classified as “ essential businesses ” and our dealership network has remained operational since the beginning of the covid-19 pandemic , although some hours of operation have been modified . despite our dealerships remaining open , the covid-19 pandemic had a significant negative impact on our revenues for 2020. we expect that the negative impact of the covid-19 pandemic on our revenues , and business in general , will be substantial for the foreseeable future . however , based on current market conditions and the steps we have taken to reduce expenses , we continue to believe the worst of the pandemic 's effect on our business may be behind us . we are monitoring and complying with cdc guidelines for limiting the spread of covid-19 and complying with all applicable federal , state and local executive orders . we also provide employees who are unable to work as a direct result of covid-19 with up to two weeks of additional sick leave despite the fact that we are generally not legally obligated to do so . we are also providing our employees with an additional four hours of paid time off if they choose to obtain a covid-19 vaccination . in accordance with cdc guidelines , we have mandated that all employees stay at least 6 feet away from each other and our customers . in addition , we are requiring all our employees to wear face coverings , regardless of whether state or local laws require face coverings , and we are cleaning and disinfecting our facilities on a regular basis . we are also providing curbside parts pick-up , online parts ordering and web-based vehicle service communication to reduce in-person interactions . our service teams are minimizing contact with customers and taking extra precautions to keep high-touch areas on customer vehicles clean and disinfected . commercial vehicle sales all of the commercial vehicle manufacturers that we represent have resumed operations and their plants are currently producing vehicles . supply chain delays related to manufacturing components may limit the commercial vehicle industry 's ability to meet commercial vehicle sales demand throughout 2021. aftermarket products and services with respect to aftermarket products and services , with only a few minor exceptions , our parts supply chain has remained uninterrupted to-date . we believe that the investments we have made over the years in our aftermarket strategic initiatives have enabled us to mitigate the impact of the covid-19 pandemic on our aftermarket products and service business . rental and leasing operations with respect to our rental and leasing operations , we allowed certain credit-worthy customers that serve industries that have been dramatically impacted by the covid-19 pandemic to skip up to three months of lease payments and either extended the lease term by three months or increased the remaining payments to keep the same lease term . these customers have resumed payments . liquidity as of december 31 , 2020 , our total net liquidity was approximately $ 417.2 million , including $ 312.0 million in cash and $ 105.2 million available under our various credit agreements , excluding our floor plan credit agreements . our working capital facility ( “ the working capital facility ” ) with bmo harris bank n.a . ( “ bmo harris ” ) includes up to $ 100.0 million of revolving credit loans that are available to us for working capital , capital expenditures and other general corporate purposes . we currently have no outstanding draws on this line of credit . we continue to believe that we are well positioned to navigate the economic challenges that may lie ahead as a result of the covid-19 pandemic . for further discussion of our liquidity , see the liquidity and capital resources discussion set forth herein . summary of 20 20 our results of operations for the year ended december 31 , 2020 are summarized below as follows : ● our gross revenues totaled $ 4,735.9 million in 2020 , an 18.5 % decrease from gross revenues of $ 5,809.8 million in 2019 , largely as a result of decreased commercial vehicle sales and the impact of the covid-19 pandemic . 32 ● gross profit decreased $ 150.2 million , or 14.6 % , in 2020 , compared to 2019. gross profit as a percentage of sales increased to 18.5 story_separator_special_tag in the second step of the analysis , the implied fair value of the goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities . if the implied fair value of goodwill is less than the carrying value of the reporting unit 's goodwill , the difference is recognized as an impairment loss . we determine the fair value of our reporting unit using the discounted cash flow method . the discounted cash flow method uses various assumptions and estimates regarding revenue growth rates , future gross margins , future selling , general and administrative expenses and an estimated weighted average cost of capital . the analysis is based upon available information regarding expected future cash flows of each reporting unit discounted at rates consistent with the cost of capital specific to the reporting unit . this type of analysis contains uncertainties because it requires us to make assumptions and to apply judgment regarding our knowledge of our industry , information provided by industry analysts and our current business strategy in light of present industry and economic conditions . if any of these assumptions change , or fail to materialize , the resulting decline in our estimated fair value could result in a material impairment charge to the goodwill associated with the reporting unit . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for impairment losses on goodwill . however , if actual results are not consistent with our estimates or assumptions , or certain events occur that might adversely affect the reported value of goodwill in the future , we may be exposed to an impairment charge that could be material . goodwill was tested for impairment during the fourth quarter of 2020 and no impairment was required . the fair value of our reporting unit exceeded the carrying value of its net assets . as a result , we were not required to conduct the second step of the impairment test . we do not believe our reporting unit is at risk of failing step one of the impairment test . insurance accruals we are partially self-insured for a portion of the claims related to our property and casualty insurance programs , which requires us to make estimates regarding expected losses to be incurred . we engage a third-party administrator to assess any open claims and we adjust our accrual accordingly on a periodic basis . we are also partially self-insured for a portion of the claims related to our workers ' compensation and medical insurance programs . we use actuarial information provided from third-party administrators to calculate an accrual for claims incurred , but not reported , and for the remaining portion of claims that have been reported . 34 changes in the frequency , severity and development of existing claims could influence our reserve for claims and financial position , results of operations and cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate our self-insured liabilities . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . accounting for income taxes management 's judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . when it is more likely than not that all or some portion of specific deferred income tax assets will not be realized , a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable . accordingly , the facts and financial circumstances impacting deferred income tax assets are reviewed quarterly and management 's judgment is applied to determine the amount of valuation allowance required , if any , in any given period . our income tax returns are periodically audited by tax authorities . these audits include questions regarding our tax filing positions , including the timing and amount of deductions . in evaluating the exposures associated with our various tax filing positions , we adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled , the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available . our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions . our effective income tax rate is also affected by changes in tax law , the level of earnings and the results of tax audits . although we believe that the judgments and estimates are reasonable , actual results could differ , and we may be exposed to losses or gains that could be material . an unfavorable tax settlement would generally require use of our cash and result in an increase in our effective income tax rate in the period of resolution . a favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution . our income tax expense includes the impact of reserve provisions and changes to reserves that we consider appropriate , as well as related interest . revenue recognition effective january 1 , 2018 , we adopted asu 2014-09 , “ revenue from contracts with customers ( “ topic 606 ” ) , ” using the modified retrospective transition method .
| results of operations the following discussion and analysis includes our historical results of operations for 2020 , 2019 and 2018. the following table sets forth for the years indicated certain financial data as a percentage of total revenues : replace_table_token_9_th the following table sets forth the unit sales and revenue for new heavy-duty , new medium-duty , new light-duty and used commercial vehicles and the absorption ratio for the years indicated ( revenue in millions ) : replace_table_token_10_th ( 1 ) includes sales of truck bodies , trailers and other new equipment . 36 the following table sets forth for the periods indicated the percent of gross profit by revenue source : replace_table_token_11_th industry we operate in the commercial vehicle market . there has historically been a high correlation between new product sales in the commercial vehicle market and the rate of change in u.s. industrial production and the u.s. gross domestic product . heavy-duty truck market the u.s. retail heavy-duty truck market is affected by a number of factors , including general economic conditions , fuel prices , other methods of transportation , environmental and other government regulation , interest rate fluctuations and customer business cycles . according to data published by a.c.t . research , over the last 10 years , total u.s. retail sales of new class 8 trucks have ranged from a low of approximately 110,000 in 2010 to a high of approximately 281,440 in 2019. class 8 trucks are defined by the american automobile association as trucks with a minimum gross vehicle weight rating above 33,000 pounds . typically , class 8 trucks are assembled by manufacturers utilizing certain components that may be manufactured by other companies , including engines , transmissions , axles , wheels and other components . as commercial vehicles and certain commercial vehicle components have become increasingly complex , the ability to provide service for commercial vehicles has become an increasingly competitive factor in the industry .
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we also make real estate mortgage loans and other loans to our tenants . we conduct our business operations in one segment . we currently have healthcare investments in the u.s. , europe , australia , and south america . we have operated as a reit since april 6 , 2004 , and accordingly , elected reit status upon the filing of our calendar year 2004 u.s. federal income tax return . our existing tenants are , and our prospective tenants will generally be , healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations . we offer financing to these operators through 100 % lease and mortgage financing and generally seek lease and loan terms on a long-term basis ( typically 15 years ) with a series of shorter renewal terms at the option of our tenants and borrowers . we also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases . our existing portfolio 's minimum escalators generally range from 0.5 % to 3 % . in addition , most of our leases and loans include rate increases based on the general rate of inflation if greater than the minimum contractual increases . beyond rent or mortgage interest , our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility . finally , we may acquire a profits or other equity interest in our tenants that gives us a right to share in the tenant 's income or loss . we selectively make loans to certain of our operators through our trss , which the operators use for acquisitions and working capital . we consider our lending business an important element of our overall business strategy for two primary reasons : ( 1 ) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise , and ( 2 ) by making debt capital available to certain qualified operators , we believe we create for our company a competitive advantage over other buyers of , and financing sources for , healthcare facilities . at december 31 , 2020 , our portfolio ( including real estate assets in joint ventures ) consisted of 392 properties leased or loaned to 49 operators , of which two were under development and six were in the form of mortgage loans . 39 selected financial data the following sets forth selected consolidated financial and operating data . you should read the following selected financial data in conjunction with the consolidated financial statements and notes thereto of each of medical properties trust , inc. and mpt operating partnership , l.p. and their respective subsidiaries included in item 8 , in this annual report on form 10-k. replace_table_token_10_th replace_table_token_11_th ( 1 ) see section titled “ non-gaap financial measures ” for an explanation of why these non-gaap financial measures are useful along with a reconciliation to our gaap earnings . 40 2020 highlights the global outbreak of covid-19 in 2020 , including in countries where we own and lease facilities , has further validated our business model , which focuses on hospitals as the centerpiece of healthcare delivery across the world . as covid-19 ramped up , governments around the world looked to hospitals and hospital operators to provide necessary care to victims of the pandemic . in the early stages of the pandemic , our tenants were impacted by the governmental mandates to defer elective surgeries , the takeover of certain facilities by the governments in certain countries , and the overall downturn in the economy in general . by the 2020 third quarter , our tenants were back accepting patients and performing medically necessary elective procedures , resulting in improved volumes compared to the 2020 second quarter . despite all of this , we received all but 2 % of our annual rent and interest payments in 2020. for the 2 % not collected as scheduled , we have agreements in place to collect such deferred amounts plus interest . we expect to continue to receive substantially all future rent and interest payments ; however , no assurances can be made that if the pandemic continues for an extended period of time that our rent and interest payments will not be delayed into the future until our tenants can recover . in addition to the collection of almost all of our rent and interest during the pandemic , we , along with our operators , executed on several accretive growth initiatives during 2020 despite the environment created by the covid-19 pandemic . in 2020 , we invested approximately $ 3.6 billion in hospital real estate . additionally , we have maintained liquidity during the covid-19 pandemic by raising more than $ 400.0 million in proceeds through sales of our common stock in our at-the-market program , receiving more than $ 500.0 million from payoffs on our loan portfolio and divestitures , and completing a $ 1.3 billion 3.50 % senior unsecured notes offering , of which approximately $ 833 million was used to refinance debt with a weighted-average interest rate of 6 % . we also increased our dividend to $ 0.27 per share per quarter in 2020 , which is the 6 th year in a row for such an increase . finally , shortly after year-end , we were able to extend and improve pricing of our revolving credit and term loan facility ( “ credit facility ” ) . a summary of our 2020 highlights is as follows : acquired the following real estate assets : acquired 30 acute care hospitals in the united kingdom for a purchase price of approximately £1.5 billion . these facilities are leased to circle ; formed a new joint venture for the purpose of investing in the operations of international hospitals and originated a $ 205 million acquisition loan as part of this formation . story_separator_special_tag in addition , application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties ( such as the ultimate impact from the covid-19 pandemic ) and , as a result , actual results could materially differ from these estimates . see note 2 to item 8 of this annual report on form 10-k for more information regarding our accounting policies and recent accounting developments . our accounting estimates include the following : credit losses : losses from rent receivables : for all leases , we continuously monitor the performance of our existing tenants including , but not limited to : admission levels and surgery/procedure volumes by type ; current operating margins ; ratio of our tenants ' operating margins both to facility rent and to facility rent plus other fixed costs ; trends in revenue , cash collections , patient mix ; and the effect of evolving healthcare regulations , adverse economic and political conditions , and other events ongoing ( such as the recent health crisis caused by the covid-19 outbreak ) on tenants ' profitability and liquidity . losses from operating lease receivables : we utilize the information above along with the tenants ' payment and default history in evaluating ( on a property-by-property basis ) whether or not a provision for losses on outstanding billed rent and or straight-line rent receivables is needed . a provision for losses on rent receivables ( including straight-line rent receivables ) is ultimately recorded when it becomes probable that the receivable will not be collected in full . the provision is an 43 amount which reduces the receivable to its estimated net realizable value based on a determination of the eventual amounts to be collected either from the debtor or from existing collateral , if any . losses on financing lease receivables : upon the adoption of accounting standards update ( “ asu ” ) no . 2016-13 “ measurement of credit losses on financial instruments '' ( `` asu 2016-13 '' ) on january 1 , 2020 , we began applying a new forward-looking “ expected loss ” model to all of our financing receivables , including financing leases and loans . with this change , we have grouped our financial instruments into two primary pools of similar credit risk : secured and unsecured . the secured instruments include our investments in financing receivables as all are secured by the underlying real estate among other collateral . within the two primary pools , we further grouped our instruments into sub-pools based on several tenant/borrower characteristics , including years of experience in the healthcare industry and in a particular market or region and overall capitalization . we then determined a credit loss percentage per pool based on our history over a period of time that closely matches the remaining terms of the financial instruments being analyzed and adjusted as needed for current trends or unusual circumstances . we have applied these credit loss percentages to the book value of the related instruments to establish a credit loss reserve on our financing lease receivables and such credit loss reserve ( including the underlying assumptions ) is reviewed and adjusted quarterly . if a financing receivable is underperforming and is deemed uncollectible based on the lessee 's overall financial condition , we will adjust the credit loss reserve based on the fair value of the underlying collateral . with the adoption of asu 2016-13 , we made the accounting policy election to exclude interest receivables from the credit loss reserve analysis . such receivables are impaired and an allowance recorded when it is deemed probable that we will be unable to collect all amounts due . like operating lease receivables , the need for an allowance is based upon our assessment of the lessee 's overall financial condition , economic resources and payment record , the prospects for support from any financially responsible guarantors , and , if appropriate , the realizable value of any collateral . financing leases are placed on non-accrual status when we determine that the collectability of contractual amounts is not reasonably assured . if on non-accrual status , we generally account for the financing lease on a cash basis , in which income is recognized only upon receipt of cash . loans : loans consist of mortgage loans , working capital loans , and other loans . mortgage loans are collateralized by interests in real property . working capital and other loans are generally collateralized by interests in receivables and corporate and individual guarantees . we record loans at cost . like our financing lease receivables , we are using asu 2016-13 to establish credit loss reserves on all outstanding loans based on historical credit losses on similar instruments . such credit loss reserves , including the underlying assumptions , are reviewed and adjusted quarterly . if a loan 's performance worsens and foreclosure is deemed probable for our collateral-based loans ( after considering the borrower 's overall financial condition as described above for leases ) , we will adjust the allowance for expected credit losses based on the current fair value of such collateral at the time the loan is deemed uncollectible . if the loan is not collateralized , the loan will be written-off once it is determined that such loan is no longer collectible . interest receivables on loans are excluded from asu 2016-13 and we assess their collectability similar to how we assess collectability for interest receivables on financing leases described above . investments in real estate : we maintain our investments in real estate at cost , and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset . while our tenants are generally responsible for all operating costs at a facility , to the extent that we incur costs of repairs and maintenance , we expense those costs as incurred . we compute depreciation using the straight-line method over the weighted-average useful life of approximately 39.0 years for buildings and improvements .
| 2019 highlights in 2019 , we invested in approximately $ 4.5 billion in healthcare real estate assets . these significant investments enhanced the size and scale of our healthcare portfolio , while expanding our geographic footprint in the u.s. and europe , and entering into new territories such as australia . to fund these new investments , we raised $ 2.5 billion in proceeds from equity sales during 2019 , received proceeds of $ 837 million from an australian term loan facility in june 2019 , and completed $ 900 million and £1 billion senior unsecured notes offerings in july and december 2019 , respectively . a summary of our 2019 highlights was as follows : acquired real estate assets or commenced development projects totaling more than $ 4.5 billion , as noted below : invested in three acute care hospitals and one irf for an aggregate investment of approximately $ 135 million , leased to four separate operators ; invested in a portfolio of 13 acute care campuses and two additional properties in switzerland for a combined purchase price of approximately chf 236.6 million , effected through our purchase of a minority interest in a swiss healthcare real estate company , infracore . these facilities are leased to swiss medical network . additionally , we purchased a 4.9 % stake in aevis victoria sa , previous majority shareholder of infracore , for chf 47 million ; acquired 11 hospitals in australia for a purchase price of approximately a $ 1.2 billion plus stamp duties and registration fees of a $ 66.6 million . these facilities are leased to healthscope ltd. ( “ healthscope ” ) ; acquired seven community hospitals in kansas for approximately $ 145.4 million . these facilities are leased to saint luke 's health system ; acquired 14 acute care hospitals and two behavioral health facilities for a combined purchase price of approximately $ 1.55 billion .
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such accruals are adjusted as further information develops or circumstances change . costs of expected future expenditures for environmental remediation obligations are not discounted to their present value . k. asset retirement obligation obligations for dismantlement , restoration and removal of facilities and tangible equipment at the end of oil and gas property 's useful life are recorded based on the estimate of the fair value of the liabilities in the period in which story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with item 6 , “ selected financial data ” and our accompanying financial statements and the notes to those financial statements included elsewhere in this annual report . some of our discussion is forward-looking and involves risks and uncertainties . for information regarding factors that could have a material adverse effect on our business , refer to risk factors under item 1a of this report . overview zion oil and gas , inc. , a delaware corporation , is an oil and gas exploration company with a history of 20 years of oil and gas exploration in israel . we were incorporated in florida on april 6 , 2000 and reincorporated in delaware on july 9 , 2003. we completed our initial public offering in january 2007. our common stock , par value $ 0.01 per share ( the “ common stock ” ) currently trades on the nasdaq capital market under the symbol “ zn ” and our common stock warrant under the symbol “ znwaa. ” the company currently holds one active petroleum exploration license onshore israel , the megiddo-jezreel license , comprising approximately 99,000 acres . the megiddo jezreel # 1 ( “ mj # 1 ” ) site was completed in early march 2017 , after which the drilling rig and associated equipment were mobilized to the site . performance and endurance tests were completed , and the mj # 1 exploratory well was spud on june 5 , 2017 and drilled to a total depth ( “ td ” ) of 5,060 meters ( approximately 16,600 feet ) . thereafter , the company obtained three open-hole wireline log suites ( including a formation image log ) , and the well was successfully cased and cemented . the ministry of energy approved the well testing protocol on april 29 , 2018. during the fourth quarter of 2018 , the company testing protocol was concluded at the mjl well . the test results confirmed that the mj # 1 well did not contain hydrocarbons in commercial quantities in the zones tested . as a result , in the year ended december 31 , 2018 , the company recorded a non-cash impairment charge to its unproved oil and gas properties of $ 30,906,000. the company recorded a post-impairment charge of $ 314,000 for the year ended december 31 , 2019. during the year ended december 31 , 2018 , the company did not record any post-impairment charges . the mj # 1 well provided zion with information zion believes is important for potential future exploration efforts within its license area . as with many frontier wildcat wells , the mj # 1 also left several questions unanswered . while not meant to be an exhaustive list , a summary of what zion believes to be key information learned in the mj # 1 well is as follows : 1. the mj # 1 encountered much higher subsurface temperatures at a depth shallower than expected before drilling the well . in our opinion , this is significant because reaching a minimum temperature threshold is necessary for the generation of hydrocarbons from an organic-rich source rock . 2. the known organic rich ( potentially hydrocarbon bearing ) senonian age source rocks that are typically present in this part of israel were not encountered as expected . zion expected these source rocks to be encountered at approximately 1,000 meters in the mj # 1 well . 3. mj # 1 had natural fractures , permeability ( the ability of fluid to move through the rock ) and porosity ( pore space in rock ) that allowed the sustained flow of formation fluid in the shallower jurassic and lower cretaceous age formations between approximately 1,200 and 1,800 meters . while no hydrocarbons were encountered , zion believes this fact is nonetheless significant because it provides important information about possible reservoir pressures and the ability of fluids to move within the formation and to the surface . 4. mj # 1 encountered oil in the triassic mohilla formation which zion believes suggests an active deep petroleum system is in zion 's license area . there was no natural permeability or porosity in the triassic mohilla formation to allow formation fluid to reach the surface naturally during testing and thus the mj # 1 was not producible or commercial . 5. the depths and thickness of the formations we encountered varied greatly from pre-drill estimates . this required the mj # 1 to be drilled to a much greater depth than previously expected . zion has tied these revised formation depths to seismic data which will allow for more accurate interpretation and mapping in the future . a summary of what zion believes to be some key questions left to be answered are : 1. is the missing shallow senonian age source rock a result of regional erosion , or is it missing because of a fault that cut the well-bore and could be reasonably expected to be encountered in the vicinity of the mj # 1 drill site ? zion believes this is an important question to answer because if the senonian source rocks do exist in this area , the high temperatures encountered are sufficient to mature these source rocks and generate oil . 2. do the unusually high shallow subsurface temperatures extend regionally beyond the mj # 1 well , which could allow for the generation of hydrocarbons in the senonian age source rock within our license area ? story_separator_special_tag all capitalized costs of oil and gas properties , including the estimated future costs to develop proved reserves , are amortized on the unit-of-production method using estimates of proved reserves . investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs . if the results of an assessment indicate that the properties are impaired , the amount of the impairment is included in income from continuing operations before income taxes , and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method . our oil and gas properties represent an investment in unproved properties . these costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired . all costs excluded are reviewed at least quarterly to determine if impairment has occurred . the amount of any impairment is charged to expense since a reserve base has not yet been established . a further impairment requiring a charge to expense may be indicated through evaluation of drilling results , relinquishing drilling rights or other information . abandonment of properties is accounted for as adjustments to capitalized costs . the net capitalized costs are subject to a “ ceiling test ” which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions , plus the lower of cost or fair market value of unproved properties . the recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves , together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations . during the fourth quarter of 2018 , the company testing protocol was concluded at the mjl well . the test results confirmed that the mj # 1 well did not contain hydrocarbons in commercial quantities in the zones tested . as a result , in the year ended december 31 , 2018 , the company recorded a non-cash impairment charge to its unproved oil and gas properties of $ 30,906,000. the company recorded a post-impairment charge of $ 314,000 for the year ended december 31 , 2019. during the year ended december 31 , 2018 , the company did not record any post-impairment charges ( see note 4 ) . following the impairment charge noted above , the total net book value of our unproved oil and gas properties under the full cost method is $ 10,637,000 at december 31 , 2019. currency utilized although our oil & gas properties and our principal operations are in israel , we report all our transactions in united states dollars . certain dollar amounts in the financial statements may represent the dollar equivalent of other currencies . valuation of deferred taxes we record a valuation allowance to reduce our deferred tax asset to the amount that we believe is likely to be realized in the future . in assessing the need for the valuation allowance , we have considered not only future taxable income but also feasible and prudent tax planning strategies . in the event that we were to determine that it would be likely that we would , in the future , realize our deferred tax assets in excess of the net recorded amount , an adjustment to the deferred tax asset would be made . in the period that such a determination was made , the adjustment to the deferred tax asset would produce an increase in our net income . 28 asset retirement obligation we record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long lived assets . fair value considerations we follow asc 820 , “ fair value measurements and disclosures , ” as amended by financial accounting standards board ( fasb ) financial staff position ( fsp ) no . 157 and related guidance . those provisions relate to the company 's financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities . asc 820 defines fair value , expands related disclosure requirements , and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures . fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date , assuming the transaction occurs in the principal or most advantageous market for that asset or liability . there are three levels of inputs to fair value measurements - level 1 , meaning the use of quoted prices for identical instruments in active markets ; level 2 , meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable ; and level 3 , meaning the use of unobservable inputs . we use level 1 inputs for fair value measurements whenever there is an active market , with actual quotes , market prices , and observable inputs on the measurement date . we use level 2 inputs for fair value measurements whenever there are quoted prices for similar securities in an active market or quoted prices for identical securities in an inactive market . we use observable market data whenever available . we use level 3 inputs in the binomial model used for the valuation of the derivative liability . derivative liabilities in accordance with asc 815-40-25 and asc 815-10-15 derivatives and hedging and asc 480-10-25 liabilities-distinguishing liabilities from equity , the embedded derivatives associated with the convertible bonds are accounted for as liabilities during the term of the related convertible bonds .
| results of operations the following table sets forth our statements of operations data for the years ended december 31 ( all data is in thousands of usd ) : replace_table_token_2_th 29 for the year ended december 31 , 2019 compared to december 31 , 2018 revenue . we currently have no revenue generating operations . operating costs and expenses . operating costs and expenses for the year ended december 31 , 2019 were $ 6,522,000 compared to $ 39,480,000 for the year ended december 31 , 2018. the decrease in operating costs and expenses during the year ended december 31 , 2019 is primarily attributable to the recognition of an impairment charge of $ 30,906,000 during the fourth quarter of 2018. general and administrative expenses . general and administrative expenses for the year ended december 31 , 2019 were $ 4,152,000 compared to $ 6,360,000 for the year ended december 31 , 2018. the decrease in general and administrative expenses during the year ended december 31 , 2019 is primarily attributable to lower legal expenses stemming from the sec investigation and related derivative lawsuits and to lower non-cash expenses recognized and recorded in connection with stock option grants during 2019 compared to the corresponding period in 2018. other expenses . other expenses during the year ended december 31 , 2019 were $ 2,056,000 compared to $ 2,214,000 for the year ended december 31 , 2018. other general and administrative expenses are comprised of non-compensation and non-professional expenses incurred . the decrease in other general and administrative expenses during the year ended december 31 , 2019 compared to the corresponding period in 2018 is primarily attributable to lower marketing expenses associated with investor relations activities . impairment of unproved oil and gas properties .
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we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) , mueller water products , inc. 's internal control over financial reporting as of september 30 , 2013 , based on criteria established in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission ( 1992 framework ) and our report dated november 22 , 2013 expressed an unqualified opinion thereon . atlanta , georgia november 22 , 2013 f- 1 index to financial statements report of independent registered public accounting firm the board of directors and stockholders of mueller water products , inc. we have audited mueller water products , inc. and subsidiaries ' internal control over financial reporting as of september 30 , 2013 , based on criteria established in internal control - integrated framework issued by the committee of sponsoring organizations of the treadway commission ( 1992 framework ) ( the coso criteria ) . mueller water products , inc. and subsidiaries ' management is responsible for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto that appear elsewhere in this annual report . overview organization on october 3 , 2005 , walter energy acquired all outstanding shares of capital stock representing the mueller co. and anvil businesses and contributed them to its u.s. pipe business to form the company . in june 2006 , we completed an initial public offering of 28,750,000 shares of series a common stock and in december 2006 , walter energy distributed to its shareholders all of its equity interests in the company , consisting of all of the company 's outstanding shares of series b common stock . on january 28 , 2009 , each share of series b common stock was converted into one share of series a common stock and the series a designation was discontinued . on april 1 , 2012 , we sold the businesses comprising our former u.s. pipe segment . u.s. pipe 's results of operations have been reclassified as discontinued operations for all periods presented . unless the context indicates otherwise , whenever we refer to a particular year , we mean our fiscal year ended or ending september 30 in that particular calendar year . we manage our businesses and report operations through two business segments , mueller co. and anvil , based largely on the products sold and the customers served . business a majority of the net sales of mueller co. are for water infrastructure related directly to municipal spending and residential construction activity in the united states . spending on water infrastructure is based on the condition of the infrastructure systems , the general political and economic climate and access to funding from existing resources , the issuance of debt , higher tax rates or higher water rates . according to data published by thomson reuters , municipal bond new money issuances increased 8 % during the nine month period ended september 30 , 2013 compared to the prior year period . according to u.s. census bureau data at september 30 , 2013 , state and local tax receipts during the year ended june 30 , 2013 grew 5.7 % . the u.s. census bureau may revise published survey data from time to time . the bureau of labor statistics ' consumer price index for water and sewerage maintenance rates increased by 6 % during the year ended september 30 , 2013 compared to the prior year period . we believe the general municipal spending environment continues to improve , although budget pressures , especially healthcare costs and underfunded retirement plans , and economic uncertainty persist , and water infrastructure is only one of many categories competing for municipal funding . residential construction activity measures indicate the new construction housing market is improving . housing starts are currently forecast to grow 22 % to 24 % in calendar 2014 compared to 2013. according to recent surveys by ivy zelman and associates , growth in demand for land and lots has moderated slightly after recently hitting record highs , but growth remains robust . we expect mueller co. 2014 net sales growth to be comparable to 2013 , based on the current outlook for housing , municipal spending and continued adoption of smart meter technologies . we expect a year-over-year increase in net sales of our metering products in 2014 , although not at the growth rate realized in 2013. most of anvil 's net sales are driven by commercial construction . we expect a slight improvement in its end markets , including oil & gas , in 2014. raw material costs declined year over year . we expect that average costs for all of 2014 will be slightly lower than costs for 2013 , as we expect lower raw material costs will be partially offset by higher costs for purchased components . 22 index to financial statements story_separator_special_tag style= '' page-break-after : always '' / > index to financial statements financial condition cash and cash equivalents were $ 123.6 million at september 30 , 2013 compared to $ 83.0 million at september 30 , 2012 . cash and cash equivalents increased during 2013 as a result of cash provided by operating activities of $ 114.1 million , partially offset by cash used in investing , financing and discontinued operations of $ 36.2 million , $ 35.7 million , and $ 0.4 million , respectively . cash and cash equivalents also decreased by $ 1.2 million during 2013 due to changes in currency exchange rates . receivables , net were $ 164.5 million at september 30 , 2013 compared to $ 166.1 million at september 30 , 2012 . receivables at september 30 , 2013 represented approximately 51.1 days net sales compared to september 30 , 2012 receivables representing approximately 53.8 days net sales . story_separator_special_tag the abl agreement permits us to increase the size of the credit facility by an additional $ 150 million in certain circumstances subject to adequate borrowing base availability . we may borrow up to $ 25 million through swing line loans and may have up to $ 60 million of letters of credit outstanding . borrowings under the abl agreement bear interest at a floating rate equal to libor plus a margin ranging from 175 to 225 basis points , or a base rate , as defined in the abl agreement , plus a margin ranging from 75 to 125 basis points . at september 30 , 2013 , the applicable libor-based margin was 175 basis points . the abl agreement terminates on the earlier of ( 1 ) december 18 , 2017 and ( 2 ) 60 days prior to the final maturity of our 7.375 % senior subordinated notes . we pay a commitment fee for any unused borrowing capacity under the abl agreement of either 37.5 basis points per annum or 25 basis points per annum , based on daily average availability during the previous calendar quarter . at september 30 , 2013 , our commitment fee was 37.5 basis points . as measured using september 30 , 2013 data , excess availability as reduced by outstanding letters of credit and accrued fees and expenses of $ 32.9 million was $ 159.4 million . the abl agreement is subject to mandatory prepayments if total outstanding borrowings under the abl agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances . the borrowing base under the abl agreement is equal to the sum of ( a ) 85 % of the value of eligible accounts receivable and ( b ) the lesser of ( i ) 65 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of the value of eligible inventory , less certain reserves . prepayments can be made at any time with no penalty . substantially all of our u.s. subsidiaries are borrowers under the abl agreement and are jointly and severally liable for any outstanding borrowings . our obligations under the abl agreement are secured by a first-priority perfected lien on all of our u.s. inventory , accounts receivable , certain cash and other supporting obligations . 28 index to financial statements borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $ 22.5 million and 10 % of the aggregate commitments under the abl agreement . the abl agreement contains customary negative covenants and restrictions on our ability to engage in specified activities , such as : limitations on other debt , liens , investments and guarantees ; restrictions on dividends and redemptions of our capital stock and prepayments and redemptions of debt ; and restrictions on mergers and acquisition , sales of assets and transactions with affiliates . 8.75 % senior unsecured notes we had $ 180.0 million face value of 8.75 % senior unsecured notes outstanding at september 30 , 2013 , which was reported net of $ 2.0 million unamortized discount . interest on the senior unsecured notes is paid semi-annually and the principal is due september 1 , 2020 . after august 2015 , the senior unsecured notes may be redeemed at specified redemption prices . upon a “ change of control ” ( as defined in the indenture securing the senior unsecured notes ) , we are required to offer to purchase the outstanding senior unsecured notes at a purchase price of 101 % . the senior unsecured notes are guaranteed by essentially all of our u.s. subsidiaries , but are subordinate to borrowings under the abl agreement . 7.375 % senior subordinated notes we also had $ 420.0 million face value of 7.375 % senior subordinated notes ( “ senior subordinated notes ” ) outstanding at september 30 , 2013 . interest on the senior subordinated notes is payable semi-annually and the principal is due june 1 , 2017. we may redeem any portion of the senior subordinated notes at specified redemption prices , subject to restrictions in the senior unsecured notes . upon a “ change of control ” ( as defined in the indenture securing the senior subordinated notes ) , we are required to offer to purchase the outstanding senior subordinated notes at 101 % . the senior subordinated notes are guaranteed by essentially all of our u.s. subsidiaries , but are subordinate to the borrowings under the abl agreement and the senior unsecured notes . our corporate credit rating and the credit rating for our debt are presented below . replace_table_token_10_th off-balance sheet arrangements we do not have any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we do not have any undisclosed borrowings or debt or any derivative contracts other than those described in “ item 7a . quantitative and qualitative disclosure about market risk ” or synthetic leases . therefore , we are not exposed to any financing , liquidity , market or credit risk that could have arisen had we engaged in such relationships . we use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations . at september 30 , 2013 , we had $ 32.7 million of letters of credit and $ 42.2 million of surety bonds outstanding . 29 index to financial statements contractual obligations our contractual obligations at september 30 , 2013 are presented below . replace_table_token_11_th ( 1 ) the long-term debt balance at september 30 , 2013 is net of $ 2.0 million of unamortized discount on the 8.75 % senior unsecured notes .
| results of operations year ended september 30 , 2013 compared to year ended september 30 , 2012 replace_table_token_4_th consolidated analysis net sales for 2013 increased to $ 1,120.8 million from $ 1,023.9 million in the prior year period . net sales increased primarily due to $ 68.5 million of higher shipment volumes at mueller co. gross profit for 2013 increased to $ 313.2 million from $ 271.1 million in the prior year period . gross margin increased 140 basis points to 27.9 % in 2013 from 26.5 % in the prior year period . gross profit and gross margin benefited primarily from increased shipment volumes and higher sales pricing . selling , general and administrative expenses ( `` sg & a '' ) for 2013 increased to $ 214.4 million from $ 204.2 million in the prior year period . sg & a increased primarily due to higher expenses associated with higher shipment volumes and higher stock-based compensation expense . sg & a as a percentage of net sales decreased to 19.1 % in 2013 compared to 19.9 % in the prior year period . 23 index to financial statements interest expense , net decreased in 2013 compared to the prior year period due to non-cash costs for terminated interest rate swap contracts ceasing in the prior year and lower levels of debt outstanding . the components of interest expense , net are detailed below . replace_table_token_5_th during each of 2013 and 2012 , we redeemed $ 22.5 million principal amount of our 8.75 % senior unsecured notes for $ 23.2 million . the resulting losses on early extinguishment of debt of $ 1.4 million and $ 1.5 million , respectively , included the premiums paid and the deferred financing costs and original issue discounts that were written off . the components of income tax expense in continuing operations are provided below . replace_table_token_6_th we did not allocate any income tax expense to discontinued operations during 2013 .
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we offer a broad array of deposit , lending , and other financial services to individuals , municipalities and businesses in western and central new york through our wholly-owned new york-chartered banking subsidiary , five star bank ( the “ bank ” ) . our indirect lending network includes relationships with franchised automobile dealers in western and central new york , the capital district of new york and northern and central pennsylvania . we offer insurance services through our wholly-owned subsidiary , sdn insurance agency , llc ( “ sdn ” ) , a full-service insurance agency . in addition , we offer customized investment advice , wealth management , investment consulting and retirement plan services through our wholly-owned subsidiaries courier capital , llc ( “ courier capital ” ) and hnp capital , llc ( “ hnp capital ” ) , sec-registered investment advisory and wealth management firms . our primary sources of revenue are net interest income ( interest earned on our loans and securities , net of interest paid on deposits and other funding sources ) and noninterest income , particularly fees and other revenue from insurance , investment advisory and financial services provided to customers or ancillary services tied to loans and deposits . business volumes and pricing drive revenue potential , and tend to be influenced by overall economic factors , including market interest rates , business spending , consumer confidence , economic growth , and competitive conditions within the marketplace . we are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition . executive overview 2020 financial performance review net income decreased $ 10.6 million , or 22 % , to $ 38.3 million for 2020 , compared to $ 48.9 million for 2019. this resulted in a 0.82 % return on average assets and an 8.49 % return on average equity . net income available to common shareholders was $ 36.9 million or $ 2.30 per diluted share for 2020 , compared to $ 47.4 million or $ 2.96 per diluted share for 2019. we declared cash dividends of $ 1.04 per common share during 2020 , an increase of $ 0.04 per common share or 4 % compared to the prior year . results for 2020 were negatively impacted by a higher provision for credit losses of $ 27.2 million , as compared to $ 8.0 million in 2019. the higher provision was driven by the adoption of the current expected credit loss ( “ cecl ” ) standard and uncertainty around the long-term impact of the covid-19 pandemic on the economic environment . fully-taxable equivalent net interest income was $ 139.9 million in 2020 , an increase of $ 8.8 million , or 7 % , compared to 2019. the increase was the result of a $ 356.0 million , or 9 % increase in average interest-earning assets , partially offset by a six-basis point decrease in the net interest margin , to 3.22 % . the provision for credit losses - loans was $ 26.2 million in 2020 compared to $ 8.0 million in 2019. net charge-offs increased $ 2.3 million from the prior year to $ 13.8 million in 2020. net charge-offs were an annualized 0.40 % of average loans in the current year compared to 0.37 % in 2019. in addition , non-performing loans increased $ 877 thousand to $ 9.5 million compared to a year ago and represented 0.26 % of total loans at december 31 , 2020. noninterest income totaled $ 43.2 million for the full year 2020 , an increase of $ 2.8 million , or 7 % , when compared to the prior year . the increase is primarily attributed to increases in income from derivatives instruments , net and net gain on sale of loans held for sale , partially offset by decreases in service charges on deposits and other noninterest income . income from derivative instruments , net increased $ 3.2 million to $ 5.5 million in 2020 driven by an increase in the volume and value of interest rate swap transactions . income from derivative instruments , net primarily consists of income associated with interest rate swap products offered to commercial loan customers and is based on the number and value of transactions executed . net gain on sale of loans held for sale increased $ 2.5 million to $ 3.9 million during the current year as a result of increased volume and higher margins on residential real estate loans held for sale . service charges on deposits decreased $ 2.4 million to $ 4.8 million during the current year primarily due to our temporary covid-19 relief initiatives implemented in 2020 , including waiving or eliminating certain fees and lower insufficient fund fees for the remainder of 2020. in addition , other noninterest income decreased $ 1.0 million to $ 4.3 million in 2020 primarily due to decreased fhlb dividends due to the lower level of fhlb borrowings in 2020 versus 2019. lower pay-by-phone fees associated with our temporary covid-19 consumer relief initiatives , coupled with the impact of stay-at home orders that reduced certain volume-based fees like merchant revenue and corresponding credit card fees also contributed to the decrease in other noninterest income . - 39 - management 's discussion and analysis noninterest expense for the full year 20 20 totaled $ 10 9 . 3 million , a $ 6 . 4 million increase compared to $ 10 2 . 8 million in the prior year . salaries and benefits expense increased $ 3 . 0 million year-over-year , primarily as a result of higher salaries , incentives and severance expense , partially offset by a staff reduction associated with our enterprise standardization program described below in the second half of the year . computer and data processing expense increased $ 1.7 million year-over-year , primarily as a result of costs related to the new online and mobile platform combined with other investments in technology . story_separator_special_tag the proceeds were used for general corporate purposes and organic growth , while a portion has been contributed to five star bank to support regulatory capital ratios . stock repurchase program on november 4 , 2020 , the company announced a stock repurchase program for up to 801,879 shares of common stock , or approximately 5 % of the company 's outstanding common shares . shares may be repurchased in open market transactions and pursuant to any trading plan adopted in accordance with rule 10b5-1 of the securities exchange act of 1934 , as amended . the timing and number of shares repurchased will depend on a variety of factors including price , corporate and regulatory requirements , market conditions , and other corporate liquidity requirements and priorities . the repurchase program does not obligate the company to purchase any shares and it may be extended , modified or discontinued at any time . no shares were repurchased in 2020 under this program . in 2021 , through february 28 th , the company repurchased 238,439 shares for an average repurchase price of $ 24.30 per share , inclusive of transaction costs . insurance subsidiary acquisition on february 1 , 2021 , sdn completed the acquisition of the assets of landmark group ( “ landmark ” ) . a staple of the rochester community since 1984 , landmark is an independent insurance brokerage firm delivering insurance , surety and risk management solutions across many business sectors including construction , manufacturing , real estate and technology , as well as individual personal insurance . landmark founder and chairman kelly m. shea and president christopher k. shea will remain with sdn to lead sdn 's rochester operations and continue their long-term relationship with current clients . operational , accounting and reporting impacts related to the covid-19 pandemic the covid-19 pandemic has negatively impacted the global economy , including our operating footprint of western and central new york . in response to this crisis , the coronavirus aid , relief , and economic security ( “ cares ” ) act was passed by congress and signed into law on march 27 , 2020. the cares act provided an estimated $ 2.2 trillion to fight the covid-19 pandemic and stimulate the economy by supporting individuals and businesses through loans , grants , tax changes , and other types of relief . some of the provisions applicable to the company include , but are not limited to : accounting for loan modifications - the cares act provides that a financial institution may elect to suspend ( 1 ) the application of gaap for certain loan modifications related to covid-19 that would otherwise be categorized as a troubled debt restructuring ( “ tdr ” ) and ( 2 ) any determination that such loan modifications would be considered a tdr , including the related impairment for accounting purposes . paycheck protection program - the cares act established the paycheck protection program ( “ ppp ” ) , an expansion of the small business administration 's ( “ sba ” ) 7 ( a ) loan program and the economic injury disaster loan program ( “ eidl ” ) , administered directly by the sba . on december 27 , 2020 , the consolidated appropriations act , 2021 provided approximately $ 284 billion for ppp loans in an additional round of funding under the program and extended the ppp through march 31 , 2021. this additional round of ppp loan funding is authorized for first-time borrowers and for second draws by certain borrowers who have previously received ppp loans . mortgage forbearance - under the cares act , through the earlier of december 31 , 2020 , or the termination date of the covid-19 national emergency , a borrower with a federally backed mortgage loan that is experiencing financial hardship due to covid-19 may request a forbearance . this relief has been extended by executive order through at least march 31 , 2021 . - 41 - management 's discussion and analysis also , in response to the covid-19 pandemic , the board of governors of the federal reserve system ( “ frb ” ) , the federal deposit insurance corporation ( “ fdic ” ) , the national credit union administration ( “ ncua ” ) , the office of the comptroller of the currency ( “ occ ” ) , and the consumer financial protection bureau ( “ cfpb ” ) , in consultation with the state financial regulators ( collectively , the “ agencies ” ) issued a joint interagency statement ( issued march 22 , 2020 ; revised statement issued april 7 , 2020 ) . some of the provisions applicable to the company include , but are not limited to : accounting for loan modifications - loan modifications that do not meet the conditions of the cares act may still qualify as a modification that does not need to be accounted for as a tdr . the agencies confirmed with fasb staff that short-term modifications made on a good faith basis in response to covid-19 to borrowers who were current prior to any relief are not tdrs . this includes short-term ( e.g. , six months ) modifications such as payment deferrals , fee waivers , extensions of repayment terms , or insignificant delays in payment . past due reporting - with regard to loans not otherwise reportable as past due , financial institutions are not expected to designate loans with deferrals granted due to covid-19 as past due because of the deferral . a loan 's payment date is governed by the due date stipulated in the legal agreement . if a financial institution agrees to a payment deferral , these loans would not be considered past due during the period of the deferral . nonaccrual status and charge-offs - during short-term covid-19 modifications , these loans generally should not be reported as nonaccrual or as classified .
| results of operations for the years ended december 31 , 2019 and december 31 , 2018 a discussion regarding our financial condition and results of operations for the year ended december 31 , 2018 and year-to-year comparisons between 2019 and 2018 , which are not included in this form 10-k , can be found under “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 and are incorporated by reference herein . analysis of financial condition overview at december 31 , 2020 , we had total assets of $ 4.91 billion , an increase of 12 % from $ 4.38 billion as of december 31 , 2019 , largely attributable to organic loan growth and an increase in our investment securities portfolio . net loans were $ 3.54 billion as of december 31 , 2020 , up $ 352.2 million , or 11 % , when compared to $ 3.19 billion as of december 31 , 2019. the increase in net loans was primarily attributable to ppp loans in our commercial business portfolio and organic growth in our commercial and residential real estate loans . non-performing assets totaled $ 12.5 million as of december 31 , 2020 , up $ 3.4 million from a year ago . total deposits amounted to $ 4.28 billion as of december 31 , 2020 , up $ 722.7 million , or 20.3 % , compared to december 31 , 2019. as of december 31 , 2020 , borrowed funds totaled $ 5.3 million , compared to $ 314.8 million as of december 31 , 2019. common book value per common share was $ 28.12 and $ 26.35 as of december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , our total shareholders ' equity was $ 468.4 million compared to $ 438.9 million a year earlier .
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in addition , we are a major provider of reverse logistics , which is also called returns management . reverse logistics is a fast-growing area of logistics that includes the inspection , repackaging , refurbishment , resale or disposal of returned merchandise , as well as refunding and warranty management . in december 2020 , we announced that our board of directors unanimously approved a plan to pursue a spin-off of 100 % of our logistics segment as a separate publicly traded company . we intend to structure the spin-off as a distribution that is generally tax-free for u.s. federal income tax purposes to xpo shareholders ( except with respect to any cash received in lieu of fractional shares ) and would result in xpo shareholders owning stock in both companies . if completed , the spin-off will result in separate public companies with clearly delineated service offerings . xpo will be a global provider of primarily ltl transportation and truck brokerage services , and the spun-off company will be the second largest contract logistics provider in the world . both companies ' stocks are expected to trade on the new york stock exchange , and we plan to consider a dual listing on the london stock exchange for the spun-off company in due course . the transaction is currently expected to be completed in the second half of 2021 , subject to various conditions . there can be no assurance that the spin-off will occur or , if it does occur , of its terms or timing . separately , in march 2020 , we announced that we had entered into an agreement to acquire the majority of kuehne + nagel 's contract logistics operations in the united kingdom . the operations , which include roughly 5,700 employees and provide a range of logistics services , including inbound and outbound distribution , reverse logistics management and inventory management , will be included in our logistics segment . the acquisition was completed in january 2021. this discussion focuses on our 2020 results , compared with 2019 results . the discussion of our 2019 results , compared with 2018 results , can be found in management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of our 2019 annual report on form 10-k. impacts of covid-19 as a global provider of supply chain solutions , our business can be impacted to varying degrees by factors beyond our control . the rapid escalation of covid-19 into a pandemic in 2020 has affected , and will continue to affect , economic activity broadly and customer sectors served by our industry . in response to the covid-19 pandemic , the governments of many countries , states , cities and other geographic regions have taken and are continuing to take preventative or reactive actions , such as imposing restrictions on travel and business operations and establishing guidelines for social distancing and occupational safety . due to the critical role we play in moving goods and equipment in the markets we serve , xpo is considered an “ essential business , ” providing supply chain solutions to crucial industries and delivering critical consumer goods . as a result , our sites have generally remained open and operating , and we have continued to serve our customers while employing significant measures to protect our employees and keep them safe . replace_table_token_39_th the covid-19 pandemic and associated impacts on economic activity had an adverse effect on our results of operations and financial condition for the year ended december 31 , 2020 , as discussed below . we experienced declines in demand for our services that began in the first quarter of 2020 , had a substantial impact in the second quarter of 2020 , and abated throughout the second half of 2020. these declines in demand meaningfully affected our results in both north america and europe . due to the largely unprecedented and evolving nature of the covid-19 pandemic , it remains very difficult to predict the extent of the impact on our industry generally and our business in particular . furthermore , the extent and pace of a recovery remains uncertain and may differ significantly among the countries in which we operate . we expect our results of operations will continue to be impacted by this pandemic in 2021. we have incurred net incremental costs related to covid-19 to ensure that we meet the needs of our customers and employees ; these include costs for personal protective equipment ( “ ppe ” ) , temporary site closures , site cleanings and enhanced employee benefits . we also implemented supplemental “ appreciation pay ” programs for thousands of frontline employees who continued to work during the pandemic . we expect to continue to incur additional costs as we implement operational changes in response to the pandemic . however , the majority of our cost base is variable , and we have taken and , if appropriate , will continue to take aggressive actions to adjust our expenses to reflect changes in demand for our services . these actions include reduced use of contractors , reduced employee hours , furloughs , layoffs and required use of paid time off , consistent with applicable regulations . while we could not fully offset the decrease in demand for our services arising from the economic disruption of the pandemic in 2020 , the actions we have taken , combined with the variable components of our cost structure , have mitigated the impact on our profitability relative to the impact on our revenue and volumes . a further discussion of the potential impact of the covid-19 pandemic on our business is set forth above in part i , item 1a . risk factors . consolidated summary financial table replace_table_token_40_th ( 1 ) consolidated operating income for 2020 includes $ 100 million of transaction and integration costs , of which $ 21 million relates to our transportation segment and $ 28 million relates to our logistics segment , and $ 56 million of restructuring expense . story_separator_special_tag the decrease in our effective income tax rate for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was primarily driven by income tax benefits associated with stock-based compensation . the u.s. coronavirus aid , relief , and economic security act ( the “ cares act ” ) enacted in march 2020 provides numerous tax provisions and other stimulus measures , including temporary changes regarding the prior and future utilization of net operating losses , temporary changes to the prior and future limitations on interest deductions , and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property . we have applied the provisions of the cares act relating to income taxes and realized a $ 4 million reduction in cash taxes as well as an immaterial income tax benefit on our consolidated statements of income in 2020. additionally , we benefited from the ability to defer the payment of certain payroll taxes that would otherwise have been required in 2020. we have not applied for any government loans under the cares act or similar laws . restructuring charges we engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure , including actions in response to covid-19 . restructuring charges were recorded on our consolidated statements of income as follows : replace_table_token_43_th for more information , see note 6—restructuring charges to our consolidated financial statements . upon successful completion of the restructuring initiatives recorded in 2020 , we expect to achieve annualized pre-tax savings of approximately $ 100 million by the end of 2021. in addition , we may incur incremental restructuring costs in 2021 in connection with the planned spin-off of our logistics segment or for other reasons ; however , we are currently unable to reasonably estimate these costs . transportation segment replace_table_token_44_th revenue in our transportation segment decreased 4.6 % to $ 10.2 billion in 2020 , compared with $ 10.7 billion in 2019. the decline in revenue primarily reflected the impact of covid-19 and lower fuel revenue . foreign currency movement increased revenue by approximately 0.4 percentage points in 2020. operating income in our transportation segment was $ 507 million , or 5.0 % of revenue , in 2020 , compared with $ 752 million , or 7.0 % of revenue , in 2019. the decrease in operating income was primarily driven by lower replace_table_token_45_th revenue , higher facility costs , expenses related to our exploration of strategic alternatives and incremental ppe and other covid-19-related costs . these higher costs were partially offset by lower third-party transportation , fuel and personnel costs . depreciation and amortization expense in 2019 included $ 6 million related to the impairment of customer relationship intangible assets associated with exiting the direct postal injection business . logistics segment replace_table_token_46_th revenue in our logistics segment increased 1.5 % to $ 6.2 billion in 2020 , compared with $ 6.1 billion in 2019. the increase in revenue compared to 2019 reflects growth in our european business , partially offset by the impact of covid-19 , our elimination of certain low-margin business and the downsizing of business by one of our largest customers in north america in 2019. foreign currency movement increased revenue by approximately 0.8 percentage points in 2020. operating income in our logistics segment was $ 140 million , or 2.3 % of revenue in 2020 , compared with $ 241 million , or 3.9 % of revenue , in 2019. the decrease in operating income was primarily driven by the impact of covid-19 on revenues , costs and margins , increased depreciation and amortization expense , expenses related to our exploration of strategic alternatives and higher personnel costs , partially offset by higher revenue . depreciation and amortization expense increased year-over-year due to the impact of prior capital investments , new contract startups and accelerated depreciation due to contract modifications . liquidity and capital resources our principal existing sources of cash are ( i ) cash generated from operations ; ( ii ) borrowings available under our second amended and restated revolving loan credit agreement , as amended ( the “ abl facility ” ) and a senior secured term loan credit agreement ; and ( iii ) proceeds from the issuance of other debt . as of december 31 , 2020 , we have $ 883 million available to draw under our abl facility , based on a borrowing base of $ 1.1 billion , outstanding borrowings of $ 200 million and outstanding letters of credit of $ 17 million , as well as $ 150 million available to draw under the senior secured term loan credit agreement . our cash and cash equivalents balance was $ 2.1 billion as of december 31 , 2020 , compared to $ 377 million as of december 31 , 2019. the increase in cash and cash equivalents is largely due to the issuance of our senior notes due 2025 in 2020 and cash flows generated from operating activities in 2020. managing our balance sheet prudently and maintaining appropriate liquidity are high priorities during the disruption caused by covid-19 . in order to best position us to navigate this uncertain period , we have taken a number of actions to further strengthen our liquidity . we borrowed a net $ 200 million in revolving loans under our existing abl facility in 2020. in addition , in april 2020 , we entered into the senior secured term loan credit agreement which allows us to borrow up to $ 150 million in aggregate principal amount of committed secured term loans and request the issuance of up to $ 200 million in aggregate face amount of secured letters of credit under an evergreen letter of credit facility . also in the second quarter of 2020 , we completed private placements of $ 1.15 billion aggregate principal amount of senior notes due 2025. the senior secured term loan credit agreement and senior notes due 2025 are discussed further below .
| effect on results the effects of the defined benefit pension plans on our results consist primarily of the net effect of the interest cost on plan obligations for the u.s. plans and the u.k. plan , and the expected return on plan assets . we estimate that the defined benefit pension plans will contribute annual pre-tax income in 2021 of $ 61 million for the u.s. plans and $ 41 million for the u.k. plan . funding in determining the amount and timing of pension contributions for the u.s. plans , we consider our cash position , the funded status as measured by the pension protection act of 2006 and generally accepted accounting principles , and the tax deductibility of contributions , among other factors . we contributed $ 5 million to the u.s. plans in 2020 and 2019 , respectively , and we estimate that we will contribute $ 5 million to the u.s. plans in 2021. for the u.k. plan , the amount and timing of pension contributions are determined in accordance with u.k. pension codes and trustee negotiations . we contributed $ 3 million and $ 2 million to the u.k. plan in 2020 and 2019 , respectively . we estimate that we will contribute $ 1 million to the u.k. plan in 2021. for additional information , see note 13—employee benefit plans to our consolidated financial statements . contractual obligations our contractual obligations as of december 31 , 2020 were : replace_table_token_57_th ( 1 ) as of december 31 , 2020 , we had additional operating leases that have not yet commenced with future undiscounted lease payments of $ 202 million . these operating leases will commence in 2021 through 2022 with initial lease terms of 2 years to 15 years .
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important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , and wider viewing angles . in addition , many computer and video electronic system functions can be built directly into the oled-on-silicon microdisplay , resulting in compact systems with lower expected overall system costs relative to alternate microdisplay technologies . we have devoted significant resources to the development and commercial launch of our oled microdisplay products into military , industrial and medical applications world-wide . first sales of our svga+ microdisplay began in may 2001 and we launched the svga-3d microdisplay in february 2002. in 2008 the sxga microdisplay became our first digital display , and in 2011 we introduced the vga oled-xl , our lowest powered microdisplay , and the wuxga oled-xl which exceeds 1080p hd resolution . as of january 31 , 2014 and 2013 , we had a backlog of approximately $ 13.4 mil lion in products ordered for delivery through december 31 , 2014 and 2013 , respectively . this backlog consists of non-binding purchase orders and purchase agreements . these products are being applied or considered for near-eye and headset applications in products such as thermal imagers , night vision goggles , entertainment headsets , handheld internet and telecommunication appliances , viewfinders , and wearable computers to be manufactured by original equipment manufacturer ( oem ) customers . we have also continued to ship our z800 3dvisor personal display systems . in addition to marketing oled-on-silicon microdisplays as components , we also offer microdisplays as an integrated package , which we call microviewer that includes a compact lens for viewing the microdisplay and electronic interfaces to convert the signal from our customer 's product into a viewable image on the microdisplay . we have also expanded our design and production activities to include display/optical subsystem assemblies for both military and commercial end-use products . we have developed a strong intellectual property portfolio that includes patents , manufacturing know-how and unique proprietary technologies to create high performance oled-on-silicon microdisplays and related optical systems . we believe our technology , intellectual property portfolio and position in the marketplace , gives us a leadership position in oled and oled-on-silicon microdisplay technology . we are one of only a few companies in the world to market and produce significant quantities of high resolution full-color small molecule oled-on-silicon microdisplays . in 2010 , we announced the award from itt night vision for design and development of a display/optical assembly for the u.s. army enhanced night vision goggle . we began deliveries to itt exelis under this program in 2012. in 2011 , we opened additional avenues of growth by securing r & d contracts with itt , the department of energy , the u.s. navy and others while completing contracts with tatrc and other government agencies . we continued display shipments under the felin soldier program , javelin program , u.s. army thermal weapon sight remote viewer program , the viper ii thermal sight program and others . in 2012 , we developed a new xga microdisplay , working with an important new customer , for the electronic view finder market . we were awarded a follow-on contract by the u.s. navy for development of a high brightness , high resolution microdisplay to be used for head-mounted avionics applications . we were also awarded a contract by the u.s. special operations command to optimize our wuxga ( 1920 x 1200 ) microdisplay for mass production and dual use applications . 21 index in 2013 , we began working with an important new customer with significant volume purchases of our displays for a u.s. military program . we continued our development of higher brightness displays . in june , we announced the world 's brightest color oled microdisplay . we continue work with the u.s. navy to develop an even higher brightness 2k by 2k display for use in avionics and daylight headsets . we strengthened our manufacturing capability with the addition of several new pieces of manufacturing equipment , better optimized our new oled deposition and added a vice president of manufacturing position . on march 5 , 2014 , the company received a notification to stop shipments to a customer pending review of a possible wire bonding problem in a microdisplay . similar notices from two other customers have been received by the company . these customers , who supply systems to government programs that include the company 's displays , have indicated that they will not accept the company 's displays until the issue has been resolved . story_separator_special_tag the 2008 incentive stock plan ( “ the 2008 plan ” ) adopted and approved by the board of directors on november 5 , 2008 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2008 plan has an aggregate of 2 million shares . in 2013 , there were no options granted from this plan . the 2011 incentive stock plan adopted and approved by the shareholders on november 3 , 2011 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . on june 7 , 2012 , at our annual meeting , the shareholders approved an amended and restated 2011 incentive stock plan ( “ the 2011 plan ” ) . the 2011 plan has an aggregate of 1.4 million shares . in 2013 , there were no options granted from this plan . the 2013 incentive stock plan ( “ the 2013 plan ” ) adopted and approved by the shareholders on may 17 , 2013 provides for grants of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2013 plan has an aggregate of 1.5 million shares . in 2013 , there were 59,565 options granted from this plan . we account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors by estimating the fair value of stock awards at the date of grant using the black-scholes option valuation model . stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method . see note 10 of the consolidated financial statements – stock compensation for a further discussion on stock-based compensation . income taxes we are required to estimate income taxes in each of the jurisdictions in which we operate . the process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for accounting and tax purposes . these differences result in deferred tax assets and liabilities . operating losses and tax credits , to the extent not already utilized to offset taxable income also represent deferred tax assets . we must assess the likelihood that any deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . in determining future taxable income , assumptions are made to forecast operating income , the reversal of temporary timing differences and the implementation of tax planning strategies . management uses significant judgment in the assumptions it uses to forecast future taxable income which are consistent with the forecasts used to manage the business . realization of the deferred tax asset is dependent upon future earnings which there is uncertainty as to the timing . in assessing the realizability of deferred tax assets , we evaluate both positive and negative evidence that may exist and consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized . from inception through 2009 , we maintained a full valuation allowance against our deferred tax assets as we were unable to determine that it was more likely than not that we would generate sufficient future taxable income to utilize them . in 2010 , we determined that based on all available evidence , both positive and negative , and based on the weight of the available evidence , including our cumulative taxable income over the past three years and expected profitability in 2011 through 2013 that certain of our deferred tax assets were more likely than not realizable through future earnings . accordingly , we reduced our valuation allowance by $ 9.1 million and recorded a corresponding tax benefit of $ 9.1 million . at december 31 , 2011 , we determined based on the weight of the available evidence , both positive and negative , it was more likely than not that $ 8.2 million of its deferred tax asset will be realized and no additional valuation allowance was released . 23 index in 2012 , we determined that based on all a vailable evidence , both positive and negative , and based on the weight of the available evidence , including our continued profitability and our forecasted earnings in 2013 through 2017 that certain of our deferred tax assets were more likely than not realizable through future earnings . accordingly , we increased our deferred tax asset to $ 8.8 million by recording a $ 0.7 million reduction of our deferred tax asset valuation allowance and recorded a corresponding tax benefit of $ 0.7 million . in 2013 , we determined that based on all available evidence , both positive and negative , and based on the weight of the available evidence , including the our recent operating loss in 2013 and a projected cumulative loss through 2014 , it was more likely than not that any of our deferred tax assets will be realized therefore , we recorded a full valuation allowance . we recorded income tax expense of $ 8.9 million at december 31 , 2013. our effective income tax rate was an expense of 171 % and a benefit of 37 % in 2013 and 2012 , respectively .
| results of operations the following table presents certain financial data as a percentage of total revenue for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_4_th year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues revenues decreased approximately $ 2.6 million to a total of approximately $ 28.0 million for the year ended december 31 , 2013 from approximately $ 30.6 million for the year ended december 31 , 2012 , an 8 % decrease . in 2013 , there was a 1 % increase in display or product revenue as a result of a 1.5 % decrease in the number of displays sold however it was offset by a 4 % increase in the average selling price which was a result of changes in product and customer mix as compared to 2012. in 2013 , contract revenue decreased $ 2.8 million or 62 % from 2012. this decrease accounts for more than the total revenue decrease in 2013. we believe this decrease is the result of a reduction in funding of research and development contracts primarily by the u.s. government . cost of goods sold cost of goods sold is comprised of costs of product revenue and contract revenue . cost of product revenue includes materials , labor and manufacturing overhead related to our products . cost of contract revenue includes direct and allocated indirect costs associated with performance on contracts . 24 index cost of goods sold for the year ended december 31 , 2013 was approximately $ 19.6 million as compared to approximately $ 15.6 million for the year ended december 31 , 2012 , an increase of approximately $ 3.9 million .
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the actuarial present value of the projected pension benefit obligation and postretirement health care benefit obligation for the plans at september 30 , 2012 and 2013 were determined based on the following assumptions : replace_table_token_40_th 77 haynes international , inc. and subsidiaries notes to consolidated financial statements ( continued ) ( in thousands , except share and per share data and otherwise noted ) note 8 pension plan and retirement benefits ( continued ) the net periodic pension and postretirement health care benefit costs for the plans were determined using the following assumptions : replace_table_token_41_th plan assets and investment strategy our pension plan assets by level within the fair value hierarchy at september 30 , 2012 and 2013 , are presented in the table below . our pension plan assets were accounted for at fair value . for more information on a description of the fair value hierarchy , see note 16. replace_table_token_42_th 78 haynes international , inc. and subsidiaries story_separator_special_tag please refer to page 1 of this annual report on form 10-k for a cautionary statement regarding forward-looking information . overview of business the company is one of the world 's largest producers of high-performance nickel- and cobalt-based alloys in sheet , coil and plate forms . the company is focused on developing , manufacturing , marketing and distributing technologically advanced , high-performance alloys , which are used primarily in the aerospace , chemical processing and land-based gas turbine industries . the global specialty alloy market consists of three primary sectors : stainless steel , general purpose nickel alloys and high-performance nickel- and cobalt-based alloys . the company competes primarily in the high-performance nickel- and cobalt-based alloy sector , which includes high-temperature resistant alloys , or hta products , and corrosion-resistant alloys , or cra products . the company believes it is one of the principal producers of high-performance alloy flat products in sheet , coil and plate forms . the company also produces its products as seamless and welded tubulars and in bar , billet and wire forms . the company has manufacturing facilities in kokomo , indiana ; arcadia , louisiana ; and mountain home , north carolina . the kokomo facility specializes in flat products , the arcadia facility specializes in tubular products and the mountain home facility specializes in high-performance wire products . the company distributes its products primarily through its direct sales organization , which includes 13 service and or sales centers in the united states , europe and asia . all of these centers are company-operated . 34 overview of markets the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . replace_table_token_10_th ( 1 ) other revenue consists of toll conversion , royalty income , scrap sales and revenue recognized from the timet agreement ( see note 15 in the notes to the consolidated financial statements ) . ( 2 ) total product price per pound excludes `` other revenue '' . aerospace sales for fiscal 2013 decreased from fiscal 2012 , which was the company 's best year for aerospace sales volume . throughout fiscal 2013 , aerospace demand was negatively impacted by customer destocking within the supply-chain and by falling raw material market prices which caused customers to delay ordering . this period of low demand is considered temporary , but is expected to persist through the early portion of fiscal 2014. demand for aerospace products is expected to begin to increase commensurate with the forecasted increase in commercial aircraft builds . both boeing and airbus have reported sizeable backlog increases along with forecasted increases in production schedules and continued emphasis on accelerating production . demand for more fuel-efficient engines with fewer emissions is driving new engine builds . management also anticipates that the maintenance , repair and overhaul business will continue at a steady to increasing pace due to required maintenance schedules for the rising number of engines in use year-over-year . sales to the chemical processing industry decreased year-over-year . the project-oriented nature of this market can create inconsistent sales levels . demand for large project based orders has been at relatively low levels during fiscal 2012 and 2013. the main driver of demand in this market is capital expenditure spending in the chemical processing sector driven by end user demand for housing , automotive and agricultural products . the chemical processing market is sensitive to fiscal policies as well as world economic conditions and gdp growth . increased sales to the chemical processing industry in fiscal 2014 will be dependent on improvement in global spending in the chemical processing sector . an additional driver of demand in this market is the increase in north american production of natural gas liquids and the further downstream processing of those chemicals that may utilize equipment that requires high-performance alloys . 35 sales to the land-based gas turbine market in fiscal 2013 decreased compared to fiscal 2012 , which was the company 's best year for land-based gas turbine sales volume . subject to global economic conditions , management believes that long-term demand in this market will improve due to higher activity in power generation , oil and gas production and alternative power systems . land-based gas turbines are favored in electric generating facilities due to low capital cost at installation , fewer emissions than the traditional fossil fuel-fired facilities and favorable domestic natural gas prices provided by availability of unconventional ( shale ) gas supplies . as governmental policy shifts away from coal-fired facilities , demand for land-based gas turbines is expected to increase . sales into the other markets category decreased in fiscal 2013 compared to fiscal 2012 partly due to a shipment of an oil and gas project order in fiscal 2012 which did not repeat in fiscal 2013. the industries in this category focus on upgrading overall quality , improving product performance through increased efficiency , prolonging product life and lowering long-term costs . story_separator_special_tag gross profit margin and gross profit margin percentage for fiscal 2013 were also impacted by the effect of a fixed pricing agreement with the company 's nickel supplier pursuant to which the company agreed to purchase a portion of its nickel supply at a fixed price that has been and may continue to be greater than the market price of nickel . the impact of the contract on the company 's gross profit margin percentage for the fiscal year was 0.4 percentage points . while not material to the fiscal year results , the contract had a greater impact as the market price of nickel continued to drop through the second half of fiscal 2013. in the fourth quarter , the company entered into an amendment with the supplier that allowed the company to purchase lower volumes of the higher-priced nickel but extended the duration of the purchase commitment through fiscal 2015 in order to minimize the near term impact and provide a longer period in which the market price of nickel could increase . if the market price of nickel remains low and sales volumes do not increase , the impact on the company 's gross profit margin percentage is expected to be unfavorable in future periods as a result of the fixed price contract , which impact is estimated at approximately 1.0 percentage point , or higher , if the market price of nickel declines further . volumes , competition and pricing the company continues to experience reduced demand , reduced selling price due to nickel market prices and increased price competition in the marketplace relative to fiscal 2012 , particularly in commodity-type alloys in mill-direct project business . the intense competitive environment continues to require the company to aggressively price orders across all markets , which has unfavorably impacted the company 's gross profit margin and net income . in addition , sales volumes below mill capacities in the industry have reduced mill-direct lead times for our products . the decline in mill-direct lead times has , in turn , resulted in downward pressure on prices for service center transactional business , which typically commands a higher price due to faster product availability . in addition to the negative effects of price competition , volumes in fiscal 2013 are lower than those in fiscal 2012. management believes the reduction in volume in the aerospace and land-based gas turbine markets is attributable to destocking in the supply chain as customers consume excess inventory . volume reductions in the chemical processing market are primarily attributable to lower large project releases . the year-to-year reduction in volume in the `` other '' markets is due to a large tubular oil and gas project produced and shipped in fiscal 2012 that did not repeat in fiscal 2013. management believes the decline in the price of nickel and customer uncertainty regarding the strength of the economy have also been contributors to the decline in overall volumes . declining nickel prices can cause customers to delay orders for the company 's products because the company generally passes the cost of nickel on to customers in the price of its products . as nickel prices decline , customers may delay ordering in order to receive a lower price in the future . the reduced volumes processed through the mill have resulted in reduced absorption of fixed costs and additional margin compression . the company has implemented cost reduction measures and continues to carefully review discretionary spending in order to mitigate the impact of these factors on gross margin . the company values inventory utilizing the first-in , first-out ( `` fifo '' ) inventory costing methodology . under the fifo inventory costing method , the cost of materials included in cost of sales may be different than the current market price at the time of sale of finished product due to the length of time from the acquisition of the raw material to the sale of the finished product . in a period of decreasing raw material costs , the fifo inventory valuation normally results in higher costs of sales as compared to the last-in , first out method . conversely , in a period of rising raw material costs , the fifo inventory valuation normally results in lower costs of sales . 38 working capital controllable working capital , which includes accounts receivable , inventory , accounts payable and accrued expenses , was $ 273.4 million at september 30 , 2013 , a decrease of $ 37.8 million or 12.1 % from $ 311.2 million at september 30 , 2012. this decrease of $ 37.8 million includes a reduction of inventory of $ 31.1 million due to careful attention to reducing melting and production schedules to match customer demand . guidance first quarter results are typically impacted by lower production days due to holidays and planned maintenance outages . planned outages related to the capital expansion projects in both kokomo and arcadia as well as other extended maintenance-related projects are expected to impact first quarter results . in addition , the company has continued to see order entry , pricing and backlog decline with lower demand , which resulted in managing inventories down . the company remains committed to preparing for the anticipated long-term growth opportunities in its core markets . however , in the short term , management expects revenue for the first quarter of fiscal 2014 to be lower than revenue for the fourth quarter of fiscal 2013 and , the company expects to incur a net loss in the first quarter of fiscal 2014. backlog set forth below is selected data relating to the company 's backlog , the 30-day average nickel price per pound as reported by the london metals exchange , as well as a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown .
| results of operations year ended september 30 , 2013 compared to year ended september 30 , 2012 ( $ in thousands ) replace_table_token_15_th the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . 41 by market replace_table_token_16_th net revenues . net revenues were $ 482.7 million in fiscal 2013 , a decrease of 16.7 % from $ 579.6 million in fiscal 2012 , due to a decrease in average selling price per pound combined with lower volume . the total average selling price was $ 22.94 per pound in fiscal 2013 , a decrease of 7.4 % , or $ 1.84 , from $ 24.78 per pound in fiscal 2012. volume was 21.0 million pounds in fiscal 2013 , a decrease of 10.0 % from 23.4 million pounds in fiscal 2012. volume declined primarily due to destocking in the aerospace and land-based gas turbine markets , a decline in activity in the project-oriented other markets , uncertain economic conditions and declining raw material prices causing customers to delay ordering . average selling price decreased due to lower raw material market prices , which represented approximately $ 1.01 per pound of the decrease ; lower volume of conversion sales , which represented approximately $ 0.12 per pound of the decrease ; a higher level of price competition and reduced customer demand due to supply chain destocking , declining nickel prices and uncertain economic conditions , which forced us to reduce prices in order to be competitive , representing approximately $ 0.71 per pound of the decrease . sales to the aerospace market were $ 197.1 million in fiscal 2013 , a decrease of 14.3 % from $ 229.9 million in fiscal 2012 , due to a 9.3 % decrease in volume combined with a 5.5 % , or $ 1.42 , decrease in the average selling price per pound .
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f-11 fluor corporation notes to consolidated financial statements ( continued ) story_separator_special_tag introduction the following discussion and analysis is provided to increase the understanding of , and should be read in conjunction with , the consolidated financial statements and accompanying notes . for purposes of reviewing this document , `` segment profit '' is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding : corporate general and administrative expense ; interest expense ; interest income ; domestic and foreign income taxes ; other non-operating income and expense items ; and loss from discontinued operations . for a reconciliation of total segment profit to earnings from continuing operations before taxes , see note 17 in the notes to consolidated financial statements . story_separator_special_tag in 2015 and $ 28.8 billion in 2014. the energy , chemicals & mining ; industrial , infrastructure & power ; and government segments were the significant drivers of new award activity during 2016 , including an award for the tengiz oil expansion project in kazakhstan that was awarded in the third quarter . the energy , chemicals & mining and industrial , infrastructure & power segments were the major contributors to the new award activity during 2015. the major contributors of new award activity during 2014 were the energy , chemicals & mining and government segments . approximately 46 percent of consolidated new awards for 2016 were for projects located outside of the united states compared to 48 percent for 2015. consolidated backlog was $ 45.0 billion as of december 31 , 2016 , $ 44.7 billion as of december 31 , 2015 , and $ 42.5 billion as of december 31 , 2014. the higher backlog at the end of 2016 was due to significant new awards and project adjustments in the energy , chemicals & mining and industrial , infrastructure & power segments , partially offset by an adjustment for a liquefied natural gas project that was suspended in the third quarter . the higher backlog at the end of 2015 was primarily due to significant new awards in the industrial , infrastructure & power segment , partially offset by declines in backlog in the mining and metals business line of the energy , chemicals & mining segment and the government segment . as of december 31 , 2016 , approximately 48 percent of consolidated backlog related to projects located outside of the united states compared to 59 percent as of december 31 , 2015. on march 1 , 2016 , the company acquired 100 percent of stork holding b.v. ( `` stork '' ) for an aggregate purchase price of 695 million ( or approximately $ 756 million ) , including the assumption of debt and other liabilities . stork , based in the netherlands , is a global provider of maintenance , modification and asset integrity services associated with large existing industrial facilities in the oil and gas , chemicals , petrochemicals , industrial and power markets . the company paid 276 million ( or approximately $ 300 million ) in cash consideration . the operations of stork are reported in the maintenance , modification & asset integrity segment below . see note 18 to the consolidated financial statements for a further discussion of the acquisition . in february 2016 , the company made an initial cash investment of $ 350 million in cooec fluor heavy industries co. , ltd. ( `` cfhi '' ) , a joint venture in which the company has a 49 % ownership interest and offshore oil engineering co. , ltd. , a subsidiary of china national offshore oil corporation , has 51 % ownership interest . through cfhi , the two companies own , operate and manage the zhuhai fabrication 36 yard in china 's guangdong province . an additional investment of $ 62 million was made in september 2016 and another $ 78 million is expected to be made in september 2017. for a more detailed discussion of operating performance of each business segment , corporate general and administrative expense and other items , see `` segment operations '' and `` corporate , tax and other matters '' below . discussion of critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's significant accounting policies are described in the notes to consolidated financial statements . the preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . estimates are based on information available through the date of the issuance of the financial statements and , accordingly , actual results in future periods could differ from these estimates . significant judgments and estimates used in the preparation of the consolidated financial statements apply to the following critical accounting policies : engineering and construction contracts contract revenue is recognized on the percentage-of-completion method based on contract cost incurred to date compared to total estimated contract cost . contracts are generally segmented between types of services , such as engineering and construction , and accordingly , gross margin related to each activity is recognized as those separate services are rendered . the percentage-of-completion method of revenue recognition requires the company to prepare estimates of cost to complete for contracts in progress . in making such estimates , judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials , labor cost and productivity , the impact of change orders , liability claims , contract disputes and achievement of contractual performance standards . changes in total estimated contract cost and losses , if any , are recognized in the period they are determined . pre-contract costs are expensed as incurred . story_separator_special_tag the company also evaluates whether it is the primary beneficiary of each vie and consolidates the vie if the company has both ( a ) the power to direct the economically significant activities of the entity and ( b ) the obligation to absorb losses of , or the right to receive benefits from , the entity that could potentially be significant to the vie . the company considers the contractual agreements that define the ownership structure , distribution of profits and losses , risks , responsibilities , indebtedness , voting rights and board representation of the respective parties in determining whether it qualifies as the primary beneficiary . the company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary . in most cases , the company does not qualify as the primary beneficiary . when the company is determined to be the primary beneficiary , the vie is consolidated . as required by asc 810 , management 's assessment of whether the company is the primary beneficiary of a vie is continuously performed . for partnerships and joint ventures in the construction industry , unless full consolidation is required , the company generally recognizes its proportionate share of revenue , cost and profit in its consolidated statement of earnings and uses the one-line equity method of accounting in the consolidated balance sheet , which is a common application of asc 810-10-45-14 in the construction industry . the most significant application of the proportionate consolidation method is in the energy , chemicals & mining , 38 industrial , infrastructure & power and government segments . the cost and equity methods of accounting are also used , depending on the company 's respective ownership interest and amount of influence on the entity , as well as other factors . at times , the company also executes projects through collaborative arrangements for which the company recognizes its relative share of revenue and cost . deferred taxes and uncertain tax positions deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns . as of december 31 , 2016 , the company had deferred tax assets of $ 814 million which were partially offset by a valuation allowance of $ 81 million and further reduced by deferred tax liabilities of $ 279 million . the valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized . the valuation allowance for 2016 primarily relates to the deferred tax assets on certain net operating loss carryforwards for u.s. and non-u.s. subsidiaries . the company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are the company 's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company 's effective tax rate on future earnings . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met . previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met . the company recognizes potential interest and penalties related to unrecognized tax benefits within its global operations in income tax expense . retirement benefits the company accounts for its defined benefit pension plans in accordance with asc 715-30 , `` defined benefit plans pension . '' as required by asc 715-30 , the unfunded or overfunded projected benefit obligation is recognized in the company 's financial statements . assumptions concerning discount rates , long-term rates of return on plan assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period . the company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . assuming no changes in current assumptions , the company expects to contribute up to $ 15 million to its defined benefit pension plans in 2017 , which is expected to be in excess of the minimum funding required . if the discount rates were reduced by 25 basis points , plan liabilities would increase by approximately $ 51 million . segment operations the company provides professional services in the fields of engineering , procurement , construction , fabrication and modularization , commissioning and maintenance , as well as project management services , on a global basis and serves a diverse set of industries worldwide . during the first quarter of 2016 , the company changed the composition of its reportable segments to better reflect the diverse end markets that the company serves . the company now reports its operating results in four reportable segments as follows : energy , chemicals & mining ; industrial , infrastructure & power ; government ; and maintenance , modification & asset integrity . segment operating information and assets for 2015 and 2014 have been recast to reflect these changes . for more information on the business segments see `` item 1 . business '' above .
| results of operations consolidated revenue for 2016 was $ 19.0 billion compared to $ 18.1 billion for 2015. during 2016 , revenue growth in the industrial , infrastructure & power , government and maintenance , modification & asset integrity segments were partially offset by a revenue decline in the energy , chemicals & mining segment . the revenue growth resulted primarily from increased project execution activities for several power projects , as well as revenue contributions from the acquired stork business . revenue in the energy , chemicals & mining segment decreased due to reduced levels of project execution activities in the mining and metals business line and for certain large chemicals projects that were completed or nearing completion in the prior year . consolidated revenue for 2015 was $ 18.1 billion compared to $ 21.5 billion for 2014. this decrease was principally due to certain large upstream projects that were completed or nearing completion and a significant decline in project execution activities in the mining and metals business line of the energy , 34 chemicals and mining segment as well as reduced project execution activities in the infrastructure business line of the industrial , infrastructure & power segment . earnings from continuing operations before taxes for 2016 decreased 25 percent to $ 547 million from $ 727 million in 2015. earnings from continuing operations before taxes for 2016 were adversely affected by pre-tax charges totaling $ 265 million related to forecast revisions for estimated cost increases on a petrochemicals project in the energy , chemicals & mining segment , which were partially offset by higher contributions from power projects in the industrial , infrastructure & power segment . earnings from continuing operations before taxes for 2016 were also affected by higher corporate general and administrative expenses .
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upon the termination of mr. brackens ' employment because of death , mr. brackens ' estate shall be entitled to any accrued benefits . upon the termination mr. brackens ' employment by the company for cause or by either party in connection with a failure to renew the employment agreement , the company shall pay mr. brackens any accrued benefits . daniel marks on june 11 , 2020 , mr. marks entered into an engagement agreement with the company . the engagement agreement is for a term of one year ( the “ initial term ” ) and shall be automatically extended for additional terms of successive one-year periods ( the “ additional term ” ) unless the company or mr. marks gives at least 30 days written notice prior to the expiration of the initial term or each additional term .. mr. marks is to receive a base salary of $ 18,000 per month . mr. marks is eligible to earn an annual employee stock option bonus in such amount , if any , as determined in the sole discretion of the board . the engagement agreement may be terminated with or without cause . the company can terminate mr. marks without cause at any time during the first ninety ( 90 ) days of the initial term of the engagement agreement . upon termination of mr. marks because of disability , the company shall pay or provide to mr. marks ( 1 ) any unpaid salary and any accrued vacation through the date of termination ; ( 2 ) any unpaid bonus accrued with respect to the fiscal year ending on or preceding the date of termination ; ( 3 ) reimbursement for any unreimbursed expenses properly incurred through the date of termination ; and ( 4 ) all other payments or benefits to which he may be entitled under the terms of any applicable employee benefit plan , program or arrangement . as a full-time employee of the company , mr. marks will be eligible to participate in all of the company 's benefit programs . 48 christopher malone on november 16 , 2018 , the company entered into an employment agreement with mr. christopher malone to serve as the company 's chief financial officer ( the “ malone employment agreement ” ) . the term of the malone employment agreement is for one year and shall be automatically extended for additional terms of successive one-year periods ( the “ additional term ” ) unless the company or the executive gives written notice to the other of the termination of mr. malone 's employment hereunder at least 90 days prior to the expiration of the initial term or additional term of the malone employment agreement . mr. malone is to receive an initial base salary of $ 84,000 per annum , and if the company were to list on nasdaq , the base salary would increase to $ 120,000 per annum . mr. malone executive is eligible to earn an annual employee stock option bonus in such amount , if any , as determined in the sole discretion of the board . the malone employment agreement may be terminated with or without cause . under this agreement , if the company were to terminate mr. malone 's employment without cause , mr. malone would be entitled to receive all compensation earned but unpaid through the date of termination and a severance payment equal to one months ' base annual salary for each full year of employment . upon termination mr. malone 's employment because of disability , the company shall pay or provide mr. malone ( i ) any unpaid base fee and any accrued vacation through the date of termination ; ( ii ) any unpaid annual bonus accrued with respect to the fiscal year ending on or preceding the date of termination ; ( iii ) reimbursement for any unreimbursed expenses properly incurred through the date of termination ; and ( iv ) any accrued benefits . upon the termination of mr. malone 's employment because of death , mr. malone 's estate shall be entitled to any accrued benefits . upon the termination mr. malone 's employment by the company for cause or by either party in connection with a failure to renew the employment agreement , the company shall pay mr. malone any accrued benefits . on february 20 , 2020 , mr. malone resigned from his positions as chief financial officer and member of the board of directors , effective immediately . outstanding equity awards at june 30 , 2020 the following table summarizes the outstanding equity award holdings held by our named executive officers and directors at june 30 , 2020. replace_table_token_3_th ( 1 ) mr. watt resigned from his position as member of the board of directors on june 5 , 2020 . story_separator_special_tag this section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . as the company 's acquisition of argyll took place after the fiscal year end this management discussion and analysis of financial condition and results of operations speaks only to the historical operations of the company during the 2020 fiscal year end and the company 's historical business prior such acquisition . forward looking statements are often identified by words like : believe , expect , estimate , anticipate , intend , project and similar expressions or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements , which apply only as of the date of this report . story_separator_special_tag these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . overview esports is the competitive playing of video games by amateur and professional teams for cash prizes . esports typically takes the form of organized , multiplayer video games that include real-time strategy , fighting , first-person shooter and multiplayer online battle arena games . as of march 20 , 2020 , the three largest selling esports games were dota 2 , league of legends ( each multiplayer online battle arena games ) and counter strike : global offensive ( a first-person shooter game ) . other popular games include smite , starcraft ii , call of duty ¸ heroes of the storm , hearthstone and fortnite . esports also includes games which can be played , primarily by amateurs , in multiplayer competitions on the sony playstation , microsoft xbox and nintendo switch . most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv , azubu.tv , ustream.tv and youtube.com . we are an esports entertainment and online gambling company primarily focused on three verticals , ( i ) : esports entertainment , ( ii ) esports wagering , and ( iii ) igaming and traditional sports betting . we believe focusing on these verticals positions the company to take advantage of a trending and expanding marketplace in esports with the rise of competitive gaming as well as the legalization of online gambling in the united states . esports entertainment : our esports entertainment vertical includes any activity that we pursue within esports that does not include real-money wagering . right now , the main component of this pillar is our skill-based tournament platform this allows us to engage and monetize players across 41 states where skill-based gambling is legal as well as create relationships with players that can eventually migrate into our vie.gggg real-money wagering platform . 36 esports wagering : we intend to be the leader in the large and rapidly growing sector of esports real-money wagering . our vie.gg platform offers fans the ability to wager on professional esports events in a licensed and secure environment . at the current time , under the terms of our existing curacao license , we are currently able to accept wagers from residents of over 149 jurisdictions including canada , japan , germany and south africa . on april 30 , 2020 , we received our gaming service license from the malta gaming authority ( mga ) . we now expect that residents in a number of european union member states will be able to place bets on our website . on august 20 , 2020 , we announced that we entered into a multi-year partnership with twin river worldwide holdings , inc ( nyse : trwh ) to launch our proprietary mobile sports betting product in the state of new jersey . we intend to have our platform live in the state by the end of the first quarter of 2021. igaming and traditional sports betting : the goal of our igaming and traditional sports betting vertical is to provide profitable growth and access to strategic licenses in jurisdictions that we can cross-sell into our vie.gg platform on july 7 , 2020 , we entered into a stock purchase agreement ( the “ argyll purchase agreement ” ) , by and among the company , lhe enterprises limited ( “ lhe ” ) , and ahg entertainment , llc ( “ ahg ” ) whereby upon closing on july 31 , 2020 the company acquired all of the outstanding capital stock of lhe and its subsidiaries , ( i ) argyll entertainment ag , ( ii ) nevada holdings limited and ( iii ) argyll productions limited ( collectively the “ acquired companies ” or “ argyle ” ) . ahg is licensed and regulated by the uk gambling commission and the irish revenue commissioners to operate online sportsbook and casino sites in the uk and ireland , respectively . argyll has a flagship brand , www.sportnation.bet , as well as two white label brands , www.redzone.bet and www.uk.fansbet.com ( collectively the “ argyll brands ” ) , with over 200k registered players at the end of calendar year 2019. we believe that as the size of the market and the number of esports enthusiasts continues to grow , so will the number of esports enthusiasts who gamble on events , which would likely increase the demand for our platform . we have financed operations primarily through the sale of equity securities and short-term debt . until revenues are sufficient to meet our needs , we will continue to attempt to secure financing through equity or debt securities . we continue to incur negative cash flows from operating activities and net losses . we had minimal cash , negative working capital , and negative total equity as of june 30 , 2019. on april 16 , 2020 , the company consummated its public offering of securities ( the “ april offering ” ) in which we sold 1,980,000 units , with each unit consisting of one share of the company 's common stock and two warrants ( “ unit a warrant ” and “ unit b warrant ” , and collectively with the common stock the “ units ” ) , each to purchase one share of common stock , at a public offering price of $ 4.25 per share . in connection with the april offering , we ( i ) received proceeds of approximately $ 7 million , after deducting underwriting discounts and commissions , ( ii ) converted our convertible debt and accrued interest , ( iii ) and issued 1,217,241 shares of common stock and 2,434,482 warrants with an exercise price of $ 4.25 per share in connection with the conversion of our convertible debt . in addition
| results of operations comparison on year ended june 30 , 2020 and 2019 the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report . material changes in line items in our statement of operations for the year ended june 30 , 2020 as compared to the same period last year , are discussed below . 37 general and administrative general and administrative expenses consist primarily of costs associated with our overall operations and being a public company . these costs include personnel , legal and financial professional services , insurance , investor relations , and compliance related fees . general and administrative expenses for the year ended june 30 , 2020 totaled $ 4,049,714 , an increase of $ 1,035,241 over the $ 3,014,473 recorded for the year ended june 30 , 2019. the increase was primarily attributable to increases of $ 914,375 in stock based compensation , $ 205,689 in wages and benefits , $ 227,250 in consulting and professional , $ 50,124 in licenses and related fees , and $ 98,444 in directors fees , offset by decreases of $ 184,520 in information technology related costs , $ 42,390 in legal costs , $ 106,425 in advertising and promotion costs , and $ 127,306 in other general and administrative costs .
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interest presently accrues at our option , at the variable rate of libor plus 1.75 % or hsbc 's prime rate minus 0.50 % the loan matures on march 1 , 2022 . 5,775,000 -- -- - totals 8,322,841 3,171,795 less : current maturities 935,822 623,953 long-term debt 7,387,019 2,547,842 f-15 cvd equipment corporation and subsidiary notes to consolidated financial statements december 31 , 2012 and 2011 note 8 – long-term debt ( continued ) future maturities of long-term debt as of december 31 , 2012 are as follows : replace_table_token_15_th as of december 31 , 2012 , we were not in compliance with the terms of the covenants in all three of the hsbc bank , usa , n.a . and general electric capital corporation loan agreements . we received waivers on all three agreements . note 9 – earnings per share the calculation of basic and diluted weighted average common shares outstanding is as follows : replace_table_token_16_th outstanding options to purchase 200 shares were not included in the diluted earnings per share calculation at december 31 , 2012 , because the exercise price was higher than the average market price . at december 31 , 2011 all outstanding options were included in the diluted earnings per share calculation . f-16 cvd equipment corporation and subsidiary notes to consolidated financial statements december 31 , 2012 and 2011 note 10 – income taxes at december 31 , 2012 , the company had approximately $ 639,000 of capital loss carryforwards , $ 125,000 of new york state investment tax credit carryforwards and $ 435,000 of federal research and development credits . if not utilized , a portion of the capital loss carryover will expire in 2014 , the investment tax credits expire from 2013 through 2028 and the research and development tax credits expire from 2027-2032. based on the available objective evidence , including the company 's history of taxable income and the character of that income , management believes it is more likely than not that these components of the company 's deferred tax assets will not be fully utilized . accordingly , the company provided for a partial valuation allowance against its total net deferred tax assets at december 31 , 2012 and 2011 of approximately $ 475,000 attributable to these components . the ( benefit ) expense for income taxes includes the following : replace_table_token_17_th f-17 cvd equipment corporation and subsidiary notes to consolidated financial statements december 31 , 2012 and 2011 note 10 – income taxes the tax effects of temporary differences giving rise to significant portions of the net deferred taxes are as follows : replace_table_token_18_th the reconciliation of the federal statutory income tax rate to story_separator_special_tag you should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report . 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 discussed in this report 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 forward-looking statements represent beliefs and assumptions only as of the date of this report . while we may elect to update forward-looking statements at some point in the future , we specifically disclaim any obligation to do so , even if our estimates change . past performance does not guaranty future results . we design , develop and manufacture standard and custom state-of-the-art equipment and process solutions used to develop and manufacture solar , nano , advanced electronic components , materials and coatings for research and industrial applications with the focus on enabling tomorrow 's technologies tm . we offer a broad range of chemical vapor deposition , gas control and other equipment that is used by our customers to research , design and manufacture semi-conductors , solar cells , smart glass , carbon nanotubes , nanowires , leds , mems , and industrial coatings , as well as equipment for surface mounting of components onto printed circuit boards . through our application laboratory , we can provide process development support and process startup assistance . our proprietary products are generally customized to meet the particular specifications of individual customers and to accelerate the commercialization of their proprietary intellectual property . based on more than 30 years of experience , we use our engineering , manufacturing and process development to transform new applications into leading-edge manufacturing solutions . this enables university , research and industrial scientists at the cutting edge of technology to develop next generation solar , nano materials , leds , semiconductors and other chemical vapor deposited products . we also develop and manufacture research and production equipment based on our proprietary designs . we have built a significant library of design expertise , know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their commercialization of chemically deposited materials . this library of solutions , along with our vertically integrated manufacturing facilities , allows us to provide superior design , process and manufacturing solutions to our customers on a cost effective basis . story_separator_special_tag as a result of the foregoing factors , operating income for the year ended december 31 , 2012 was approximately $ 545,000 compared to approximately $ 4,757,000 for the year ended december 31 , 2011 , a decrease of 88.5 % . story_separator_special_tag as of december 31 , 2012 , we were not in compliance with one of the financial covenants of the agreement . we have secured a waiver from ge capital on that covenant . the final payment is due march 2017. in april , 2012 , we completed the sale of our facility located at 979 marconi avenue , ronkonkoma , new york , where our application laboratory was located . the selling price for the facility was approximately $ 1,659,000 and as a result we incurred a long-term capital loss on the sale of approximately $ 694,000. on august 5 , 2011 , as previously stated , we entered into a $ 2.1 million five ( 5 ) year term loan with hsbc that was used to pay off the existing mortgages held by capital one bank , n.a . interest on this term loan accrues at the fixed rate of 3.045 % . borrowings under the term loan are collateralized by certain assets as defined under the agreement . as of december 31 , 2012 , the balance remaining on this loan was $ 1,540,000. on march 16 , 2012 , effective as of march 15 , 2012 , we closed on the purchase of the premises located at 355 south technology drive , central islip , new york . the purchase price of the building was $ 7,200,000 exclusive of closing costs . the transaction was structured pursuant to section 1031 of the internal revenue code , as amended , as a reverse tax deferred exchange . in order to avail ourselves of certain real estate and sales tax abatements , the purchase took the form of an assignment and lease purchase agreement with fee title continuing to be vested in the town of islip industrial development agency . pursuant to the terms of an accommodation agreement , we entered a loan agreement ( the “ loan ” ) with hsbc bank usa , n.a . in the amount of $ 6,000,000 , the proceeds of which were used to finance a portion of the purchase price . the loan is secured by a mortgage against the central islip facility . the loan is payable in 120 consecutive equal monthly installments of principal of $ 25,000 plus interest thereon and a final balloon payment of $ 3,000,000. interest accrues on the loan , at our option , at the variable rate of ( a ) 1.75 % above libor , or ( b ) a rate equal to 0.5 % below hsbc 's prime rate . the loan matures on march 15 , 2022 . 17 the large demand for energy savings , energy generation materials and products needed to address rising energy costs creates a growing demand for manufacturing solutions using thin film coatings on glass , wafers and other substrates . our application laboratory will help perfect and expand the multiple areas where low cost thin film manufacturing solutions can be applied and further optimize our technologies for cost and performance . we believe the solar , energy , electronic , aerospace , medical , led 's , graphene , nanowires and nanotubes markets we are addressing with multiple products have significant growth opportunities for technologies that deliver favorable cost benefits . we believe that our cash and cash equivalent positions , cash flow from operations and our credit facilities will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months . we may also raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses , technologies or products . in addition , we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable . on february 14 , 2011 , we filed a shelf registration statement on form s-3 with the united states securities and exchange commission ( “ sec ” ) to register shares of our common stock and other securities for sale , giving us the opportunity to pursue possible future fundraising of up to $ 20 million ( the “ registration amount ” ) when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings . this shelf registration was declared effective by the sec on february 28 , 2011. on may 27 , 2011 we received $ 9,388,000 net proceeds from the issuance of 967,950 shares of our common stock at $ 10.50 per share less $ 775,000 of underwriting and other costs in our public offering . we currently have the ability , subject to satisfaction of applicable requirements , to sell securities for the balance of the registration amount under the shelf registration statement . the number of shares that we can sell and the amount of the gross proceeds that we can raise may be subject to certain limitations pursuant to applicable nasdaq marketplace and sec rules . any equity or equity-linked financing could be dilutive to existing shareholders . critical accounting policies use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . our significant estimates include accounting for certain items such as revenues on long-term contracts recognized on the percentage-of-completion method , recognition of stock-based compensation , assessment for impairment of our long-lived assets , and the valuation allowances for our income tax provisions . 18 revenue recognition we continue to recognize revenues and income using the percentage-of-completion method for custom production-type contracts while revenues from other products are recorded when such products are accepted and shipped . profits on
| results of operations in 2011 , having realized that our current facility was not adequate to meet our anticipated future production requirements , we raised approximately $ 9,388,000 from the issuance of shares of common stock . in march 2012 , we purchased a 120,000 square foot facility located in central islip , new york 11722 ( the “ property ” ) through the town of islip industrial development agency , ( the “ islip ida ” ) and subsequently added another 10,000 square feet . this building replaced our two ronkonkoma facilities which totaled 63,275 square feet . 13 our 2012 results of operations were significantly impacted by this transaction . a substantial amount of time and effort was dedicated to purchasing , renovating and moving into the new facility that proved to be disruptive to our continuing operations . revenue revenue for the year ended december 31 , 2012 was approximately $ 22,158,000 compared to approximately $ 30,994,000 for the year ended december 31 , 2011 , a decrease of $ 8,836,000 or 28.5 % . annual revenue from the cvd/first nano and conceptronic division decreased by approximately $ 7,671,000 or 28.8 % to $ 18,996,000 which represents 85.7 % of our total revenue during the year ended december 31 , 2012 compared to $ 26,667,000 or 86.0 % of our total revenue for the prior fiscal year . this decrease is directly attributable to the reduction in the amount of new orders accepted during this transition phase as well as the disruption and inefficiencies in production from dismantling and reconstructing equipment during the year . revenue from outside customers for the sdc division decreased by approximately 26.9 % or $ 1,165,000 to $ 3,162,000 compared to $ 4,327,000 in the prior fiscal year . the sdc division represented 14.3 % and 14.0 % of our total revenue during the years ended december 31 , 2012 and december 31 , 2011 respectively .
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our management , including our chief executive officer and chief financial officer , has evaluated any changes story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this report . this discussion may contain forward-looking statements based upon current expectations 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 in the section titled risk factors as set forth in this report . historical results are not necessarily indicative of future results . unless the context otherwise requires , references in this management 's discussion and analysis of financial condition and results of operations to vincerx , the company , we , us and our refer to the business and operations of vincerx prior to and following the closing of the business combination . on december 23 , 2020 , lsac consummated the business combination with legacy vincera pharma pursuant to the merger agreement . the business combination was accounted for as a reverse recapitalization in accordance with u.s. generally accepted accounting principles , or gaap . under this method of accounting , lsac was treated as the acquired company for financial reporting purposes . except as otherwise provided herein , our financial statement presentation includes ( 1 ) the results of legacy vincera pharma as our accounting predecessor for periods prior to the completion of the business combination , and ( 2 ) the results of the company for periods after the completion of the business combination . overview we are a clinical-stage biopharmaceutical company focused on leveraging our extensive development and oncology expertise to advance new therapies intended to address unmet medical needs for the treatment of cancer . our current pipeline is entirely derived from the bayer license agreement , pursuant to which we have been granted an exclusive , royalty-bearing , worldwide license under certain bayer patents and know-how to develop , use , manufacture , commercialize , sublicense and distribute ( i ) a clinical-stage and follow-on small molecule drug program and ( ii ) a preclinical stage bioconjugation/next-generation antibody-drug conjugate platform . we intend to use these product candidates to treat various cancers in a patient-specific , targeted approach . we believe that these product candidates are differentiated from current programs targeting similar cancer biology , and , if approved , may improve clinical outcomes of patients with cancer . despite several decades of advances in targeted therapies , cancer continues to be the second leading cause of death in the united states population per the national center for health statistics . cancer is not a single disease but rather a constellation of maladies with each requiring a unique approach to vanquish it . our vision is to address the unmet medical needs of patients with cancer with a diverse pipeline of targeted medicines . the small molecule drug program includes vip152 ( formerly known as bay 1251152 ) , which is highly selective , clinical-stage ptefb/cdk9 inhibitor . vip152 may deliver value-generating data in the second half of 2021. our adc platform includes vip943 ( formerly known as bay-943 ) and vip924 ( formerly known as bay-924 ) , which are next-generation adc compounds addressing known and novel oncology targets that we believe could deliver a greater safety and efficacy profile than current adc compounds . the bioconjugation program also includes vip236 , an smdc for solid tumors . in addition to our lead products , we acquired the rights to additional product candidates that are still in the preclinical stage ( e.g. , vip217 , an oral ptefb/cdk9 inhibitor ) . license agreement with bayer following the closing of the business combination , we paid bayer a $ 5.0 million upfront license fee under the bayer license agreement . in addition , we will be responsible for significant development and commercial milestone payments to bayer as well as ongoing royalties on commercial sales . see businessbayer license agreement and the discussion below under liquidity and capital resources. 83 basis of presentation we currently conduct our business through one operating segment . as a pre-revenue company with no commercial operations , our activities to date have been limited and were conducted primarily in the united states . our historical results are reported under gaap and in u.s. dollars . components of results of operations we are a research and development stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate . accordingly , the drivers of our future financial results , as well as the components of such results , may not be comparable to our historical results of operations . revenue to date , we have not recognized any revenue from any sources , including from product sales , and we do not expect to generate any revenue from the sale of products in the foreseeable future . if our development efforts for our product candidates are successful and result in regulatory approval , or license agreements with third parties , we may generate revenue in the future from product sales . however , there can be no assurance as to when we will generate such revenue , if at all . research and development expense research and development expenses in future periods may consist of preclinical development of our product candidates and discovery efforts ( including conducting preclinical studies ) , manufacturing development efforts , preparing for and conducting clinical trials and activities related to regulatory filings for our product candidates . research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received . costs incurred in obtaining technology licenses through asset acquisitions are charged to research and development expense if the licensed technology has not reached technological feasibility and has no alternative future use . story_separator_special_tag identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming , expensive and uncertain process that takes many years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of product candidates that we do not expect to be commercially available in the near term , if at all . accordingly , we will need to continue to rely on additional financing to achieve our business objectives . adequate additional financing may not be available to us on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the terms of these equity securities or this debt may restrict our ability to operate . any future debt financing and equity financing , if available , may involve covenants limiting and restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures , entering into profit-sharing or other arrangements or declaring dividends . if we raise additional funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties , we may be required to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . if we are unable to raise capital when needed or on acceptable terms , we could be forced to delay , reduce or eliminate our research and development programs or future commercialization efforts . adequate additional financing may not be available to us on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our stockholders will be or could be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders . any future debt financing and equity financing , if available , may involve covenants limiting and restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures , entering into profit-sharing or other arrangements or declaring dividends . if we raise additional funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties , we may be required to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . if we are unable to raise capital when needed or on acceptable terms , we could be forced to delay , reduce or eliminate our research and development programs or future commercialization efforts . we are continuing to assess the effect that the covid-19 pandemic may have on our business and operations . the extent to which covid-19 may impact our business and operations will depend on future 88 developments that are highly uncertain and can not be predicted with confidence , such as the geographic spread of the disease , the duration of the outbreak , the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions , quarantines , social distancing requirements and business closures in the united states and other countries to contain and treat the disease . while the potential economic impact brought by , and the duration of , covid-19 may be difficult to assess or predict , a widespread pandemic could result in significant disruption of global financial markets , reducing our ability to access capital , which could in the future negatively affect our liquidity . in addition , a recession or market correction resulting from the spread of covid-19 could materially affect our business and the value of our common stock . cash flows the following table provides a summary of our cash flow data for the periods indicated ( amounts in thousands ) : for the year ended december 31 , 2020 for the period from march 1 , 2019 ( date of inception ) to december 31 , 2019 net cash used in operating activities $ ( 2,279 ) $ net cash provided by financing activities 64,071 cash flows from operating activities our cash flows used in operating activities to date have been primarily comprised of payroll and professional service fees related to research and development and general and administrative activities . as we continue to ramp up hiring and continue and expand clinical trials of , and seek marketing approval for , our product candidates , we expect our cash used in operating activities to increase significantly before we start to generate any material cash flows from our business . net cash used in operating activities was approximately $ 2.3 million for the year ended december 31 , 2020 compared to $ 0 for the period from march 1 , 2019 to december 31 , 2019. significant components of our cash used in operating activities consists of approximately $ 1.0 million in legal and professional services in support of completion of the bayer license agreement , formation of our business in preparation for the merger with lsac and patent costs associated with our portfolio of compounds , as well as an additional $ 1.0 million in insurance premiums paid upon our transition to a public company . our net loss during the year ended december 31 , 2020 was approximately $ 10.8 million , which included non-cash expenses of $ 5.0 million related to the bayer license and approximately $ 4.4 million related to stock-based compensation .
| results of operations comparison of the year ended december 31 , 2020 and the period from march 1 , 2019 ( date of inception ) through december 31 , 2019 the following table sets forth our historical operating results for the periods indicated ( amounts in thousands ) : replace_table_token_2_th research and development research and development expenses increased by $ 2.1 million for the year ended december 31 , 2020 compared to the period from march 1 , 2019 to december 31 , 2019. the increase was primarily related to an increase of $ 2.0 million in stock-based compensation from the grant of stock options to purchase 473,000 shares of common stock with a grant date fair value of approximately $ 5.6 million that was recognized as research and development expense . research and developmentlicense acquired during the year ended december 31 , 2020 , we incurred $ 5.0 million of research and development cost related to the bayer license agreement . general and administrative general and administrative expenses increased by approximately $ 3.6 million for year ended december 31 , 2020 compared to the period from march 1 , 2019 to december 31 , 2019. the increase was primarily related to an increase of $ 2.3 million in stock-based compensation from the grant of stock options to purchase approximately 575,000 shares of common stock with a grant date fair value of approximately $ 6.8 million that was recognized as general and administrative expense .
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under existing guidance , operating leases are not recorded as lease assets and lease liabilities on the balance sheet . the update will story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ item 1a . risk factors ” , “ item 6. selected financial data ” , our consolidated financial statements and related notes thereto , as well as other cautionary statements and risks described elsewhere in this annual report on form 10-k , before deciding to purchase , hold or sell shares of our common stock . overview our company and our businesses starting with a focus on pc graphics , nvidia invented the gpu to solve some of the most complex problems in computer science . we have extended our focus in recent years to the revolutionary field of ai . fueled by the sustained demand for better 3d graphics and the scale of the gaming market , nvidia has evolved the gpu into a computer brain at the intersection of vr , hpc , and ai . our two reportable segments - gpu and tegra processor - are based on a single underlying architecture . from our proprietary processors , we have created platforms that address four large markets where our expertise is critical : gaming , professional visualization , datacenter , and automotive . while our gpu and cuda architecture is unified , our gpu product brands are aimed at specialized markets including geforce for gamers ; quadro for designers ; tesla and dgx for ai data scientists and big data researchers ; and grid for cloud-based visual computing users . our tegra brand integrates an entire computer onto a single chip , and incorporates gpus and multi-core cpus to drive supercomputing for autonomous robots , drones , and cars , as well as for consoles and mobile gaming and entertainment devices . headquartered in santa clara , california , nvidia was incorporated in california in april 1993 and reincorporated in delaware in april 1998. recent developments , future objectives and challenges fiscal year 2018 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; text-align : justify ; font-size:10pt ; '' > during fiscal year 2018 , for the automotive market , we announced the nvidia drive ai self-driving platform , which enables automakers and tier-1 suppliers to accelerate production of automated and autonomous vehicles , the nvidia drive xavier autonomous machine processor to power the nvidia drive software stack , and nvidia drive px pegasus , an auto-grade ai computer designed to enable driverless robotaxis without steering wheels , pedals or mirrors . we also announced several new partnerships aimed at getting ai-powered cars , trucks and commercial vehicles on the road , including partnerships with aurora , autoliv , baidu , bosch , continental , mercedes-benz , uber , volkswagen , volvo , toyota , and zf . in addition , we introduced nvidia jetson tx2 , a high-performance , low-power computer platform for delivering ai at the edge , with deep learning and computer vision capabilities for robots , drones and smart cameras , the nvidia isaac robot simulator for training intelligent machines in simulated real-world conditions before deployment , and the nvidia metropolis platform , used by more than 50 partners to make cities safer and smarter by applying deep learning to surveillance video streams . 24 critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , cost of revenue , expenses and related disclosure of contingencies . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , inventories , income taxes , goodwill , cash equivalents and marketable securities , stock-based compensation , and litigation , investigation and settlement costs and other contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements . our management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors . the audit committee has reviewed our disclosures relating to our critical accounting policies and estimates in this annual report on form 10-k. revenue recognition product revenue we recognize revenue from product sales when persuasive evidence of an arrangement exists , the product has been delivered , the price is fixed or determinable and collection of the related receivable is reasonably assured . our customer programs primarily involve rebates , which are designed to serve as sales incentives to resellers of our products in various target markets . we account for rebates as a reduction of revenue and accrue for 100 % of the potential rebates and do not apply a breakage factor , as we typically find that over 95 % of the rebates we accrue each year are eventually claimed , which is substantially close to 100 % , and that this percentage varies by program and by customer . we recognize a liability for these rebates at the later of the date at which we record the related revenue or the date at which we offer the rebate . rebates typically expire six months from the date of the original sale , unless we reasonably believe that the customer intends to claim the rebate . unclaimed rebates are reversed to revenue , the amount of which typically represents less than 0.5 % of total revenue . our customer programs also include marketing development funds , or mdfs . story_separator_special_tag to the extent realization of the deferred tax assets becomes more-likely-than-not , we would recognize such deferred tax asset as an income tax benefit during the period . we recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position . our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense . the tcja , which was enacted in december 2017 , significantly changes u.s. tax law , including a reduction of the u.s. federal corporate income tax rate from 35 % to 21 % , a requirement for companies to pay a one-time transition tax on the earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-source earnings . as a fiscal year-end taxpayer , certain provisions of the tcja began to impact us in the fourth quarter of fiscal year 2018 , while other provisions will impact us beginning in fiscal year 2019. refer to note 13 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information specific to accounting for income taxes and the impacts from the enactment of the tcja . 26 goodwill goodwill is subject to our annual impairment test during the fourth quarter of our fiscal year , or earlier , if indicators of potential impairment exist , using either a qualitative or a quantitative assessment . our impairment review process compares the fair value of the reporting unit in which the goodwill resides to its carrying value . we have identified two reporting units , gpu and tegra processor , for the purposes of completing our goodwill analysis . goodwill assigned to the gpu and tegra processor reporting units as of january 28 , 2018 was $ 210 million and $ 408 million , respectively . determining the fair value of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions . we also make judgments and assumptions in allocating assets and liabilities to each of our reporting units . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . we use the quantitative assessment to test goodwill for impairment for each reporting unit . in applying the fair value based test of each reporting unit , the results from the income approach and the market approach were equally weighted . these valuation approaches consider a number of factors that include , but are not limited to , prospective financial information , growth rates , terminal or residual values , discount rates and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and the future profitability of our business . during the fourth quarter of fiscal year 2018 , we concluded that there was no impairment of our goodwill . the fair values of our gpu and tegra processor reporting units significantly exceeded their respective carrying values . as such , even the application of a hypotheti cal 10 % decrease to the fair value of each reporting unit would not have resulted in the fair value of either reporting unit being less than its carrying value . refe r to note 4 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . cash equivalents and marketable securities cash equivalents consist of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition . marketable securities consist primarily of highly liquid investments with maturities greater than three months when purchased . we measure our cash equivalents and marketable securities at fair value . the fair values of our financial assets are determined using quoted market prices of identical assets or quoted market prices of similar assets from active markets . all of our available-for-sale investments are subject to a periodic impairment review . we record a charge to earnings when a decline in fair value is significantly below cost basis and judged to be other-than-temporary , or have other indicators of impairments . we performed an impairment review of our investment portfolio as of january 28 , 2018 . we concluded that our investments were appropriately valued and that no other-than-temporary impairment charges were necessary on our portfolio of available-for-sale investments as of january 28 , 2018 . refe r to notes 6 and 7 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . stock-based compensation our stock-based compensation expense is associated with restricted stock units , or rsus , performance stock units that are based on our corporate financial performance targets , or psus , performance stock units that are based on market conditions , or market-based psus , and our employee stock purchase plan , or espp . the number of psus and market-based psus that will ultimately be awarded is contingent on the company 's level of achievement compared with the corporate financial performance target established by our compensation committee in the beginning of each fiscal year . re fer to notes 1 and 2 of the notes to the consolidated financial statements in part iv , item 15 of this annual report on form 10-k for additional information . litigation , investigation and settlement costs from time to time , we are involved in legal actions and or investigations by regulatory bodies . we are aggressively defending our current litigation matters . however , there are many uncertainties associated with any litigation or investigations , and we can not be certain that these actions or other third-party claims against us will be resolved without costly litigation , fines and or substantial settlement payments .
| summary replace_table_token_5_th revenue for fiscal year 2018 grew 41 % to $ 9.71 billion , reflecting broad growth in each of our market platforms - gaming , professional visualization , datacenter , and automotive . gpu business revenue was $ 8.14 billion , up 40 % from a year earlier , led by growth in gaming , datacenter , and professional visualization . strong growth across our pascal-based geforce gaming gpus was driven by growth associated with gpu refreshes/upgrades , new gamers , new games , esports , and cryptocurrency mining . revenue for datacenter , including tesla , nvidia grid and nvidia dgx , was $ 1.93 billion , up 133 % year on year , led by strong sales of our volta architecture , including v100 gpu accelerators , which began shipping in the first half of fiscal year 2018 and are available through major computer makers and cloud providers , new dgx systems , and design wins in hpc . professional visualization revenue grew 12 % year over year to $ 934 million , led by ultra-high-end and high-end desktop workstations , as well as unique form factors and emerging opportunities , including ai , deep learning , vr and rendering . 23 tegra processor business revenue was $ 1.53 billion , up 86 % from a year ago . tegra processor business revenue includes soc modules for the nintendo switch gaming console and development services . also included was automotive revenue of $ 558 million , which was up 15 % from a year earlier , incorporating infotainment modules , production drive px platforms , and development agreements for self-driving cars . revenue from our patent license agreement with intel concluded in the first quarter of fiscal year 2018 .
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restaurant managing partners and chef partners in the u.s. that are eligible to participate in a deferred compensation program receive an unsecured promise of a cash contribution to their account ( see note 6 - stock-based and deferred compensation plans ) . on the fifth anniversary of the opening of each new u.s. company-owned restaurant , the area operating partner supervising the restaurant during the first five years of operation receives an additional bonus based upon the average distributable cash flow of the restaurant for the preceding 24 months . in addition to monthly payments and deferred compensation , area operating partners , restaurant managing partners and chef partners in the u.s. whose restaurants and concepts achieve certain targets , including sales , profitability and traffic growth , are eligible to receive an annual bonus equal to a percentage of the restaurant 's incremental sales increase . the company estimates future bonuses and deferred compensation obligations to restaurant managing , chef partners and area operating partners , using current and historical information on restaurant performance and records the long-term portion of partner obligations in other long-term liabilities , net in its consolidated balance sheets . deferred compensation expenses for restaurant managing and chef partners are included in labor and other related expenses and bonus expense for area operating partners is included in general and administrative expenses in the company 's consolidated statements of operations and comprehensive income . stock-based compensation - stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting or service periods . stock-based compensation expense is recognized only for those awards expected to vest . the expense , net of forfeitures , is recognized using the straight-line method . 82 bloomin ' brands , inc. notes to consolidated financial statements - continued foreign currency translation and transactions - for all significant non-u.s. operations , the functional currency is the local currency . foreign currency denominated assets and liabilities are translated into u.s. dollars using the exchange rates in effect at the balance sheet date with the translation adjustments recorded in accumulated other comprehensive loss in the company 's consolidated statements of changes in stockholders ' equity . results of operations are translated using the average exchange rates for the reporting period . the company recorded foreign currency exchange transaction losses of $ 1.2 million , $ 0.7 million and $ 0.2 million for fiscal years 2015 , 2014 and 2013 , respectively . foreign currency exchange transaction losses are recorded in general and administrative in the company 's consolidated statements of operations and comprehensive income . income taxes - deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred income tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change . a valuation allowance may reduce deferred income tax assets to the amount that is more likely than not to be realized . the company records a tax benefit for an uncertain tax position using the highest cumulative tax benefit that is more likely than not to be realized . the company adjusts its liability for unrecognized tax benefits in the period in which it determines the issue is effectively settled , the statute of limitations expires or when more information becomes available . liabilities for unrecognized tax benefits , including penalties and interest , are recorded in accrued and other current liabilities and other long-term liabilities on the company 's consolidated balance sheets . recently adopted financial accounting standards - in november 2015 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) 2015-17 , “ income taxes ( topic 740 ) : balance sheet classification of deferred taxes ” ( “ asu no . 2015-17 ” ) , which simplifies the presentation of deferred income taxes . asu no . 2015-17 provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position . the company adopted this standard as of september 28 , 2015 , with prospective application . the adoption of asu no . 2015-17 had no impact on the company 's consolidated statements of operations and comprehensive income . in april 2015 , the fasb issued asu no . 2015-03 : “ interest - imputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs ” ( “ asu no . 2015-03 ” ) . asu no . 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability . since asu no . 2015-03 did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements , the fasb issued asu no . 2015-15 : “ interest - imputation of interest ( subtopic 835-30 ) : presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements ” ( “ asu no . 2015-15 ” ) in august 2015 . 83 bloomin ' brands , inc. notes to consolidated financial statements - continued asu no . 2015-15 clarifies that debt issuance costs related to line-of-credit arrangements may be presented as an asset and subsequently amortized over the term of the line-of-credit arrangement , regardless of whether there are any outstanding borrowings on the line-of-credit arrangement . asu no . 2015-03 requires retrospective application . the company elected to adopt asu no . 2015-03 and asu no . 2015-15 as story_separator_special_tag restaurant managing partners and chef partners in the u.s. that are eligible to participate in a deferred compensation program receive an unsecured promise of a cash contribution to their account ( see note 6 - stock-based and deferred compensation plans ) . on the fifth anniversary of the opening of each new u.s. company-owned restaurant , the area operating partner supervising the restaurant during the first five years of operation receives an additional bonus based upon the average distributable cash flow of the restaurant for the preceding 24 months . in addition to monthly payments and deferred compensation , area operating partners , restaurant managing partners and chef partners in the u.s. whose restaurants and concepts achieve certain targets , including sales , profitability and traffic growth , are eligible to receive an annual bonus equal to a percentage of the restaurant 's incremental sales increase . the company estimates future bonuses and deferred compensation obligations to restaurant managing , chef partners and area operating partners , using current and historical information on restaurant performance and records the long-term portion of partner obligations in other long-term liabilities , net in its consolidated balance sheets . deferred compensation expenses for restaurant managing and chef partners are included in labor and other related expenses and bonus expense for area operating partners is included in general and administrative expenses in the company 's consolidated statements of operations and comprehensive income . stock-based compensation - stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting or service periods . stock-based compensation expense is recognized only for those awards expected to vest . the expense , net of forfeitures , is recognized using the straight-line method . 82 bloomin ' brands , inc. notes to consolidated financial statements - continued foreign currency translation and transactions - for all significant non-u.s. operations , the functional currency is the local currency . foreign currency denominated assets and liabilities are translated into u.s. dollars using the exchange rates in effect at the balance sheet date with the translation adjustments recorded in accumulated other comprehensive loss in the company 's consolidated statements of changes in stockholders ' equity . results of operations are translated using the average exchange rates for the reporting period . the company recorded foreign currency exchange transaction losses of $ 1.2 million , $ 0.7 million and $ 0.2 million for fiscal years 2015 , 2014 and 2013 , respectively . foreign currency exchange transaction losses are recorded in general and administrative in the company 's consolidated statements of operations and comprehensive income . income taxes - deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred income tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change . a valuation allowance may reduce deferred income tax assets to the amount that is more likely than not to be realized . the company records a tax benefit for an uncertain tax position using the highest cumulative tax benefit that is more likely than not to be realized . the company adjusts its liability for unrecognized tax benefits in the period in which it determines the issue is effectively settled , the statute of limitations expires or when more information becomes available . liabilities for unrecognized tax benefits , including penalties and interest , are recorded in accrued and other current liabilities and other long-term liabilities on the company 's consolidated balance sheets . recently adopted financial accounting standards - in november 2015 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) 2015-17 , “ income taxes ( topic 740 ) : balance sheet classification of deferred taxes ” ( “ asu no . 2015-17 ” ) , which simplifies the presentation of deferred income taxes . asu no . 2015-17 provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position . the company adopted this standard as of september 28 , 2015 , with prospective application . the adoption of asu no . 2015-17 had no impact on the company 's consolidated statements of operations and comprehensive income . in april 2015 , the fasb issued asu no . 2015-03 : “ interest - imputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs ” ( “ asu no . 2015-03 ” ) . asu no . 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability . since asu no . 2015-03 did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements , the fasb issued asu no . 2015-15 : “ interest - imputation of interest ( subtopic 835-30 ) : presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements ” ( “ asu no . 2015-15 ” ) in august 2015 . 83 bloomin ' brands , inc. notes to consolidated financial statements - continued asu no . 2015-15 clarifies that debt issuance costs related to line-of-credit arrangements may be presented as an asset and subsequently amortized over the term of the line-of-credit arrangement , regardless of whether there are any outstanding borrowings on the line-of-credit arrangement . asu no . 2015-03 requires retrospective application . the company elected to adopt asu no . 2015-03 and asu no . 2015-15 as
| fiscal year 2015 would have affected net income by $ 0.3 million . if we assumed that the psu performance conditions for stock-based awards were not met , stock-based compensation expense would have decreased by $ 3.2 million for fiscal year 2015 . if we assumed that psu share awards met their maximum threshold , expense would have increased by $ 3.7 million for fiscal year 2015 . income taxes deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using the tax rates , based on certain judgments regarding enacted tax laws and published guidance , in effect in the years in which we expect those temporary differences to reverse . a valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized . changes in assumptions regarding our level and composition of earnings , tax laws or the deferred tax valuation allowance and the results of tax audits , may materially impact the effective income tax rate .
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the information does not necessarily indicate beneficial ownership for any other purpose , including for purposes of sections 13 ( d ) and 13 ( g ) of the securities act . our calculation of the number of shares beneficially owned and the percentage of beneficial ownership is based upon 8,005,011 shares outstanding as of march 17 , 2017. unless otherwise indicated , the address of each beneficial owner listed in the table below is c/o monster digital , inc. , 2655 park center drive , unit c , simi valley , california 93065. replace_table_token_11_th * represents beneficial ownership of less than 1 % of the outstanding common stock . 51 ( 1 ) includes 442,191 shares held by mr. clarke , 18,068 shares held by leslie clarke , mr. clarke 's wife , and 355,928 shares held by gbs holdings , inc. , an entity which may be deemed controlled by mr. clarke but which is owned by leslie clarke and the children of mr. clarke . also includes warrants to purchase 30,472 shares of common stock held by mr. clarke and 45,522 shares of common stock held by gbs holdings , inc. mr. clarke may be deemed the indirect beneficial owner of these securities since he has shared sale , voting and investment control over the securities with his wife . the address of gsb holdings , inc. and mr. clarke is 14179 laurel trail , wellington , florida 33414 . ( 2 ) includes stock options to purchase 16,834 shares of common stock . ( 3 ) includes warrants to purchase 30,472 shares of common stock held by mr. clarke and 45,522 shares of common stock held by gbs holdings , inc. ( 4 ) represents 382,575 shares held by monster , inc. and warrants to purchase 208,122 shares of common stock held by noel lee , the chief executive officer and sole shareholder of monster , inc. ( 5 ) mr. lee may be deemed the indirect beneficial owner of these securities since he has sole sale , voting and investment control over the securities . the address of monster , inc. and mr. lee is 455 valley drive , brisbane , ca 94005. item 13. certain relationships and related transactions and director independence the following is a description of transactions since may 2012 , to which we have been a party , in which the amount involved exceeded or will exceed $ 120,000 , and in which any of our executive officers , directors , promoters or holders of more than 5 % of any class of our voting securities , or an affiliate or immediate family member thereof , had or will have a direct or indirect material interest , other than compensation , termination and change in control arrangements , which are described under “ executive compensation ” . jawahar tandon , our founder , former executive chairman of the board and former chief executive officer , may be deemed to be a promoter within the meaning of sec rules under the securities act . we believe the terms obtained or consideration that we paid or received , as applicable , in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received , as applicable , in arm's-length transactions with unrelated third parties . related party loans from time to time since inception , we have obtained certain related party loans from and advances tandon enterprises , inc. a company controlled and owned by jawahar tandon , a director and our former executive chairman of the board and chief executive officer , and devinder tandon , a former director . the proceeds of the loans provided us with working capital . for the years ended december 31 , 2015 and 2014 , the net amount borrowed was $ ( 151,000 ) and $ 460,000 , respectively . however , as of june 22 , 2016 , we were indebted to tandon enterprises , inc. in the amount of $ 346,100 . the loans and advances were non-interest bearing and had no maturity date . tandon enterprises , inc. converted all outstanding net amounts lent and advanced to our company into shares of common stock and warrants immediately prior to consummation of our initial public offering at the initial public offering price of the shares of common stock so offered . david h. clarke , our story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this report . certain statements in this report constitute forward-looking statements . these forward-looking statements include statements , which involve risks and uncertainties , regarding , among other things , ( a ) our projected sales , profitability , and cash flows , ( b ) our growth strategy , ( c ) anticipated trends in our industry , ( d ) our future financing plans , and ( e ) our anticipated needs for , and use of , working capital . they are generally identifiable by use of the words “ may , ” “ will , ” “ should , ” “ anticipate , ” “ estimate , ” “ plan , ” “ potential , ” “ project , ” “ continuing , ” “ ongoing , ” “ expects , ” “ management believes , ” “ we believe , ” “ we intend , ” or the negative of these words or other variations on these words or comparable terminology . in light of these risks and uncertainties , there can be no assurance that the forward-looking statements contained in this filing will in fact occur . story_separator_special_tag we do not engage in any long-term research and development contracts , and all research and development costs are expensed as incurred . other expenses interest and finance expense includes interest paid or payable to a finance company for outstanding borrowings , bank fees , purchase order finance fees , interest accrued on convertible debt , amortization of a debt discount that arose as a result of the issuance of warrants with convertible debt , and amortization of debt issuance costs . debt conversion expense is a non-cash charge for the effect of an induced conversion of debt to equity . year 2016 compared to year 2015 story_separator_special_tag 10pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > operating activities net cash used in operating activities in the year ended december 31 , 2016 was approximately $ 8.4 million due primarily to a net loss of $ 6.2 million and a decrease in accounts payable and accrued expenses of $ 2.3 million . additional uses of cash included increases in accounts receivable , inventory and prepaid expenses offset by non-cash expenses that include stock-based compensation and amortization of deferred costs . net cash used in operating activities in the year ended december 31 , 2015 was approximately $ 1.7 million due primarily to a net loss of $ 8.7 million , partially offset by a $ 2.7 million decrease in accounts receivable and a $ 1.9 million decrease in inventory . both of these decreases are reflective of the decrease in sales as well as a more conservative approach to inventory levels maintained . in addition , the net loss included non-cash charges totaling $ 583,000 for the amortization of debt discount , a debt to equity conversion expense of $ 898,000 and stock-based compensation expense of $ 356,000. the increase in accounts receivable as of december 31 , 2016 is reflective of an increase in days of sales outstanding to 77 in 2016 as compared to 28 in 2015. investing activities our current operating structure does not depend upon a significant investment in capital equipment or operating facilities . substantially all of our manufacturing is conducted offshore by third party manufacturers . our office and warehouse facilities are leased under a three-year operating lease . for 2016 and 2015 , we used no cash in investing activities . financing activities net cash provided by financing activities in the year ended december 31 , 2016 was approximately $ 9.8 million and was primarily attributable to our initial public offering proceeds as well as the bridge loan financing and preferred and restricted stock issuances during the year . net cash provided by financing activities in the year ended december 31 , 2015 was approximately $ 1.8 million . there was a net repayment of approximately $ 4.8 million of our accounts receivable credit facility as a result of the collection of accounts receivable , as indicated above . in 2015 , we continue to receive funding through the issuance of convertible debt under the private placement offering that began in 2014. in 2015 , an additional gross total of $ 1.6 million was raised under this offering . in march 2015 , we initiated a common stock purchase rights offering for the issuance of up to $ 4.8 million of equity and raised a net total of $ 3.0 million under this offering . from october 2015 to december 2015 , we raised a net total of issued $ 2.5 million , issuing $ 3.5 million of promissory notes . the use of the net proceeds of such indebtedness was the funding of inventory purchases and working capital and corporate expenses , including personnel expenses and professional fees and expenses associated with our initial public offering . debt instruments as of december 31 , 2016 , debt instruments consist of two convertible notes payable with a total principal amount of $ 38,000 , due in 2015 that remain unpaid . 37 operating and capital expenditure requirements we have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future . we expect our cash expenditures to increase in the near term as we fund our future growth . as a publicly traded company , we are required to incur significant legal , accounting and other expenses that we were not required to incur as a private company . in addition , the sarbanes-oxley act , as well as rules adopted by the securities and exchange commission , or sec , and the nasdaq stock market , requires public companies to implement specified corporate governance practices that are currently inapplicable to us as a private company . we expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly . we will need to raise substantial additional financing in the future to fund our operations . in order to meet these additional cash requirements , we would likely need to sell additional equity or convertible securities that may result in dilution to our stockholders . if we raise additional funds through the issuance of convertible securities , these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations . there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us , if at all . if we raise additional funds through collaboration and licensing agreements with third parties , it may be necessary to relinquish valuable rights to our product candidates , technologies or future revenue streams or to grant licenses on terms that may not be favorable to us .
| results of operations summary of the year ended december 31 , 2016 net sales for 2016 decreased to $ 4.1 million as compared to $ 8.3 million for 2015 ; gross profit for 2016 was $ 736,000 , or 18.1 % of net sales , as compared to $ 426,000 , or 5.2 % of net sales , for 2015 ; operating expenses , as a percentage of net sales , increased to 164.3 % for 2016 compared to 83.3 % for 2015 ; net loss attributable to common stockholders for 2016 was $ 6.2 million , or $ 1.12 per diluted share , as compared to $ 8.7 million , or $ 2.65 per diluted share , for 2015 ; and cash used in operations for 2016 was $ 8.4 million , an increase from $ 1.7 million used in 2015 . 33 the following table sets forth , for the periods indicated , the percentage that certain items in the statements of operations bear to net sales and the percentage dollar increase ( decrease ) of such items from year to year . replace_table_token_2_th the following discussion explains in greater detail our consolidated operating results and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report .
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since march 17 , 2020 , a number of states , including all of the states in which we have manufacturing facilities , have instituted ‘ shelter-in place ' orders as well as guidance in response to the pandemic and the need to contain it . we are carefully reviewing all rules , regulations , and orders and responding accordingly . on march 17 , 2020 , we temporarily shut down our ems manufacturing facility in fremont , california . as of the date of this filing , all of our other manufacturing facilities remain open . if the current pace of the coronavirus pandemic can not be slowed and the spread of the virus is not contained , our business operations could be further delayed or interrupted . we expect that government and health authorities may announce new or extend existing restrictions , which could require us to make further adjustments to our operations in order to comply with any such restrictions . these adjustments to our operations could include additional facility closures . we may also experience limitations in employee resources . global supply chains and the timely availability of products have been and will continue to be materially disrupted by quarantines , factory slowdowns or shutdowns , border closings and travel restrictions resulting from the coronavirus outbreak . in addition , our operations could be disrupted if any of our employees or employees of our business partners were suspected of having coronavirus , which could require quarantine of some or all such employees or closure of our facilities for disinfection . - 21 - we have taken steps to take care of our employees , including providing the ability for employees to work remotely and implementing strategies to support appropriate social distancing techniques for those employees who are not able to work remotely . we have also taken precautions with regard to employee , facility and office hygiene as well as implementing significant travel restrictions . we have developed a process for the ongoing screening of employees and visitors to our facilities to assess their risk of exposure to and or infection with the coronavirus . we are also assessing our business continuity plans for all business units in the context of the pandemic . this is a rapidly evolving situation , and we will continue to monitor and mitigate developments affecting our workforce , our suppliers , our customers , and the public at large to the extent we are able to do so . the duration of any business disruption and related financial impact can not be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs . the extent to which the coronavirus may impact our results will depend on future developments , which are highly uncertain and can not be predicted as of the time of this filing , including new information that may emerge concerning the severity of the coronavirus and steps taken to contain the coronavirus or treat its impact , among others . overview this md & a should be read in conjunction with the accompanying consolidated financial statements . we are a global supplier of precision-engineered solutions for use in manufacturing and testing across a wide range of markets including automotive , defense/aerospace , energy , industrial , semiconductor and telecommunications . we manage our business as two operating segments : thermal and ems . our thermal segment designs , manufactures and sells our thermal test and thermal process products while our ems segment designs , manufactures and sells our semiconductor test products . our ems segment sells its products to semiconductor manufacturers and third-party test and assembly houses ( end user sales ) and to ate manufacturers ( oem sales ) , who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses . our thermal segment sells its products to many of these same types of customers ; however , it also sells into a variety of other markets , including the automotive , defense/aerospace , energy , industrial and telecommunications markets . as a result of the acquisition of ambrell in may 2017 , our thermal segment also sells into the consumer products packaging , fiber optics and other sectors within the broader industrial market , and into the wafer processing sector within the broader semiconductor market . both of our operating segments have multiple products that we design , manufacture and market to our customers . due to a number of factors , our products have varying levels of gross margin . the mix of products we sell in any period is ultimately determined by our customers ' needs . therefore , the mix of products sold in any given period can change significantly from the prior period . as a result , our consolidated gross margin can be significantly impacted in any given period by a change in the mix of products sold in that period . markets historically , we have referred to our markets as “ semiconductor ” ( which includes both the broader semiconductor market as well as the more specialized semiconductor ate and wafer processing sectors within the broader semiconductor market ) , and “ non-semiconductor ” ( which included all of the other markets we serve ) . in the second quarter of 2019 , we began referring to the semiconductor market , including the ate and wafer processing sectors within that market , as the “ semi market. ” all other markets are designated as “ multimarket. ” while the semi market represents the historical roots of intest and remains a very important component of our business , multimarket is where we have focused our strategic growth efforts in the last several years . our goal has been to grow our business , both organically and through acquisition , in these markets as we believe these markets have historically been less cyclical than the semi market . story_separator_special_tag while market share statistics exist for some of these markets , due to the nature of our highly specialized product offerings in these markets , we do not expect broad market penetration in many of these markets and therefore do not anticipate developing meaningful market shares in most of these markets . however , in the last several years , we have developed a meaningful market share in two markets outside of the semi market : the induction heating market for systems with 500kw or less of power ( which is a subset of the industrial market ) and the optical transceiver market ( which is a subset of the telecommunications market ) . however , more recently , we have seen technological advances in the optical transceiver market that have significantly reduced the demand for the products we sell that are used to test and characterize these devices . furthermore , as a result of the significant demand for equipment used to test optical transceivers over the last five years , we have a large installed base of test equipment within the optical transceiver market . the combination of these two factors effectively eliminated the optical transceiver market as a meaningful market for us in 2019 and going forward . in addition , our multimarket orders and net revenues in any given period do not necessarily reflect the overall trends in the markets within multimarket due to our limited market shares . consequently , we are continuing to evaluate buying patterns and opportunities for growth in multimarket that may affect our performance . the level of our multimarket orders and net revenues has varied in the past , and we expect will vary significantly in the future , as we work to build our presence in multimarket and establish new markets for our products . orders and backlog the following table sets forth , for the periods indicated , a breakdown of the orders received by operating segment and market ( in thousands ) . replace_table_token_5_th total consolidated orders for the year ended december 31 , 2019 were $ 52.8 million compared to $ 78.2 million in 2018 , a decrease of $ 25.4 million , or 32 % . the decrease primarily reflects lower levels of demand experienced by both of our segments from customers within the semi market , and to a lesser extent , a decline in demand from certain customers of our thermal segment in the industrial and telecommunications markets . these declines were partially offset by an increase in revenues from customers in the defense/aerospace market . multimarket orders for the year ended december 31 , 2019 were $ 27.4 million , or 52 % of total consolidated orders , compared to $ 32.3 million , or 41 % of total consolidated orders in 2018. the level of our multimarket orders has varied in the past , and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets for our products . at december 31 , 2019 , our backlog of unfilled orders for all products was approximately $ 5.5 million compared with approximately $ 13.4 million at december 31 , 2018. the significant decrease in our backlog primarily reflects the aforementioned reduction in demand during 2019. our backlog includes customer orders that we have accepted , substantially all of which we expect to deliver in 2020. while backlog is calculated on the basis of firm purchase orders , a customer may cancel an order or accelerate or postpone currently scheduled delivery dates . our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers , including us , in periods of depressed demand . in periods of increased demand , there is a tendency towards longer lead times that has the effect of increasing backlog . as a result , our backlog at a particular date is not necessarily indicative of sales for any future period . - 23 - net revenues the following table sets forth , for the periods indicated , a breakdown of the net revenues by operating segment and market ( in thousands ) . replace_table_token_6_th total consolidated net revenues for the year ended december 31 , 2019 were $ 60.7 million compared to $ 78.6 million in 2018 , a decrease of $ 17.9 million or 23 % as compared to 2018. the decrease in net revenues primarily reflects the aforementioned reduction in demand experienced by both of our segments from customers in the semi market , and to a lesser extent , a decline in demand from certain customers of our thermal segment in the telecommunications market . multimarket net revenues for the year ended december 31 , 2019 were $ 29.7 million , or 49 % of total consolidated net revenues , compared to $ 33.2 million , or 42 % of total consolidated net revenues in 2018. the level of our multimarket net revenues has varied in the past , and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets for our products . story_separator_special_tag id= '' .lead.d3 '' style='font-family : `` times new roman '' , times , serif ; font-size : 10pt ; ' > 2018 cash and cash equivalents $ 7,612 $ 17,861 working capital $ 16,534 $ 14,203 as of december 31 , 2019 , $ 2.5 million of our cash and cash equivalents was held by our foreign subsidiaries . we currently expect our cash and cash equivalents and projected future cash flow to be sufficient to support our short-term working capital requirements and other corporate requirements . however , we may need additional financial resources , which could include debt or equity financings , to consummate a significant acquisition if the consideration in such a transaction would require us to utilize a substantial portion of , or an amount equal to or in excess of , our available cash .
| results of operations the results of operations for our two operating segments are generally affected by the same factors described in the overview section above . separate discussions and analyses for each segment would be repetitive . the discussion and analysis that follows , therefore , is presented on a consolidated basis and includes discussion of factors unique to each operating segment where significant to an understanding of that segment . year ended december 31 , 2019 compared to year ended december 31 , 2018 net revenues . net revenues were $ 60.7 million for the year ended december 31 , 2019 compared to $ 78.6 million in 2018 , a decrease of $ 17.9 million or 23 % . we believe this decrease reflects the factors previously discussed in the overview . gross margin . gross margin was 48 % for the year ended december 31 , 2019 compared to 50 % in 2018. our fixed operating costs decreased $ 744,000 in absolute dollar terms in 2019 as compared to 2018. however , as a percentage of net revenues , these costs increased from 14 % of net revenues in 2018 to 17 % of net revenues in 2019 as a result of not being as fully absorbed by the lower net revenues levels in 2019. the $ 744,000 decrease in our fixed operating costs primarily reflects lower facility costs and a reduction in the use of temporary labor resources in our thermal segment . the increase in our fixed operating costs as a percentage of net revenues was partially offset by a reduction in component material costs as a percentage of net revenues during 2019 as compared to 2018. the reduction in component material costs reflects changes in product and customer mix in our thermal segment . selling expense .
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the aggregate fees of withum related to audit services in connection with our 2017 initial public offering totaled $ 30,000 . the above amounts include interim procedures and audit fees , as well as attendance at audit committee meetings . audit-related fees audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “ audit fees . ” these services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards . during the fiscal year ended december 31 , 2017 and for the period from march 10 , 2016 ( date of inception ) through december 31 , 2016 , we did not pay withum for any audit-related fees . tax fees during the fiscal year ended december 31 , 2017 , tax fees paid to withum totaled $ 3,000 . we did not pay withum for tax return services or tax planning and tax advice for the period from march 10 , 2016 ( inception ) through december 31 , 2016. all other fees we did not pay withum for other services during the year ended december 31 , 2017 and for the period from march 10 , 2016 ( inception ) through december 31 , 2016. pre-approval policy our audit committee was formed upon the consummation of our initial public offering . as a result , the audit committee did not pre-approve all of the foregoing services , although any services rendered prior to the formation of our audit committee were approved by our board of directors . since the formation of our audit committee , and on a going-forward basis , the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors , including the fees and terms thereof ( subject to the de minimis exceptions for non-audit services described in the exchange act which are approved by the audit committee prior to the completion of the audit ) . part iv item 15. exhibits , financial statements and financial statement schedules ( a ) the following documents are filed as part of this report : ( 1 ) financial statements ( 2 ) financial statements schedule 69 all financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required , or the required information is presented in the financial statements and notes thereto in is item 15 of part iv below . ( 3 ) exhibits we hereby file as part of this report the exhibits listed in the attached exhibit index . exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the sec , 100 f street , n.e . , room 1580 , washington d.c. 20549. copies of such material can also be obtained from the public reference section of the sec , 100 f street , n.e . , washington , d.c. 20549 , at prescribed rates or on the sec website at www.sec.gov . exhibit index replace_table_token_4_th * filed herewith * * furnished herewith 70 ( 1 ) incorporated by reference to the company 's form 8-k , filed with the sec on march 15 , 2017 . ( 2 ) incorporated by reference to the company 's form s-1 , filed with the sec on february 15 , 2017. item 16. form 10-k summary not applicable . 71 matlin & partners acquisition corporation index to financial statements page report of independent registered pubic accounting firm f-1 balance sheets as of december 31 , 2017 and 2016 f-2 statements of operations for the year ended december story_separator_special_tag references to the `` company , '' `` us , '' “ our ” or `` we '' refer matlin & partners acquisition corporation . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . cautionary note regarding forward-looking statements all statements other than statements of historical fact included in this form 10-k including , without limitation , statements under `` management 's discussion and analysis of financial condition and results of operations '' regarding the company 's financial position , business strategy and the plans and objectives of management for future operations , are forward- looking statements . when used in this form 10-k , words such as `` anticipate , '' `` believe , '' `` estimate , '' `` expect , '' `` intend '' and similar expressions , as they relate to us or the company 's management , identify forward-looking statements . such forward-looking statements are based on the beliefs of management , as well as assumptions made by , and information currently available to , the company 's management . actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the sec . all subsequent written or oral forward-looking statements attributable to us or persons acting on the company 's behalf are qualified in their entirety by this paragraph . overview we are a blank check company incorporated as a delaware corporation on march 10 , 2016 and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination with one or more businesses . story_separator_special_tag regarding executive compensation in its periodic reports and proxy statements , and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved . further , section 102 ( b ) ( 1 ) of the jobs act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies ( that is , those that have not had a securities act registration statement declared effective or do not have a class of securities registered under the exchange act ) are required to comply with the new or revised financial accounting standards . the jobs act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable . the company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies , the company , as an emerging growth company , can adopt the new or revised standard at the time private companies adopt the new or revised standard . this may make comparison of the company 's financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used . net income per common share net income per common share is computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period , plus , to the extent dilutive , the incremental number of shares of common stock to settle warrants , as calculated using the treasury stock method . at december 31 , 2017 , the company had outstanding warrants to purchase 24,000,000 shares of common stock . these shares were excluded from the calculation of diluted income ( loss ) per common share because their inclusion would have been antidilutive . an aggregate of 31,170,308 shares of class a common stock subject to possible redemption at december 31 , 2017 have been excluded from the calculation of basic income ( loss ) per common share since such shares , if redeemed , only participate in their pro rata share of earnings from the trust account . due to a loss during the period ended december 31 , 2016 , diluted loss per common share is the same as basic loss per common share . at december 31 , 2016 , the company did not have any dilutive securities and other contracts that could , potentially , be exercised or converted into common stock and then share in the earnings of the company under the treasury stock method . 56 financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under fasb asc 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the balance sheets . offering costs the company complies with the requirements of fasb asc 340-10-s99-1 and sec staff accounting bulletin topic 5a — “ expenses of offering. ” offering costs were $ 16,824,469 ( including an underwriting fee of $ 6,000,000 and deferred underwriting commissions of $ 10,250,000 ) , consisting principally of costs incurred in connection with formation and preparation for the public offering . these offering costs were charged to additional paid in capital upon closing of the public offering on march 15 , 2017. income taxes the company follows the asset and liability method of accounting for income taxes under fasb asc 740 , “ income taxes. ” deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount expected to be realized . fasb asc 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more likely than not to be sustained upon examination by taxing authorities . there were no unrecognized tax benefits as of december 31 , 2017. the company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense . no amounts were accrued for the payment of interest and penalties at december 31 , 2017. the company is currently not aware of any issues under review that could result in significant payments , accruals or material deviation from its position . the company is subject to income tax examinations by major taxing authorities since inception . redeemable class a common stock all of the 32,500,000 shares of class a common stock sold as parts of the units in the public offering contain a redemption feature which allows for the redemption of class a common stock under the company 's liquidation or tender offer/stockholder approval provisions . in accordance with fasb asc 480 , redemption provisions not solely within the control of the company require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from
| results of operations for the year ended december 31 , 2017 , we had a net income of $ 757,557. our entire activity through december 31 , 2017 , consisted of formation and preparation for the public offering and since the public offering , the search for a target business with which to consummate an initial business combination , and as such , we had no operations . subsequent to the closing of the public offering on march 15 , 2017 , our normal operating costs included costs associated with our search for a target business , costs associated with our governance and public reporting , and state franchise taxes . liquidity and capital resources until the consummation of the public offering , our only sources of liquidity were an initial purchase of founder shares for $ 25,000 by the sponsor , and a total of $ 275,000 of loans and advances by the sponsor . the $ 275,000 loans and advances were non-interest bearing and were paid in full on march 15 , 2017 in connection with closing of the public offering . on march 15 , 2017 , we consummated our public offering in which we sold 32,500,000 units at a price of $ 10.00 per unit ( including the partial exercise of the underwriter 's overallotment option ) generating gross proceeds of $ 325,000,000 before underwriting fees and expenses . the sponsor and the underwriter purchased an aggregate of 15,500,000 private placement warrants ( 14,500,000 of private placement warrants by the sponsor and 1,000,000 of private placement warrants by the underwriter ) at a price of $ 0.50 per private placement warrant in a private placement that occurred simultaneously with the public offering . in connection with the public offering , we incurred offering costs of $ 16,824,469 ( including an underwriting fee of $ 6,000,000 and deferred underwriting commissions of $ 10,250,000 ) .
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in connection with this accounting policy , we recognized a charge to net periodic benefit expense during the fourth quarter of 2014 of $ 71.9. such charge resulted from reductions in discount rates and changes to our mortality rate assumptions , partially offset by better than expected returns on our plans ' assets . see note 10 to our consolidated financial statements for additional details on the above matters . impairment charges during 2014 , we recorded impairment charges of $ 38.1 related to the following : $ 11.7 and $ 8.4 related to trademarks of certain businesses within our flow technology and thermal and equipment and services reportable segments , respectively ; and $ 18.0 related to our cooling reporting unit 's investment in the shanghai electric jv . see note 8 to our consolidated financial statements for additional details on the above charges . planned spin-off transaction on october 29 , 2014 , we announced that our board of directors had unanimously approved a plan for a tax-free spin-off of our flow technology reportable segment and our hydraulic technologies business , a business currently reported within industrial products and services and other . the spin-off would create a new stand-alone , publicly-traded company focused on providing highly engineered technologies and services to customers in the global power and energy , food and beverage , and industrial markets . we currently expect the transaction to be completed during the third quarter of 2015. one-time costs , net of income taxes , associated with this planned transaction are expected to be in the range of $ 60.0 to $ 80.0 , inclusive of income taxes on the repatriation of foreign earnings . we incurred the following costs in 2014 related to the above planned transaction : professional services and related transaction support costs of $ 3.5 ( included in `` selling , general and administrative '' expense ) ; fees and related transaction costs of $ 5.0 to obtain the consents required of the holders of our 6.875 % senior notes to amend certain provisions to the indenture governing such senior notes , allowing these senior notes to become 24 obligations of the new stand-alone , publicly-traded company mentioned above if , and when , the spin-off transaction is completed ( included in `` other income ( expense ) , net '' ) ; u.s. income and foreign withholding taxes of $ 18.6 as a result of our election in the fourth quarter of 2014 to repatriate certain earnings of our non-u.s. subsidiaries ; foreign income taxes of $ 6.0 related to certain legal entity reorganization actions undertaken to facilitate the planned spin-off transaction ; and foreign income taxes provided of $ 5.1 associated with valuation allowances that have been recorded against deferred income tax assets , as the related tax benefits are no longer expected to be realized due to the legal entity reorganization actions noted above . in connection with the planned spin-off transaction , we determined that we would no longer pursue the sale of our flash technologies business , a business previously reported in discontinued operations . accordingly , we have reclassified the results of operations , assets and liabilities , and cash flows of this business to continuing operations for all periods presented . this business is included within industrial products and services and other . income taxes during 2014 , our income tax provision was impacted primarily by u.s. income taxes provided in connection with the $ 491.2 gain on the sale of our interest in egs , as well as discrete income tax charges of $ 9.2. these charges were composed primarily of ( i ) the $ 29.7 of aggregate tax charges noted above and ( ii ) $ 14.5 related to additional net increases in valuation allowances recorded against certain foreign deferred income tax assets . these charges were partially offset by tax benefits of ( i ) $ 28.6 related to various audit settlements , statute expirations and other adjustments to liabilities for uncertain tax positions , and ( ii ) $ 6.4 related to a loss on an investment in a foreign subsidiary . results of continuing operations seasonality and competition many of our businesses closely follow changes in the industries and end markets they serve . in addition , certain businesses have seasonal fluctuations . demand in the oil and gas aftermarket is typically stronger in the second half of the year . our heating and ventilation products businesses tend to be stronger during the third and fourth quarters , as customer buying habits are driven largely by seasonal weather patterns . demand for cooling towers , food and beverage systems and related services is highly correlated to timing on large construction contracts , which may cause significant fluctuations in our financial performance from period to period . in aggregate , our businesses generally tend to be stronger in the second half of the year . although our businesses operate in highly competitive markets , our competitive position can not be determined accurately in the aggregate or by segment since our competitors do not offer all the same product lines or serve all the same markets . in addition , specific reliable comparative figures are not available for many of our competitors . in most product groups , competition comes from numerous concerns , both large and small . the principal methods of competition are service , product performance , technical innovation and price . these methods vary with the type of product sold . we believe we compete effectively on the basis of each of these factors . see `` business reportable segments and other operating segments '' for a discussion of our competitors . non-gaap measures organic revenue growth ( decline ) presented herein is defined as revenue growth ( decline ) excluding the effects of foreign currency fluctuations and acquisitions . story_separator_special_tag 142.4 recognized in 2012 to a gain of $ 1.0 recognized in 2013 ) and a reduction in expense resulting from a $ 250.0 discretionary contribution to our domestic qualified pension plan in april of 2013. these decreases in sg & a were offset partially by an increase in incentive compensation in 2013 of $ 14.7. intangible amortization for 2014 , the decrease in intangible amortization , compared to 2013 , was due primarily to the impact of foreign currency translation . for 2013 , the decrease in intangible amortization , compared to 2012 , was due primarily to certain intangible assets becoming fully amortized during 2012. impairment of goodwill and other long-term assets during 2014 , we recorded impairment charges of $ 11.7 and $ 8.4 related to the trademarks of certain businesses within our flow technology and thermal equipment and services reportable segments , respectively . in addition , during 2014 , we recorded an impairment charge of $ 18.0 related to our cooling reporting unit 's investment in the shanghai electric jv . during 2013 , we recorded impairment charges of $ 6.7 related to the trademarks of certain businesses within our flow technology reportable segment . during 2012 , we recorded impairment charges of $ 281.4 associated with the goodwill ( $ 270.4 ) and other long-term assets ( $ 11.0 ) of our cooling reporting unit . in addition , we recorded impairment charges of $ 4.5 related to trademarks for two businesses within our thermal equipment and services reportable segment . see note 8 to our consolidated financial statements for further discussion of impairment charges . special charges , net special charges , net , related primarily to restructuring initiatives to consolidate manufacturing , distribution , sales and administrative facilities , reduce workforce , and rationalize certain product lines , as well as related asset impairment charges . see note 6 to our consolidated financial statements for the details of actions taken in 2014 , 2013 and 2012. the components of special charges , net , were as follows : replace_table_token_7_th other income ( expense ) , net other income , net , for 2014 was composed primarily of the gain on sale of our interest in egs of $ 491.2 and , to a much lesser extent , investment-related earnings of $ 9.0 and gains on fx embedded derivatives of $ 5.4 , partially offset by ( i ) losses on fx forward contracts of $ 7.8 , ( ii ) a charge of $ 5.0 to obtain the consents required of the holders of our 6.875 % senior notes to amend certain provisions to the indenture governing such senior notes , with such consent obtained in connection with the planned spin-off transaction previously discussed , and ( iii ) foreign currency transaction losses of $ 4.7 . 27 other expense , net , for 2013 was composed primarily of foreign currency transaction losses of $ 16.1 and losses on fx forward contracts of $ 0.1 , partially offset by gains on fx embedded derivatives of $ 0.6 and investment-related earnings of $ 4.2. other income , net , for 2012 was composed primarily of a gain of $ 20.5 associated with the deconsolidation of our dry cooling products business in china , investment-related earnings of $ 9.9 , and gains on fx forward contracts of $ 0.2 , partially offset by foreign currency transaction losses of $ 12.2 and losses on fx embedded derivatives of $ 0.4. interest expense , net interest expense , net , includes both interest expense and interest income . the decrease in interest expense , net , during 2014 , compared to 2013 , was primarily a result of the redemption of all our 7.625 % senior notes during the first quarter of 2014 and , to a lesser extent , lower average interest rates and fees related to our senior credit facilities . ( see `` md & a liquidity and financial condition '' and note 12 to our consolidated financial statements for further details pertaining to our 2014 debt activity . ) the decrease in interest expense , net , during 2013 , compared to 2012 , was primarily the result of a decrease in the average outstanding borrowings on our revolving credit facilities and trade receivables financing arrangement from $ 162.0 during 2012 to $ 8.8 during 2013. interest expense in 2013 included a charge of $ 1.0 associated with the write-off of deferred financing costs as a result of the amendment of our senior credit facilities . loss on early extinguishment of debt as previously noted , in the first quarter of 2014 , we completed the redemption of all our 7.625 % senior notes due in december 2014 for a total redemption price of $ 530.6. as a result of the redemption , we recorded a charge of $ 32.5 during 2014 , which consisted of the premiums paid of $ 30.6 , the write-off of unamortized deferred financing fees of $ 1.0 , and other costs incurred to redeem the notes of $ 0.9. equity earnings in joint ventures prior to 2014 , our equity earnings in joint ventures were attributable primarily to our investment in egs . as previously noted , we completed the sale of our investment interest in egs in january 2014. accordingly , we recognized no equity earnings from this joint venture during 2014. our equity earnings from this investment totaled $ 41.9 and $ 39.0 during 2013 and 2012 , respectively . see note 9 to our consolidated financial statements for additional information regarding our investment in egs . income taxes during 2014 , we recorded an income tax provision of $ 214.1 on $ 594.2 of pre-tax income from continuing operations , resulting in an effective tax rate of 36.0 % .
| and results of operations ( all currency and share amounts are in millions ) the following should be read in conjunction with our consolidated financial statements and the related notes . unless otherwise indicated , amounts provided in item 7 pertain to continuing operations only ( see note 4 to our consolidated financial statements for information on discontinued operations ) . executive overview in 2014 , we continued to execute our commitments to improving operational performance , returning capital to shareholders and narrowing our strategic focus around our flow end markets . summarized below is the progress we made in each of these areas during 2014. operational performance revenues for 2014 were 1.1 % lower than 2013 , with the most significant fluctuations related to a decline in sales associated with our large power projects in south africa , power and energy pumps , and fare collection systems , partially offset by increases in sales of cooling equipment , power transformers and heating and ventilation products . despite the decline in revenue , aggregate income and the related profit margin for our operating segments increased to $ 522.1 and 11.1 % , respectively , in 2014 , compared to $ 510.1 and 10.7 % , respectively , in 2013. much of the improvement in profitability for our operating segments was the result of cost savings associated with restructuring initiatives implemented within our flow technology and thermal equipment and services reportable segments during the second half of 2013 and the first half of 2014 , as well as improved operational execution and favorable sales mix within the power and energy , and food and beverage , businesses of our flow technology reportable segment . operating results for 2014 were impacted negatively by a reduction in revenue and income of $ 33.3 associated with revisions to expected revenues and costs related to our large power projects in south africa , due primarily to overall project delays and subcontractor challenges .
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pursuant to the 2013 plan , stock options , restricted shares , stock units , including restricted stock units and stock appreciation rights story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read together with the financial statements and the related notes included in item 8 of part ii of this annual report on form 10-k. this discussion and analysis contains certain forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section entitled `` risk factors '' in item 1a , and other documents we file with the securities and exchange commission . historical results are not necessarily indicative of future results . overview we are a leading genomic diagnostics company that provides trustworthy and actionable answers that fundamentally improve patient care when current diagnostic test results are uncertain . our products uniquely combine genomic technology , clinical science and machine learning to provide answers that give physicians and patients a clear path forward without the need for risky , costly surgery that is often unnecessary . the role of genomic information in medical practice is evolving rapidly and has affected the diagnosis of disease as well as treatment decisions . over the past decade , molecular diagnostic tests that analyze genomic material from tissue samples have emerged as an important complement to evaluations performed by pathologists . information at the molecular level enables one to understand and identify more fully the makeup and specific subtype of disease to improve diagnosis . in many cases , the genomic information derived from these samples can help guide treatment decisions as part of the standard of care . we deploy machine learning algorithms , which leverage comprehensive rna expression data , to develop tests for the improvement of diagnostic clarity for cancer and other diseases . in our thyroid and lung indications , diagnosis can be ambiguous in 15-70 % of patients undergoing diagnostic evaluation depending on the indication . our tests provide clarity of diagnosis that can in turn guide treatment decisions in 40-70 % of those cases , eliminating costly , risky surgeries and other unnecessary medical procedures , improving the lives of patients and saving the healthcare system money . since our founding in 2008 , we have commercialized three genomic classifiers that we believe are transforming diagnostics : the next-generation afirma genomic sequencing classifier , or gsc , and its predecessor , the afirma gene expression classifier , or gec , for thyroid cancer ; the percepta bronchial genomic classifier for lung cancer ; and the envisia genomic classifier for idiopathic pulmonary fibrosis , or ipf . collectively , we believe these three tests address a $ 2 billion global market opportunity . the published evidence supporting our tests demonstrates the robustness of our science and clinical studies . patients and physicians can access our full list of publications on our website . over 30 clinical studies covering our products have been published , including two landmark clinical validation papers published in the new england journal of medicine for the afirma and percepta classifiers , respectively . we continue to build upon our extensive library of clinical evidence . we also expect to continue expanding our offerings in thyroid cancer , lung cancer and interstitial lung diseases such as ipf , as well as other indications that we believe will benefit from our technology and approach . we believe our focus on developing clinically useful tests that change patient care is enabling us to set new standards in genomic test reimbursement . our afirma genomic classifier is now covered by every major health plan in the united states , covering more than 275 million people , for use in thyroid cancer diagnosis . it is available as an in-network , contracted offering to more than 175 million people nationwide through their insurers . our second commercial product , the percepta classifier , is the first genomic test to gain medicare coverage for improved lung cancer screening and diagnosis , making it a covered benefit for more than 60 million people . fourth quarter and full-year 2017 financial results for the three- and twelve-month periods ended december 31 , 2017 , compared to the prior year : revenue was $ 19.6 million and $ 72.0 million , respectively , an increase of 7 % and 11 % ; genomic volume was 7,153 and 26,026 reported tests , respectively , an increase of 13 % and 12 % ; gross margin was 60 % and 61 % , respectively , a decline of 4 % and flat to prior year ; 47 operating expenses , excluding cost of revenue , were $ 17.9 million and $ 70.3 million , respectively , an increase of 16 % and 3 % ; net loss and comprehensive loss was ( $ 8.4 ) million and ( $ 31.0 ) million , respectively , an increase of 92 % and decrease of 1 % ; basic and diluted net loss per common share was ( $ 0.24 ) and ( $ 0.91 ) , respectively , an increase of 71 % and decrease of 17 % ; cash burn was $ 6.1 million and $ 25.2 million , respectively , an increase of 31 % and improvement of 22 % ; and cash and cash equivalents was $ 33.9 million at december 31 , 2017. to supplement our financial statements prepared in accordance with u. s. gaap , we monitor and consider cash burn , which is a non-u.s. gaap financial measure . this non-u.s. gaap financial measure is not based on any standardized methodology prescribed by u.s. gaap and is not necessarily comparable to similarly-titled measures presented by other companies . we define cash burn as net cash used in operating activities plus net capital expenditures , such as net purchases of property and equipment . story_separator_special_tag revenue from percepta has not been significant for the year ended december 31 , 2017. for tests that we perform that do not meet our accrual criteria , we recognize revenue upon cash receipt . 49 continued adoption of and reimbursement for our products revenue growth depends on our ability to secure coverage decisions , achieve broader reimbursement at increased levels from third-party payers , expand our base of prescribing physicians and increase our penetration in existing accounts . because some payers consider our products experimental and investigational , we may not receive payment for tests and payments we receive may not be at acceptable levels . we expect our revenue growth will increase as more payers make a positive coverage decision and as payers enter into contracts with us , which should enhance our accrued revenue and cash collections . to drive increased adoption of our products , we increased our sales force over the last several years , along with increasing our marketing efforts . our sales team is structured to sell all of our products ; we do not maintain a separate sales force for each product . if we are unable to expand the base of prescribing physicians and penetration within these accounts at an acceptable rate , or if we are not able to execute our strategy for increasing reimbursement , we may not be able to effectively increase our revenue . we expect to continue to see pressure from payers to limit the utilization of tests , generally , and we believe more payers are deploying cost containment tactics , such as pre-authorization and employing laboratory benefit managers to reduce utilization rates . how we recognize revenue we recognize revenue on an accrual basis when we are able to make a reasonable estimate of reimbursement at the time delivery is complete . in the first period in which revenue is accrued for a particular payer or test , there generally is a one-time increase in revenue . until we have contracts with payers or can reasonably estimate the amount that will ultimately be received , we recognize the related revenue on the cash basis . as we commercialize new products , we will need to be able to make a reasonable estimate of the amount that will ultimately be received from each payer for each new product offering prior to being able to recognize the related revenue on an accrual basis . because the timing and amount of cash payments received from payers as well as one-time increases in revenue from newly accrued payers are difficult to predict , we expect that our revenue may fluctuate significantly in any given quarter . as of december 31 , 2017 , cumulative amounts billed at list price for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not collected cash or written off as uncollectible , totaled approximately $ 159.3 million . as of december 31 , 2016 , cumulative amounts billed at list price for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not collected cash or written off as uncollectible , totaled $ 161.2 million . of this amount , we recognized revenue of approximately $ 2.5 million for the year ended december 31 , 2017 , respectively , when cash was received . generally , cash we receive is collected within 12 months of the date the test is billed . we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . notwithstanding our efforts to obtain payment for these tests , payers may deny our claims , in whole or in part , and we may never receive revenue from previously performed but unpaid tests . revenue from these tests , if any , may not be equal to the billed amount due to a number of factors , including differences in reimbursement rates , the amounts of patient co-payments and co-insurance , the existence of secondary payers and claims denials . finally , when we increase our list price , it will increase the cumulative amounts billed . in addition , payer contracts generally include the right of offset and payers may offset payments prior to resolving disputes over tests performed . generally , we calculate the average afirma genomic classifier reimbursement from all payers , whether they are on the cash or an accrual basis , for tests that are on average a year old , since it can take a significant period of time to collect from some payers . except in situations where we believe the rate we reasonably expect to collect to vary due to a coverage decision , contract , more recent reimbursement data or evidence to the contrary , we use an average of reimbursement for tests provided over four quarters as it reduces the effects of temporary volatility and seasonal effects . thus , the average reimbursement per afirma genomic classifier represents the total cash collected to date against afirma genomic classifier tests performed during the relevant period divided by the number of these tests performed during that same period . the average afirma genomic classifier reimbursement rate will change over time due to a number of factors , including medical coverage decisions by payers , the effects of contracts signed with payers , changes in allowed amounts by payers , our ability to successfully win appeals for payment , and our ability to collect cash payments from third-party payers and individual patients . historical average reimbursement is not necessarily indicative of future average reimbursement .
| results of operations comparison of the years ended december 31 , 2017 , 2016 and 2015 ( in thousands of dollars , except percentages ) 54 replace_table_token_7_th revenue revenue increased $ 6.9 million , or 11 % , for the year ended december 31 , 2017 compared to 2016. revenue recognized on the accrual basis increased $ 22.2 million , or 47 % , for the year ended december 31 , 2017 compared to 2016 , due to increased adoption of afirma and increases in the accrual rates for afirma from higher historical reimbursement from payers . commencing from the quarter ended september 30 , 2016 , we had sufficient information developed to support reasonable estimates of the amount of revenue to accrue upon test delivery for a number of payers that had been previously recognized on the cash basis and as a result , we accrued revenue for substantially all of our test volume . the cash basis revenue , which is from unaccrued tests delivered prior to july 1 , 2016 , decreased $ 15.3 million , or 85 % for the year ended december 31 , 2017 as compared to 2016. revenue increased $ 15.6 million , or 31 % , for the year ended december 31 , 2016 compared to 2015. revenue recognized on the accrual basis increased $ 20.1 million , or 74 % , for the year ended december 31 , 2016 compared to 2015 , due to increased adoption of afirma and accruing substantially all of our test volume commencing from the quarter ended september 30 , 2016. the cash basis revenue , which is from unaccrued tests delivered prior to july 1 , 2016 , decreased $ 4.5 million , or 20 % for the year ended december 31 , 2016 as compared to 2015. revenue recognized on the accrual basis and the cash basis for the years ended december 31 , 2017 , 2016 and 2015 was as follows ( in thousands of dollars , except percentages ) : replace_table_token_8_th 55
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hei utilizes short-term debt , typically commercial paper , to support normal operations , to refinance commercial paper , to retire long-term debt , to pay dividends and for other temporary requirements . hei also periodically makes short-term loans to hawaiian electric to meet hawaiian electric 's cash requirements , including the funding of loans by hawaiian electric to hawaii electric light and maui electric , but no such short-term loans to hawaiian electric were outstanding as of december 31 , 2016. hei periodically utilizes long-term debt , historically consisting of medium-term notes and other unsecured indebtedness , to fund investments in and loans to its subsidiaries to support their capital improvement or other requirements , to repay long-term and short-term indebtedness and for other corporate purposes . in march 2013 , hei entered into equity forward transactions in which a forward counterparty borrowed 7 million shares of hei 's common stock from third parties and such borrowed shares were sold pursuant to an hei registered public offering . see note 9 of the consolidated financial statements . in march 2015 , hei issued the 4.7 million shares remaining under the equity forward transaction for proceeds of $ 104.5 million . in october 2015 , hei amended and extended a two-year $ 125 million term loan agreement that it entered into on may 2 , 2014 , which extended term loan now matures on october 6 , 2017. in march 2016 , hei entered into a $ 75 million term loan agreement with bank of america , n.a. , which matures on march 23 , 2018. see note 8 of the consolidated financial statements for a brief description of the loan agreements . in december 2014 , hei filed an omnibus registration statement to register an indeterminate amount of debt and equity securities . hei has a line of credit facility , as amended and restated on april 2 , 2014 , of $ 150 million . see note 7 of the consolidated financial statements . the rating of hei 's commercial paper and debt securities could significantly impact the ability of hei to sell its commercial paper and issue debt securities and or the cost of such debt . the rating agencies use a combination of qualitative measures ( i.e. , assessment of business risk that incorporates an analysis of the qualitative factors such as management , competitive positioning , operations , markets and regulation ) as well as quantitative measures ( e.g. , cash flow , debt , interest coverage and liquidity ratios ) in determining the ratings of hei securities . in august 2016 , moody 's downgraded hei 's short-term commercial paper rating to p-3 from p-2 and revised hei 's outlook to stable . in december 2016 , s & p affirmed hei 's long-term and short-term issuer credit rating of bbb- and a-3 , respectively , with a stable outlook . in january 2017 , fitch affirmed hei 's long-term issuer default rating at bbb with a stable outlook . 44 as of february 13 , 2017 , the fitch , moody 's and s & p ratings of hei were as follows : fitch moody 's s & p long-term issuer default and senior unsecured ; senior unsecured * ; and long-term issuer credit ; respectively bbb * bbb- commercial paper f3 p-3 a-3 outlook stable stable stable * not rated . the above ratings reflect only the view , at the time the ratings are issued or affirmed , of the applicable rating agency , from whom an explanation of the significance of such ratings may be obtained . such ratings are not recommendations to buy , sell or hold any securities ; such ratings may be subject to revision or withdrawal at any time by the rating agencies ; and each rating should be evaluated independently of any other rating . management believes that , if hei 's commercial paper ratings were to be downgraded , or if credit markets for commercial paper with hei 's ratings or in general were to tighten , it could be more difficult and or expensive for hei to sell commercial paper or hei might not be able to sell commercial paper in the future . such limitations could cause hei to draw on its syndicated credit facility instead , and the costs of such borrowings could increase under the terms of the credit agreement as a result of any such ratings downgrades . similarly , if hei 's long-term debt ratings were to be downgraded , it could be more difficult and or expensive for hei to issue long-term debt . such limitations and or increased costs could materially adversely affect the results of operations , financial condition and liquidity of hei and its subsidiaries . from march 6 , 2014 through january 5 , 2016 , hei satisfied the share purchase requirements of the hawaiian electric industries , inc. dividend reinvestment and stock purchase plan ( drip ) , hawaiian electric industries retirement savings plan ( heirsp ) and asb 401 ( k ) plan through open market purchases of its common stock rather than through new issuances . from january 6 , 2016 through december 6 , 2016 , hei satisfied its share purchase requirements for the plans through new issuances , except that from june 2 , 2016 through august 9 , 2016 , hei satisfied the share purchase requirements of the heirsp and asb 401 ( k ) plan through open market purchases of its common stock . from december 7 , 2016 to date , hei satisfied the share purchase requirements of these three plans through open market purchases of its common stock rather than through new issuances . story_separator_special_tag in 2016 , the company raised $ 30 million through the new issuances of approximately 1 million shares of common stock under the drip , heirsp and asb 401 ( k ) plan . in 2014 , the company raised $ 3 million through the new issuances of approximately 0.1 million shares of common stock under the drip , heirsp and asb 401 ( k ) plan . operating activities provided net cash of $ 495 million in 2016 , $ 356 million in 2015 and $ 325 million in 2014. investing activities used net cash of $ 736 million in 2016 , $ 706 million in 2015 and $ 592 million in 2014. in 2016 , net cash used in investing activities was primarily due to a hawaiian electric 's consolidated capital expenditures ( net of contributions in aid of construction ) and asb 's net increase in loans held for investment and purchases of investment securities , partly offset by the repayments of investment securities and proceeds from sale of commercial loans and investment securities . financing activities provided net cash of $ 219 million in 2016 , $ 475 million in 2015 and $ 223 million in 2014. in 2016 , net cash provided by financing activities included net increases in deposits and long-term debt and net proceeds from the issuance of common stock , partly offset by a net decreases in short-term borrowings , asb 's retail repurchase agreements and other borrowings and payment of common and preferred stock dividends . other than capital contributions from their parent company , intercompany services ( and related intercompany payables and receivables ) , hawaiian electric 's periodic short-term borrowings from hei ( and related interest ) and the payment of dividends to hei , the electric utility and bank segments are largely autonomous in their operating , investing and financing activities . ( see the electric utility and bank segments ' discussions of their cash flows in their respective “ financial condition-liquidity and capital resources ” sections below . ) during 2016 , hawaiian electric and asb ( through asb hawaii ) paid cash dividends to hei of $ 94 million and $ 36 million , respectively . a portion of the net assets of hawaiian electric and asb is not available for transfer to hei in the form of dividends , loans or advances without regulatory approval . one of the conditions to the puc 's approval of the corporate restructuring of hawaiian electric and hei requires that hawaiian electric maintain a consolidated common equity to total capitalization ratio of not less than 35 % ( actual ratio of 57 % at december 31 , 2016 ) , and restricts hawaiian electric from making distributions to hei to the extent it would result in that ratio being less than 35 % . in the absence of an unexpected material adverse change in the financial condition of the electric utilities or asb , such restrictions are not expected to significantly affect the operations of hei , its ability to pay dividends on its common stock or its ability to meet its debt or other cash obligations . see note 14 of the consolidated financial statements . forecasted hei consolidated “ net cash used in investing activities ” ( excluding “ investing ” cash flows from asb ) for 2017 through 2019 consists primarily of the net capital expenditures of the utilities . in addition to the funds required for the utilities ' construction programs ( see “ electric utility–liquidity and capital resources ” ) , approximately $ 200 million will be required 45 during 2017 through 2019 to repay hei 's $ 125 million and $ 75 million two-year term loans maturing in october 2017 and march 2018 , respectively , which are expected to be repaid with the proceeds from the issuance of commercial paper , bank borrowings , other medium- or long-term debt , common stock and or dividends from subsidiaries . additional debt and or equity financing may be utilized to invest in the utilities and bank ; to pay down commercial paper or other short-term borrowings ; or to fund unanticipated expenditures not included in the 2017 through 2019 forecast , such as increases in the costs of or an acceleration of the construction of capital projects of the utilities , unanticipated utility capital expenditures that may be required by the hcei or new environmental laws and regulations , unbudgeted acquisitions or investments in new businesses , significant increases in retirement benefit funding requirements and higher tax payments that would result if certain tax positions taken by the company do not prevail or if taxes are increased by federal or state legislation . in addition , existing debt may be refinanced prior to maturity with additional debt or equity financing ( or both ) . selected contractual obligations and commitments . information about payments under the specified contractual obligations and commercial commitments of hei and its subsidiaries was as follows : replace_table_token_25_th 1 includes contractual obligations and commitments for capital expenditures and expense amounts . the tables above do not include other categories of obligations and commitments , such as deferred taxes , trade payables , amounts that will become payable in future periods under collective bargaining and other employment agreements and employee benefit plans , obligations that may arise under indemnities provided to purchasers of discontinued operations , potential refunds of amounts collected from ratepayers ( e.g. , under the earnings sharing mechanism ) and as of december 31 , 2016 , the fair value of the assets held in trusts to satisfy the obligations of the company 's retirement benefit plans did not exceed the retirement benefit plans ' benefit obligation . minimum funding requirements for retirement benefit plans have not been included in the tables above ; however , see note 10 to the consolidated financial statements for estimated contributions for 2017. see note 4 of the consolidated financial statements for
| results of operations . 2016 vs. 2015 replace_table_token_28_th 1 the rate schedules of the electric utilities currently contain energy cost adjustment clauses ( ecacs ) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers . 2 the rate schedule of the electric utilities currently contain purchase power adjustment clauses ( ppac ) through which changes in purchase power expenses ( except purchased energy costs ) are passed on to customers . 3 costs to complete waiau power plant 's onshore and offshore investigations and the remediation of pcb contamination in the offshore sediment in 2015 . 4 kwh sales were lower in 2016 when compared to the prior year due largely to continued energy efficiency and conservation efforts by customers and increasing levels of private customer-sited renewable generation . 52 2015 vs. 2014 replace_table_token_29_th 1 the rate schedules of the electric utilities currently contain energy cost adjustment clauses ( ecacs ) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers . 2 the rate schedule of the electric utilities currently contain purchase power adjustment clauses ( ppac ) through which changes in purchase power expenses ( except purchased energy costs ) are passed on to customers . 3 costs to complete waiau power plant 's onshore and offshore investigations and the remediation of pcb contamination in the offshore sediment in 2015 . 4 kwh sales were lower in 2015 when compared to the prior year due largely to continued energy efficiency and conservation efforts by customers and increasing levels of private customer-sited renewable generation . most recent rate proceedings .
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these forward-looking statements can be identified by the use of words such as “ believes , ” “ estimates , ” “ could , ” “ possibly , ” “ probably , ” anticipates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” or “ should ” or other variations or similar words . no assurances can be given that the future results anticipated by the forward-looking statements will be achieved . forward-looking statements reflect management 's current expectations and are inherently uncertain . our actual results may differ significantly from management 's expectations . the following discussion and analysis should be read in conjunction with our financial statements , included herewith . this discussion should not be construed to imply that the results discussed herein will necessarily continue into the future , or that any conclusion reached herein will necessarily be indicative of actual operating results in the future . such discussion represents only the best present assessment of our management . general overview we operate two distinct business segments : products segment and services segment our products segment designs and manufactures products for the subsea market including our range of flagship patented real time 3d sonar solutions ( “ products segment ” ) . these products are used primarily in the underwater construction market , offshore oil and gas , offshore wind energy industry , and in the complex dredging , port security , mining and marine sciences sectors . our customers include service providers to major oil and gas ( “ o & g ” ) companies , law enforcement agencies , ports , mining companies , defense bodies , research institutes and universities . our services segment supplies engineering services to prime defense contractors ( “ services segment ” ) such as raytheon and northrop grumman . we have long-standing relationships with prime defense contractors and we use these credentials to secure more business . we support some significant defense programs by supplying and maintaining proprietary parts ( or parts which we are preferred suppliers of ) through obsolescence management programs . these services provide recurring stream of revenues for our services segment . in recent years , the products and services segment have each generated 50 % of our revenues . as a general rule , however , the product segment yields a higher gross profit margin than the services segment . in both 2017 and 2018 fiscal years the services segment revenues and net income were substantially down and off plan due to the failure of new us administration to pass a defense budget . this impact continued in 2018 on the services segment . in 2018 fiscal year therefore , products segment generated 64 % of the company 's consolidated revenues and the services segment generated 36 % . we consider this to be atypical and would anticipate in 2019 fiscal year services segment revenues will be more in line with 50 % of our overall revenues . the services segment has now started to receive the backlog orders that were due in both fiscal years 2017 and 2018 and have now contracted a backlog of $ 2,504,380 ( for the 2017/2018 orders ) and we expect the further outstanding backlog to be contracted in the first half of 2019. our biggest risks for the 2019 fiscal year for this segment is that of timely execution of its mounting backlog of orders . the current level of this segment 's order book is approximately $ 7.2m . although our products segment continues to be affected by the contraction in expenditures in offshore o & g activities , we have continued to find new markets for our subsea products , mainly our real time 3d sonar series and the launch of our echoscope 4g® surface saw an increase in the number of units sold . we also continue to become a key sensor in offshore wind energy where our technology is used for real time 3d visualization of the cable pull in points and cable touch down point . our increased efforts including expenditures in research and development is designed to capture new markets in the subsea defense space where new technologies such as underwater drones present new challenges for governments . we continue to believe that our real time 3d sonar technology is significant for the subsea defense market which is worth billions annually . our unique and patented real time 3d solutions are a significant advancement on the current technology available in the subsea sonar imaging market due to its real time capability providing real time volumetric data of underwater targets – both static and moving - in low or zero visibility conditions . 22 since introducing this product , we have made progress in getting our core real time 3d technology , the echoscope ® , adopted by a significant number of ports in the usa ( the codaoctopus ® underwater inspection system where it is used for port and harbor security . in 2015 we secured the first sale of our underwater inspection system to a foreign government body in east asia and in 2016 we sold two additional full system to this body . we have also made progress in expanding the markets ( and applications ) for our real time 3d sonars . recently , we have sold a number of systems to mining companies . increasingly , our customers involved in offshore wind energy and renewables are adopting the technology as the primary tool for scour management , subsea cable installation and associated cable protection tasks . in addition , in recent years we have started to rent our real time 3d solutions with engineering services . given the contraction in capital expenditures budget in the o & g market , rentals are increasingly becoming an important part of the composition of the company 's revenues and these o & g operators are more prepared to utilize operational budgets . furthermore , our rental offering generally yields a higher gross margin for the company . story_separator_special_tag o & g has remained very competitive and customers are increasingly seeking significant discounts to place orders . e. government spending for defense : the allocation of funds to defense procurement by governments in the united states and the united kingdom f. political landscape : global-political uncertainties affecting the markets into which we sell our goods and services . global trends which make certain geographical regions more competitive in providing engineering solutions because of lower labor costs ( e.g . india and china ) are likely to affect our services segments ( which provides engineering services ) . g. resourcing levels being a small technology company , we are unable to compete for certain specialized electronic engineering skills as our remuneration package is not as competitive as those offered by bigger companies . 23 h. investments : we lack the financial resources to advance our flagship technology at the commercially appropriate pace required to capture new markets and increase our sales which could facilitate new entrants to the market . for example , teledyne technologies incorporated , a multi-billion company , has recently acquired a number of subsea companies that may speed up their entry into our market . the company has limited external sources of capital available , and as such is reliant upon its ability to sell its products and services to provide sufficient working capital for its operations and obligations . i. technological advancement : a significant part of our growth strategy is predicated on our patented real time 3d sonar technology . the technology space is inherently uncertain due to the fast pace of innovations and therefore we can give no assurance that we can maintain our leading position in the real time 3d imaging sonar market or that innovations in other areas may not surpass our unique capability that we currently supply to subsea market . critical accounting policies this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements in conformity with us gaap requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period . actual results could materially differ from those estimates . below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 2 , “ summary of accounting policies ” of our consolidated financial statements . revenue recognition our revenue is derived from sales of underwater technologies and equipment for imaging , mapping , defense and survey applications and from the engineering services which we provide . revenue is recognized when evidence of a contractual arrangement exists , delivery has occurred or services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . no right of return privileges are granted to customers after delivery . for arrangements with multiple deliverables , we recognize revenue by allocating the total consideration to each deliverable based on the relative fair value of each deliverable . revenue from equipment and software sales are recognized when delivered , and revenue for installation and other services are recognized as they are performed . 24 our contracts sometimes require customer payments in advance of revenue recognition . these amounts are reflected as liabilities and recognized as revenue when the company has fulfilled its obligations under the respective contracts . for software license sales for which any services rendered are not considered essential to the functionality of the software , we recognize revenue upon delivery of the software , provided ( 1 ) there is evidence of a contractual arrangement for this , ( 2 ) collection of our fee is considered probable and ( 3 ) the fee is fixed and determinable . for arrangements that are generated from time and material contracts where there is a signed agreement and approved purchase order in place that specifies the fixed hourly rate and other reimbursable costs to be billed based on material and direct labor hours incurred , revenue is recognized on these contracts based on material and direct labor hours incurred . revenues from fixed-price contracts are recognized on the percentage-of-completion method , measured by the percentage of costs incurred ( materials and direct labor hours ) to date to estimated total services ( materials and direct labor hours ) for each contract . this method is used as expenditures for direct materials and labor hours are considered to be the best available measure of progress on these contracts . losses on fixed-price contracts are recognized during the period in which the loss first becomes apparent based upon costs incurred to date and the estimated costs to complete as determined by experience from similar contracts . variations from estimated contract performance could result in adjustments to operating results . rental revenue is recognized monthly over the term of the rental period . on november 1 , 2018 the company will adopt accounting standards codification asc 606 , revenue from contracts with customers ( asc 606 ) . while terminology and requirements change in asc 606 , we believe that our existing revenue accounting is compliant with asc 606 and that our accounting for revenue will not change . accordingly , our disclosures about our revenue in accordance with asc 606 will expand to comply with the new requirements , including expansion of quarterly revenue reporting requirements . we defer costs on projects for service revenue .
| fiscal year 2018 consolidated results of operations we operate two distinct business segments . our marine technology business designs , manufactures , sells and rents patented real time 3d sonar solutions and other leading products to the subsea market ( “ products segment ” ) . our marine engineering business supplies engineering services ( from design , prototyping to manufacturing ) to mainly prime defense contractors ( “ services segment ” ) . our products and associated services are sold and or rented to the offshore wind energy , dredging and marine construction , marine and port security , mining including deep sea mining , marine sciences sector and o & g sector . during the fiscal years ended october 31 , 2018 and 2017 , respectively , the product segment generated 64 % and 61 % of our total revenues . our services segment designs and supplies engineering services largely for prime and sub-prime defense contractors . during the fiscal years ended october 31 , 2018 and 2017 , respectively , the services segment generated 36 % and 39 % of our total revenues . comparison of fiscal year ended october 31 , 2018 ( “ 2018 period ” ) to fiscal year ended october 31 , 2017 ( “ 2017 period ” ) see segment information below for a full breakout of the financial performance of each segment for the 2018 and 2017 periods , respectively . the information provided below pertains to the consolidated analysis of both segments ( products and services ) operating in our group . 26 revenue : year ended october 31 , 2018 year ended october 31 , 2017 percentage change $ 18,019,429 $ 18,025,173 decrease of 0.03 % we suffered a small decrease in revenues in the 2018 period compared to the 2017 period . this is largely due to the services segment not achieving its revenue plan for fiscal year 2018 because of the delay in securing anticipated annual defense contracts resulting from the delay in the us administration approving its defense budget .
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on october 27 , 2015 , the fcc granted certain aws-3 licenses to northstar wireless and to snr wireless , respectively , which are recorded in “ fcc authorizations ” on our consolidated balance sheets . under the applicable accounting guidance in asc 810 , northstar spectrum and snr holdco are considered variable interest entities and , based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance , we consolidate these entities into our financial statements . see note 2 in the notes to our consolidated financial statements in this annual report on form 10-k for further information . the aws-3 licenses are subject to certain interim and final build-out requirements , as well as certain renewal requirements . the northstar entities and or the snr entities may need to raise significant additional capital in the future , which may be obtained from third party sources or from us , so that the northstar entities and the snr entities may commercialize , build-out and integrate these aws-3 licenses , comply with regulations applicable to such aws-3 licenses , and make any potential northstar re-auction payment and snr re-auction payment for the aws-3 licenses retained by the fcc . depending upon the nature and scope of such commercialization , build-out , integration efforts , regulatory compliance , and potential northstar re-auction payment and snr re-auction payment , any loans , equity contributions or partnerships could vary significantly . see note 14 “ commitments and contingencies – commitments – wireless – dish network non-controlling investments in the northstar entities and the snr entities related to aws-3 wireless spectrum licenses ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . we may need to raise significant additional capital in the future to fund the efforts described above , which may not be available on acceptable terms or at all . there can be no assurance that we , the northstar entities and or the snr entities will be able to develop and implement business models that will realize a return on these wireless spectrum licenses or that we , the northstar entities and or the snr entities will be able to profitably deploy the assets represented by these wireless spectrum licenses , which may affect the carrying amount of these assets and our future financial condition or results of operations . see note 14 “ commitments and contingencies – commitments – wireless ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . recent developments mergers and acquisitions , joint ventures and alliances among cable television providers , telecommunications companies , programming providers and others may result in , among other things , greater scale and financial leverage and increase the availability of offerings from providers capable of bundling video , broadband and or wireless services in competition with our services , and may exacerbate the risks described in our public filings . in october 2016 , at & t announced its acquisition of time warner , which was completed in june 2018. in december 2017 , walt disney company announced its acquisition of certain assets of twenty-first century fox , inc. these transactions may affect us adversely by , among other things , making it more difficult for us to obtain access to certain programming networks on nondiscriminatory and fair terms , or at all . for example , in connection with at & t 's acquisition of time warner , turner sent all of its distributors written , irrevocable offers to submit disputes over the price and other terms of turner programming to binding arbitration and to guarantee continued access to that programming while any arbitration is pending . however , in october 2018 , at & t removed its hbo and cinemax channels , which are not part of turner , from our dish tv and sling tv programming lineup , as we and at & t have been unable to negotiate the terms and conditions of a new programming carriage contract . also , in april 2018 , t-mobile announced its acquisition of sprint . we filed a petition to deny the transaction with the fcc . we can not predict the practical effect of the impact on us of t-mobile 's acquisition of sprint ( if approved ) , including without limitation , the impact of any conditions on us ( if any conditions are imposed ) . however , it is possible that the outcomes resulting from this acquisition ( if approved , with or without conditions ) could have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . 69 trends in our pay-tv segment competition competition has intensified in recent years as the pay-tv industry has matured . with respect to our dish tv services , we and our competitors increasingly must seek to attract a greater proportion of new subscribers from each other 's existing subscriber bases rather than from first-time purchasers of pay-tv services . we incur significant costs to retain our existing dish tv subscribers , mostly as a result of upgrading their equipment to next generation receivers , primarily including our hopper receivers , and by providing retention credits . our dish tv subscriber retention costs may vary significantly from period to period . many of our competitors have been especially aggressive by offering discounted programming and services for both new and existing subscribers , including bundled offers combining broadband , video and or wireless services and other promotional offers . story_separator_special_tag certain competitors have been able to subsidize the price of video services with the price of broadband and or wireless services . our pay-tv services also face increased competition from programmers and other companies who distribute video directly to consumers over the internet . our sling tv services face increased competition from content providers and other companies , as well as traditional satellite television providers , cable companies and large telecommunications companies , that are increasing their internet-based video offerings . competition from video content distributed over the internet includes services with live-linear television programming , single programmer offerings and offerings of large libraries of on-demand content , including in many cases original content . furthermore , our dish tv services face increased competition as programming offered over the internet has become more prevalent and consumers are spending an increasing amount of time accessing video content via the internet on their mobile devices . significant changes in consumer behavior with regard to the means by which consumers obtain video entertainment and information in response to digital media competition could have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . in particular , consumers have shown increased interest in viewing certain video programming in any place , at any time and or on any broadband-connected device they choose . online content providers may cause our subscribers to disconnect our dish tv services ( “ cord cutting ” ) , downgrade to smaller , less expensive programming packages ( “ cord shaving ” ) or elect to purchase through these online content providers a certain portion of the services that they would have historically purchased from us , such as pay per view movies , resulting in less revenue to us . we implement new marketing promotions from time to time that are intended to increase our pay-tv subscriber activations . for our dish tv services , we have launched various marketing promotions offering certain dish tv programming packages without a price increase for a commitment period . we also launched our flex pack skinny bundle with a core package of programming consisting of more than 50 channels and the choice of one of nine themed add-on channel packs , which include , among others , local broadcast networks and kids and general entertainment programming . subscribers can also add or remove additional channel packs to best suit their entertainment needs . during 2017 , we launched “ tuned in to you ” and the accompanying “ spokeslistener ” campaign . while we plan to implement these and other new marketing efforts for our dish tv services , there can be no assurance that we will ultimately be successful in increasing our gross new dish tv subscriber activations . additionally , in response to our efforts , we may face increased competitive pressures , including aggressive marketing and retention efforts , bundled discount offers combining broadband , video and or wireless services and other discounted promotional offers . for our sling tv services , we offer a personalized tv experience with a customized channel line-up and two of the lowest priced multichannel live-linear online streaming services in the industry , our sling orange service and our sling blue service . during 2018 , we launched our “ we are slingers ” campaign . while we plan to implement these and other new marketing efforts for our sling tv services , there can be no assurance that we will ultimately be successful in increasing our net sling tv subscriber activations . 70 our dish tv subscriber base has been declining due to , among other things , the factors described above . there can be no assurance that our dish tv subscriber base will not continue to decline and that the pace of such decline will not accelerate . as our dish tv subscriber base continues to decline , it could have a material adverse long-term effect on our business , results of operations , financial condition and cash flow . programming our ability to compete successfully will depend , among other things , on our ability to continue to obtain desirable programming and deliver it to our subscribers at competitive prices . programming costs represent a large percentage of our “ subscriber-related expenses ” and the largest component of our total expense . we expect these costs to continue to increase due to contractual price increases and the renewal of long-term programming contracts on less favorable pricing terms and certain programming costs are rising at a much faster rate than wages or inflation . in particular , the rates we are charged for retransmitting local broadcast channels have been increasing substantially and may exceed our ability to increase our prices to our customers . going forward , our margins may face pressure if we are unable to renew our long-term programming contracts on acceptable pricing and other economic terms or if we are unable to pass these increased programming costs on to our customers . increases in programming costs have caused us to increase the rates that we charge to our subscribers , which could in turn cause our existing pay-tv subscribers to disconnect our service or cause potential new pay-tv subscribers to choose not to subscribe to our service . additionally , even if our subscribers do not disconnect our services , they may purchase through new and existing online content providers a certain portion of the services that they would have historically purchased from us , such as pay-per-view movies , resulting in less revenue to us . furthermore , our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate may be negatively impacted if we are unable to renew our long-term programming carriage contracts before they expire . in the past , our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate
| results of operations year ended december 31 , 2018 compared to the year ended december 31 , 2017. replace_table_token_6_th * percentage is not meaningful . 75 pay-tv subscribers . we lost approximately 920,000 net pay-tv subscribers during the year ended december 31 , 2018 compared to the loss of approximately 284,000 net pay-tv subscribers during the same period in 2017. the increase in net pay-tv subscriber losses during the year ended december 31 , 2018 resulted from higher net dish tv subscriber losses and fewer net sling tv subscriber additions . our net pay-tv subscriber losses during the year ended december 31 , 2018 were negatively impacted by univision and at & t 's removal of certain of their channels from our dish tv and sling tv programming lineup . as a result , we experienced higher net pay-tv subscriber losses beginning in the third quarter 2018 and continuing into the fourth quarter 2018. with respect to the univision removal , in light of , among other things , certain univision programming being available to consumers through alternative methods including over the air antennas and directly from univision over the internet , the current state of our negotiations with univision and the duration of the absence of these channels from our programming lineups , this removal may be permanent . we lost approximately 1.125 million net dish tv subscribers during the year ended december 31 , 2018 compared to the loss of approximately 995,000 net dish tv subscribers during the same period in 2017. this increase in net dish tv subscriber losses resulted from lower gross new dish tv subscriber activations , partially offset by a lower number of customer disconnects .
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if united intends to sell , or is more likely than not they will be required to sell an impaired debt security before recovery of its amortized cost basis less any current period credit loss , other-than-temporary impairment is recognized in earnings . the amount recognized in earnings is equal to the entire difference between the security 's amortized cost basis and its fair value at the balance sheet date . if united does not intend to sell , and is not more likely than not they will be required to sell the impaired debt security prior to recovery of its amortized cost basis less any current-period credit loss , the other-than-temporary impairment is separated into the following : 1 ) the amount representing the credit loss , which is recognized in earnings , and 2 ) the amount related to all other factors , which is recognized in other comprehensive income . for additional information on management 's consideration of investment valuation and other-than-temporary impairment , see note c and note u , notes to consolidated financial statements . 36 accounting for acquired loans loans acquired are initially recorded at their acquisition date fair values . the fair value of the acquired loans are based on the present value of the expected cash flows , including principal , interest and prepayments . periodic principal and interest cash flows are adjusted for expected losses and prepayments , then discounted to determine the present value and summed to arrive at the estimated fair value . fair value estimates involve assumptions and judgments as to credit risk , interest rate risk , prepayment risk , liquidity risk , default rates , loss severity , payment speeds , collateral values and discount rate . acquired loans are divided into loans with evidence of credit quality deterioration , which are accounted for under asc topic 310-30 ( acquired impaired ) and loans that do not meet this criteria , which are accounted for under asc topic 310-20 ( acquired performing ) . acquired impaired loans have experienced a deterioration of credit quality from origination to acquisition for which it is probable that united will be unable to collect all contractually required payments receivable , including both principal and interest . in the assessment of credit quality , numerous assumptions , interpretations and judgments must be made , based on internal and third-party credit quality information and ultimately the determination as to the probability that all contractual cash flows will not be able to be collected . this is a point in time assessment and inherently subjective due to the nature of the available information and judgment involved . subsequent to the acquisition date , united continues to estimate the amount and timing of cash flows expected to be collected on acquired impaired loans . increases in expected cash flows will generally result in a recovery of any previously recorded allowance for loan losses , to the extent applicable , and or a reclassification from the nonaccretable difference to accretable yield , which will be recognized prospectively . the present value of any decreases in expected cash flows after the acquisition date will generally result in an impairment charge recorded as a provision for loan losses , resulting in an increase to the allowance for loan losses . for acquired performing loans , the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the fair value adjustment . fair value adjustments may be discounts ( or premiums ) to a loan 's cost basis and are accreted ( or amortized ) to interest income over the loan 's remaining life using the level yield method . subsequent to the acquisition date , the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans . see note b and d , notes to consolidated financial statements for additional information regarding united 's acquired loans disclosures . income taxes united 's calculation of income tax provision is inherently complex due to the various different tax laws and jurisdictions in which we operate and requires management 's use of estimates and judgments in its determination . the current income tax liability also includes income tax expense related to our uncertain tax positions as required in asc topic 740 , income taxes. changes to the estimated accrued taxes can occur due to changes in tax rates , implementation of new business strategies , resolution of issues with taxing authorities and recently enacted statutory , judicial and regulatory guidance . these changes can be material to the company 's operating results for any particular reporting period . the analysis of the income tax provision requires the assessments of the relative risks and merits of the appropriate tax treatment of transactions , filing positions , filing methods and taxable income calculations after considering statutes , regulations , judicial precedent and other information . united strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense . united is also subject to audit by federal and state authorities . because the application of tax laws is subject to varying interpretations , results of these audits may produce indicated liabilities which differ from united 's estimates and provisions . united continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances . the potential impact to united 's operating results for any of the changes can not be reasonably estimated . story_separator_special_tag see note m , notes to consolidated financial statements for information regarding united 's asc topic 740 disclosures . 37 use of fair value measurements united determines the fair value of its financial instruments based on the fair value hierarchy established in asc topic 820 , whereby the fair value of certain assets and liabilities is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc topic 820 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 inputs in the methodology for determining fair value are observable or unobservable . observable inputs reflect market-based information obtained from independent sources ( level 1 or level 2 ) , while unobservable inputs reflect management 's estimate of market data ( level 3 ) . for assets and liabilities that are actively traded and have quoted prices or observable market data , a minimal amount of subjectivity concerning fair value is needed . prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . when quoted prices or observable market data are not available , management 's judgment is necessary to estimate fair value . at december 31 , 2015 , approximately 9.31 % of total assets , or $ 1.17 billion , consisted of financial instruments recorded at fair value . of this total , approximately 93.61 % or $ 1.10 billion of these financial instruments used valuation methodologies involving observable market data , collectively level 1 and level 2 measurements , to determine fair value . approximately 6.39 % or $ 74.87 million of these financial instruments were valued using unobservable market information or level 3 measurements . most of these financial instruments valued using unobservable market information were trup cdos classified as available-for-sale . at december 31 , 2015 , only $ 4.12 million or less than 1 % of total liabilities were recorded at fair value . this entire amount was valued using methodologies involving observable market data . united does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on united 's results of operations , liquidity , or capital resources . see note u for additional information regarding asc topic 820 and its impact on united 's financial statements . any material effect on the financial statements related to these critical accounting areas is further discussed in this management 's discussion and analysis of financial condition and results of operations . 2015 compared to 2014 financial condition summary united 's total assets as of december 31 , 2015 were $ 12.58 billion which was an increase of $ 249.13 million or 2.02 % from december 31 , 2014. cash and cash equivalents increased $ 104.27 million or 13.85 % , loans held for sale increased $ 2.00 million or 23.05 % and portfolio loans increased $ 279.43 million or 3.07 % , while investment securities decreased $ 111.86 million or 8.50 % and other assets decreased $ 24.01 million or 5.97 % . total liabilities increased $ 192.66 million or 1.81 % from year-end 2014. this increase in total liabilities was due mainly to a $ 296.04 million or 3.27 % increase in deposits while borrowings decreased $ 102.69 million or 6.66 % . shareholders ' equity increased $ 56.48 million or 3.41 % from year-end 2014. the following discussion explains in more detail the changes in financial condition by major category . cash and cash equivalents cash and cash equivalents at december 31 , 2015 increased $ 104.27 million or 13.85 % from year-end 2014. of this total increase , interest-bearing deposits with other banks increased $ 143.29 million or 24.85 % as united placed more cash in an interest-bearing account with the federal reserve . partially offsetting this increase in interest-bearing deposits with other banks is a decrease of $ 39.02 million or 22.21 % in cash and due from banks . federal funds sold were flat . during the year of 2015 , net cash of $ 178.29 million and $ 115.69 million was provided by operating activities and financing activities , respectively , while $ 189.71 million was used in investing activities . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . 38 securities total investment securities at december 31 , 2015 decreased $ 111.86 million or 8.50 % from year-end 2014. securities available for sale decreased $ 114.05 million or 9.66 % . this change in securities available for sale reflects $ 191.13 million in sales , maturities and calls of securities , $ 85.25 million in purchases , and a decrease of $ 6.81 million in market value . securities held to maturity were flat , decreasing $ 211 thousand or less than 1 % from year-end 2014 due to calls and maturities of securities . other investment securities increased $ 2.41 million or 2.50 % from year-end 2014 due to the purchase of federal reserve bank ( frb ) stock . the following is a summary of available for sale securities at december 31 : replace_table_token_5_th the following is a summary of held to maturity securities at december 31 : replace_table_token_6_th at december 31 , 2015 , gross unrealized losses on available for sale securities were $ 20.39 million . securities in an unrealized loss position at december 31 , 2015 consisted primarily of trup cdos , single issue trust preferred securities and agency commercial mortgage-backed securities . the trup cdos and the single issue trust preferred securities relate mainly to underlying securities of financial institutions . the agency commercial mortgage-backed securities relate to income-producing multifamily properties and provide a guaranty of full and
| financial condition summary united 's total assets as of december 31 , 2014 were $ 12.33 billion which was an increase of $ 3.59 billion or 41.14 % from december 31 , 2013 , primarily the result of the acquisition of virginia commerce bancorp , inc. ( virginia commerce ) after the close of business on january 31 , 2014. portfolio loans increased $ 2.40 billion or 35.80 % , cash and cash equivalents increased $ 336.45 million or 80.76 % , investment securities increased $ 426.70 million or 47.98 % , goodwill increased $ 334.25 million or 89.00 % , other assets increased $ 79.62 million or 24.68 % , bank premises and equipment increased $ 7.62 million or 10.91 % and interest receivable increased $ 5.67 million or 21.26 % due primarily to the virginia commerce merger . portfolio loans , net of unearned income , increased $ 2.40 billion or 35.80 % from year-end 2013 mainly as a result of the virginia commerce acquisition which added $ 2.01 billion , including purchase accounting amounts , in portfolio loans . since year-end 2013 , commercial , financial and agricultural loans increased $ 1.44 billion or 36.89 % as commercial real estate loans increased $ 1.20 billion and commercial loans ( not secured by real estate ) increased $ 239.08 million . in addition , residential real estate loans and construction and land development loans increased $ 441.98 million or 24.27 % and $ 462.89 million or 69.05 % , respectively , while other consumer loans increased $ 58.14 million or 18.71 % . the increases were due primarily to the virginia commerce acquisition . otherwise , portfolio loans , net of unearned income , grew organically $ 395.64 million from year-end 2013. cash and cash equivalents increased $ 336.45 million or 80.76 % from year-end 2013. of this total increase , interest-bearing deposits with other banks increased $ 295.54 million or 105.14 % as united placed excess cash in an interest-bearing account with the federal reserve .
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sales in our growth businesses reflected our strong technological position in these markets , while the decline in octane additives was in line with the transition to unleaded gasoline . we have managed our investments in capital equipment , working capital and recruitment of additional skilled personnel in line with these market factors . our capital program and expenses during 2013 included investment in a new information system platform , which we expect to add value to our business in 2014. during 2013 , we completed the acquisition of bachman to further build-out our presence in oilfield specialties . in 2013 , we also acquired chemsil and chemtec in order to add technology and products to our personal care business within our performance chemicals segment , as well as providing an enhanced sales infrastructure to serve the west coast u.s. market . critical accounting estimates note 2 of the notes to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements . revision of prior period financial statements during the fourth quarter of 2013 , the company identified an error in calculating the market related value of assets ( mrva ) for innospec limited 's united kingdom pension plan which has been overstated each year since 2003. mrva is either the fair value of the plan assets if the employer does not defer gains or losses on plan assets , or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years , when the expected long-term rate of return is used to determine net periodic postretirement benefit cost . the overstated mrva is used to determine the size of the corridor under gaap which has resulted in an understatement of amortization of actuarial net losses within the pension expense each year since 2004. the company has revised prior period financial statements to correct the immaterial non-cash errors for the years ended december 31 , 2012 and 2011 , see note 2 accounting policies revision of prior years for further details . the discussion and analysis included herein is based on the financial results for the year ended december 31 , 2013 and the revised financial statements for the years ended december 31 , 2012 and 2011 as corrected to reflect the immaterial non-cash errors . contingencies we are subject to legal , regulatory and other proceedings and claims . the company discloses information concerning contingent liabilities in respect of these claims and proceedings for 25 which an unfavorable outcome is more than remote and the potential loss could materially impact our results of operations , financial position and cash flows . we recognize within selling , general and administrative expenses liabilities for these claims and proceedings when it is probable that the company has incurred a loss based on an unfavorable outcome and the amount of the loss can be reasonably estimated and we endeavor to fairly present , in conjunction with the disclosures of these matters in our consolidated financial statements , management 's view of our exposure . we review outstanding claims and proceedings with external counsel as appropriate to assess probability and estimates of loss . when the reasonable estimate is a range , the recognized liability will be the best estimate within the range . if no amount in the range is a better estimate than any other amount then the minimum amount of the range will be recognized . we re-evaluate our assessments each quarter or as new and significant information becomes available . the actual cost of ultimately resolving a claim or proceeding may be significantly different from the amount of the recognized liability . in addition , because it is not permissible to recognize a liability until the loss is both probable and estimable , in some cases there may be insufficient time to recognize a liability prior to the actual incurrence of the loss ( upon verdict and judgment at trial , for example , or in the case of a quickly negotiated settlement ) . environmental liabilities remediation provisions at december 31 , 2013 amounted to $ 31.4 million and relate principally to our ellesmere port site in the united kingdom . we recognize environmental liabilities when they are probable and costs can be reasonably estimated , and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated . the company has to anticipate the program of work required and the associated future expected costs , and comply with environmental legislation in the countries in which it operates or has operated in . the company views the costs of vacating our ellesmere port site as contingent upon if and when it vacates the site because there is no present intention to do so . the company has further determined that , due to the uncertain product life of tel particularly in the market for aviation gasoline and other products being manufactured on site , there are uncertainties as to the probability and timing of the expected costs . such uncertainties have been considered in estimating the provision . pensions the company maintains a defined benefit pension plan covering a number of its current and former employees in the united kingdom . the company also has other much smaller pension arrangements in the u.s. and overseas , but the obligations under those plans are not material . the united kingdom plan is closed to future service accrual , but has a large number of deferred and current pensioners . movements in the underlying plan asset value and projected benefit obligation ( pbo ) are dependent on actual return on investments as well as our assumptions in respect of the discount rate , annual member mortality rates , future return on assets and future inflation . a change in any one of these assumptions could impact the plan asset value , pbo and pension 26 charge recognized in the income statement . story_separator_special_tag as a result of the octane additives impairment tests performed during 2013 , 2012 and 2011 impairment charges of $ 1.3 million , $ 1.2 million and $ 2.0 million , respectively , have been recognized . these charges are non-cash in nature and have no impact on taxation . in 2012 some of the assumptions and estimates relating to the octane additives segment discounted 28 cash flows were revised as part of our planning processes ( although the overall methodology was unchanged ) . these revisions had no material impact on the reporting of goodwill . at december 31 , 2013 there was no goodwill remaining for the octane additives segment . remaining sales are concentrated around a relatively small number of customers with a risk that future demand could dramatically decline . while we believe our assumptions for impairment tests are reasonable , they are subjective judgments , and it is possible that variations in any of the assumptions may result in materially different calculations of impairment charges , if any . other intangible assets ( net of amortization ) and property , plant and equipment at december 31 , 2013 we had $ 126.8 million of other intangible assets ( net of amortization ) , and $ 60.4 million of property , plant and equipment , that are discussed in notes 7 and 5 of the notes to the consolidated financial statements , respectively . these long-lived assets relate to all of our reporting segments and are being amortized or depreciated straight-line over periods of up to 16 years in respect of the other intangible assets and up to 25 years in respect of the property , plant and equipment . we continually assess the markets and products related to these long-lived assets , as well as their specific carrying values , and have concluded that these carrying values , and amortization and depreciation periods , remain appropriate . we also test these long-lived assets for any potential impairment when events occur or circumstances change which suggest that an impairment may have occurred . these types of events or changes in circumstances could include , but are not limited to : introduction of new products with enhanced features by our competitors ; loss of , material reduction in purchases by , or non-renewal of a contract by , a significant customer ; prolonged decline in business or consumer spending ; sharp and unexpected rise in raw material , chemical or energy costs ; and new laws or regulations inhibiting the development , manufacture , distribution or sale of our products . in order to facilitate this testing the company groups together assets at the lowest possible level for which cash flow information is available . undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and , if such cash flows are lower , an impairment loss may be recognized . the amount of the impairment loss is the difference between the fair value and the carrying value of the assets . fair values are determined using post-tax cash flows discounted at the company 's weighted average cost of capital . if events occur or circumstances change it may cause a reduction in periods over which these long-lived assets are amortized or depreciated , or result in a non-cash impairment of a portion of their carrying value . a reduction in amortization or depreciation periods would have no effect on cash flows . 29 we are continuing with the implementation of a new , company-wide , information system platform . the platform provider is well established in the market . the implementation is a phased , risk-managed , site deployment and follows a multistage user acceptance program with the existing platform providing a fallback position . we have implemented the new platform at the majority of our u.s. sites in the third quarter of 2013. internally developed software and other costs capitalized at december 31 , 2013 were $ 19.5 million ( 2012 $ 10.1 million ) . an amortization expense of $ 1.0 million was recognized in 2013 ( 2012 $ 0.0 million ) in selling , general and administrative expenses . story_separator_special_tag other expenses , including acquisition-related costs of $ 1.8 million in 2013 compared to $ 2.8 million in 2012 ; $ 1.8 million higher personnel-related compensation costs , primarily due to higher accruals for share based compensation expense , driven by the rise in our stock price compared to the same period in the prior year ; $ 0.7 million higher information technology service platform costs ; offset by a $ 5.8 million reduction in the charge for the long-term incentive plan which completed at the end of 2012. restructuring charge : was $ 0.2 million in 2013 and 2012. impairment of octane additives segment goodwill : was $ 1.3 million in 2013 and $ 1.2 million in 2012. other net income/ ( expense ) : other net income of $ 4.1 million primarily related to gains of $ 5.8 million on translation of net assets denominated in non-functional currencies in our european businesses , partly offset by net foreign exchange losses on foreign currency forward exchange contracts of $ 1.6 million . in 2012 , other net expense of $ 2.0 million primarily related to losses on translation of net assets denominated in non-functional currencies in our european businesses offset by net foreign exchange gains on foreign currency forward exchange contracts . 33 interest expense , net : increased to $ 1.9 million in 2013 from $ 1.2 million in 2012 due to the higher level of borrowing during 2013 , used primarily to fund our acquisition activity . income taxes : the effective tax rate was 16.2 % and 28.3 % in 2013 and 2012 , respectively .
| results of operations the following table provides operating income by reporting segment : replace_table_token_7_th 30 results of operations fiscal 2013 compared to fiscal 2012 : replace_table_token_8_th fuel specialties net sales : the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate : replace_table_token_9_th americas saw an increase in volumes in 2013 as a result of higher demand , offset by an adverse price and product mix as a result of lower sales of high margin products . acquisitions in the americas , relating to strata and bachman , generated additional sales compared to 2012. emea volumes remained on par with the prior year , while benefiting from an improved price 31 and product mix . emea benefited from favorable exchange rates driven primarily by a strengthening of the european union euro against the u.s. dollar . volumes were higher in aspac with an adverse price and product mix as a result of lower sales of higher margin products . avtel volumes increased due to the timing of shipments to customers as opposed to any change in the long-term outlook for that market with the price and product mix benefiting from a favorable customer mix . gross margin : the year on year increase of 1.8 percentage points reflected a richer price and product mix in emea ; the continued benefit from higher margin sales in the strata business ; and a favorable customer mix in our higher margin avtel business ; which were offset by adverse price and product mix in the americas and aspac .
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statements that are subject to risks and uncertainties . actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. we disclaim any duty to update any of the forward-looking statements to conform our prior statements to actual results . investors and others should note that we disseminate information to the public about our company , our products , services and other matters through various channels , including our website ( www.dolby.com ) , our investor relations website ( http : //investor.dolby.com ) , sec filings , press releases , public conference calls , and webcasts , in order to achieve broad , non–exclusionary distribution of information to the public . we encourage investors and others to review the information we make public through these channels , as such information could be deemed to be material information . we are focused on expanding our leadership in audio solutions for entertainment content and delivering dynamic new audio and imaging technologies . this will broaden the number of dolby experiences that people can enjoy , which in turn will help drive our revenue growth . following is a discussion of the key markets that we address and the various dolby technologies and solutions that serve these markets . expanding our leadership in audio solutions audio licensing the majority of our licensing revenue is derived from the licensing of audio technologies . the following are the highlights and challenges of audio licensing by markets below . broadcast highlights : we have an established presence in developed markets with respect to our dd+ and he-aac technologies in hdtv services and devices . we are focused on increased adoption of dd+ in emerging markets , where the hdtv transition is still underway , by working with country-specific operators and standards bodies to drive longer term growth . in china , the expansion of faster internet protocol networks has enabled an acceleration of iptv adoption that positions us for further adoption with key service providers such as china telecom , china unicom , and china mobile . in india , free dish , the country 's fastest growing satellite tv provider , recently specified dolby audio for its hd set-top boxes . throughout fiscal 2017 , we have seen new uhd products introduced that incorporate our leading audio technologies , such as dolby atmos and ac-4 . for example , the first dolby atmos tvs started shipping from lg and both samsung and lg started shipping tvs with ac-4 . along with these new product introductions , the availability of content in dolby formats continues to grow in streaming and live broadcast . dolby atmos became available through streaming ott providers such as netflix , tencent , and iqiyi during fiscal 2017. bt delivered an entire season of premier league soccer matches in dolby atmos , france television delivered the french open in dolby atmos , ac-4 , and dolby vision , and sky sports launched its live 4k services in dolby atmos . in addition , we had several live broadcast trials with dolby vision and dolby atmos in the u.k. , france , spain , and brazil . challenges : to achieve growth and further adoption in emerging markets where conversion to digital television is still underway , our success will be impacted by a number of factors such as regional fragmentation of operators and regulators , and the pace of their decision-making and implementation . further , in some emerging growth countries , such as china , we face difficulties enforcing our contractual and ip rights , including instances in which our licensees fail to accurately report the shipment of products using our technologies . we must continue to present compelling reasons for consumers to demand our audio and imaging technologies . to the extent that oems do not incorporate our technologies in current and future products , our revenue could be impacted . 30 consumer electronics highlights : we have an established presence in the home theater market that provides compatibility across devices , such as avrs and dmas , through the inclusion of our dd+ and he-aac technologies . additionally , dolby atmos continues to be adopted in an increasing range of devices including avrs , speakers , soundbars , and dmas . the number of dolby atmos-enabled soundbars available from partners such as lg , sony , and samsung grew from 4 at the start of fiscal 2017 to 13 at the end of fiscal 2017. orange , the largest telecom provider in france , launched its dolby atmos service and is offering a dolby atmos soundbar to its subscribers . in september 2017 , amazon announced the new fire tv with dolby atmos . these hardware offerings can be paired with a growing array of dolby enabled content via ott services and blu-ray discs . we will continue to work with oems to expand the range of dolby atmos-enabled hardware , and with content developers and distributors to expand the range of entertainment offerings that utilize our audio technologies . challenges : we must continue to present compelling reasons for consumers to demand our audio and imaging technologies wherever they enjoy entertainment content . to the extent that oems do not incorporate our technologies in current and future products , our revenue could be impacted . mobile highlights : dd+ is incorporated in apple 's ios , and we continue to focus on adoption of our technologies across other major mobile ecosystems , such as android , windows , and amazon , to facilitate delivery and enhanced consumption of dolby-enabled content from a multitude of streaming services . in addition , he-aac is a de facto audio standard across mobile devices . dolby atmos is currently featured on a number of mobile devices from partners such as amazon , lenovo , and zte . challenges : growth in this market is dependent on several factors . story_separator_special_tag an element constitutes a separate unit of accounting when it has standalone value and delivery of an undelivered element is both probable and within our control . when these criteria are not met , the delivered and undelivered elements are combined and the arrangement fees are allocated to this combined single unit ; assessing inputs used to determine selling price ( whether vsoe , tpe , or esp ) for the significant deliverables . we determine our esp for an individual element within a me revenue arrangement using the same methods used to determine the selling price of an element sold on a standalone basis . if we sell the element on a standalone basis , we estimate the selling price by considering actual sales prices . otherwise , we estimate the selling price by considering internal factors such as pricing practices and margin objectives . consideration is also given to market conditions such as competitor pricing strategies , customer demands , and industry technology lifecycles . management applies judgment to establish margin objectives , pricing strategies , and technology lifecycles ; estimating , as necessary , the period of time over which customers receive certain elements of the arrangement following initial delivery so as to assess the period over which revenue should be recognized . goodwill , intangible assets , and long-lived assets as part of our annual goodwill impairment test , we first evaluate goodwill to determine if it is more likely than not that the occurrence of an event or change in circumstances has reduced the fair value of a reporting unit below its carrying value . this qualitative assessment requires that we consider events or circumstances that may include macroeconomic conditions , industry and market considerations , cost factors , overall financial performance , changes in management or key personnel , changes in strategy , and changes in customers . if the qualitative assessment indicates that the two-step quantitative analysis should be performed , we exercise judgment at various steps , including the identification of reporting units , assignment of goodwill to reporting units , and determination of the fair value of each reporting unit . we assess the fair value of each reporting unit using expected cash flows that reflect our best estimate of future revenue using our historical information , third-party industry data , and review of our internal operations . we also estimate operating costs using these sources . we adjust expected future cash flows by discount rates based on our weighted average cost of capital and related considerations . the estimates used to calculate the fair value of a reporting unit may change from year to year based on operating results , market conditions , and other factors . changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment , if any , for each reporting unit . intangible assets and long-lived assets subject to amortization and depreciation , respectively , are only evaluated for impairment upon a significant change in the operating or macroeconomic environment . if an asset 's undiscounted future cash flows are lower than its carrying value , the asset is written down to its estimated fair value , which is based on its discounted future cash flows . assessing discounted future cash flows requires management to make assumptions and exercise judgment in forecasting revenues , operating costs , and the useful lives of assets , as well as selecting the discount rate that reflects the risk inherent in our future cash flows . stock-based compensation to determine the fair value of a stock option award or shares issued under our espp using the black-scholes option pricing model , we make assumptions regarding the expected term of the award , the expected future volatility of our stock price over the expected term of the award , the risk-free interest rate over the expected term of the award , and the anticipated dividend payout over the expected term of the award . we estimate the expected term of our stock-based awards by evaluating historical exercise patterns of our employees . we use a blend of the historical volatility of our common stock and the implied volatility of our traded options as an estimate of the expected volatility of our stock price over the expected term of the awards . we use an average interest rate based on u.s. treasury instruments with terms consistent with the expected term of our awards to estimate the risk-free interest rate . we reduce the stock-based compensation expense for estimated forfeitures based on our historical experience . we are required to estimate forfeitures at the time of the grant and revise our estimate , if necessary , in subsequent periods if actual forfeitures differ from our estimate . 34 income taxes we make estimates and judgments that affect our accounting for income taxes . this includes estimating temporary differences from differing treatment of items for tax and accounting purposes , future taxable income and actual tax exposure , possible or likely changes in current tax laws , and uncertainties in tax positions . these differences result in deferred tax assets and liabilities which are included in our consolidated balance sheets . we recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . we also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent that we believe that recovery is not likely , we establish a valuation allowance . lastly , we are subject to the review of our income tax returns by the irs and other tax authorities here in the u.s. and abroad .
| highlights : dd+ is incorporated in both the xbox and playstation gaming consoles and platforms . during fiscal 2017 , microsoft launched hdmi support for dolby atmos on windows and xbox one , which enables playback on downstream atmos devices such as soundbars and avrs . in addition , we launched dolby atmos for headphones , which allows a user to enable dolby atmos on their headphones by purchasing an app on the microsoft app store . oems can also pre-purchase and bundle dolby atmos for headphones into their offerings . for example , plantronics released its rig 800lx gaming headset that included a prepaid voucher to download dolby atmos for headphones on windows and xbox . we also generate revenue from the automotive industry , where we experienced higher than typical revenue due to recoveries in fiscal 2017. challenges : the gaming console market continues to be challenged by competition from mobile devices and gaming pcs , which have faster refresh cycles and appeal to a broader consumer base . in fiscal 2017 , 31 automotive revenues included recoveries that exceeded our expectations , and we anticipate a decline in these recoveries in fiscal 2018. products and services we also generate revenue by providing products and services for a variety of applications in the cinema , broadcast , and communications markets . highlights : we offer servers and audio processors to enable the playback of content in cinemas . our product revenue base expanded due to our portfolio of servers and audio processors , and we continue to see continued adoption of dolby atmos by studios , content creators , post-production facilities , and exhibitors . as of the end of fiscal 2017 , there were approximately 3,200 dolby atmos-enabled screens installed or committed to be installed , and approximately 780 dolby atmos theatrical titles announced or released .
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our principal subsidiaries include two independently certificated airlines , abx air , inc. ( “ abx ” ) and air transport international , inc. ( “ ati ” ) , and an aircraft leasing company , cargo aircraft management , inc. ( “ cam ” ) . cam provides competitive aircraft lease rates by converting passenger aircraft into cargo freighters and offering them to customers under long-term leases . we have three reportable segments : cam , which leases boeing 767 , boeing 757 and boeing 737 aircraft and aircraft engines , acmi services , which primarily includes the cargo transportation operations of the two airlines , and ground services , which provides mail and package sorting services as well as related equipment maintenance services to customers . our other business operations , which primarily provide support services to the transportation industry , include aircraft maintenance and modification services . these operations do not constitute reportable segments due to their size . our largest customers are dhl network operations ( usa ) , inc. and its affiliates ( `` dhl '' ) , amazon.com services , inc. ( `` asi '' ) , successor to amazon fulfillment services , inc. , a subsidiary of amazon.com , inc. ( `` amazon '' ) , and the u.s. military . at december 31 , 2017 , cam owned 70 cargo aircraft that were in revenue service . this fleets consists of 36 boeing 767-200 aircraft , 25 boeing 767-300 aircraft , four boeing 757-200 aircraft , four boeing 757 `` combi '' aircraft and one boeing 737-400 aircraft . the boeing 757 combi aircraft are capable of simultaneously carrying passengers and cargo containers on the main flight deck . at december 31 , 2017 , cam also owned six boeing 767-300 aircraft and one boeing 737-400 aircraft either already undergoing , or awaiting induction in the freighter conversion process . we have had long term contracts with dhl since august 2003. dhl accounted for 24 % , 34 % and 46 % of the company 's consolidated revenues during the years ended december 31 , 2017 , 2016 and 2015 , respectively . in 2010 , we executed commercial agreements under which dhl leased thirteen boeing 767 freighter aircraft from cam and abx operated those aircraft under a separate crew , maintenance and insurance agreement . in 2015 , the company and dhl amended and restated their air transportation services agreement ( `` cmi agreement '' ) and the boeing 767-200 aircraft lease terms with dhl were extended . under the cmi agreement , abx operates and maintains the aircraft through march 2019 based on pre-defined fees scaled for the number of aircraft hours flown , aircraft scheduled and flight crews provided to dhl for its network . under the pricing structure of the cmi agreement , abx is responsible for complying with faa airworthiness directives , the cost of boeing 767 airframe maintenance and certain engine maintenance events for the dhl-leased aircraft that it operates . as of december 31 , 2017 , the company , through cam , leased 16 boeing 767 aircraft to dhl , ten boeing 767-200 , through march 2019 and six boeing 767-300 expiring between 2019 and 2024. twelve of the 16 boeing 767 were being operated by the company 's airlines for dhl . additionally , the airlines operated four cam-owned boeing 757 aircraft under other operating arrangements with dhl . we have been providing freighter aircraft and services for cargo handling and logistical support for amazon 's asi since september 2015. on march 8 , 2016 , we entered into an air transportation services agreement ( the “ atsa ” ) with asi pursuant to which cam agreed to lease 20 boeing 767 freighter aircraft to asi , including 12 boeing 767-200 freighter aircraft for a term of five years and eight boeing 767-300 freighter aircraft for a term of seven years . since august 2017 , we have leased all 20 boeing 767 freighter aircraft to asi . the atsa also provides for the operation of those aircraft by our airline subsidiaries , for a term of five years , and the performance of ground handling services by our subsidiary , lgstx services , inc. ( `` lgstx '' ) . under the atsa , we operate the aircraft based on pre-defined fees scaled for the number of aircraft hours flown , aircraft scheduled and flight crews provided to asi for its network . cam owns all of the boeing 767 aircraft that are leased and operated under the atsa . the atsa became effective 23 on april 1 , 2016. revenues from our commercial arrangements with asi comprised approximately 44 % , 29 % and 5 % of our consolidated revenues from continuing operations during the years ended december 31 , 2017 , 2016 and 2015 , respectively . in conjunction with the execution of the atsa , the company and amazon entered into an investment agreement and a stockholders agreement on march 8 , 2016. the investment agreement calls for the company to issue warrants in three tranches which grant amazon the right to acquire up to 19.9 % of the company 's pre-transaction outstanding common shares measured on a gaap-diluted basis , adjusted for share issuances and repurchases by the company following the date of the investment agreement and after giving effect to the warrants granted . the exercise price of the warrants is $ 9.73 per share , which represents the closing price of the company 's common shares on february 9 , 2016. each of the three tranches of warrants will be exercisable in accordance with its terms through march 8 , 2021. our accounting for the warrants issued to amazon has been determined in accordance with the financial reporting guidance for equity-based payments to non-employees and for financial instruments . the fair value of the warrants issued or issuable to amazon are recorded as a lease incentive asset and are amortized against revenues over the duration of the aircraft leases . story_separator_special_tag pre-tax earnings for the year ended december 31 , 2017 included a $ 3.1 million loss for the company 's share of development costs for a new joint venture . pre-tax earnings for the year ended december 31 , 2016 , also included a $ 1.2 million charge for the company 's share of capitalized debt issuance costs that were charged off when west atlantic ab , a non-consolidated affiliate , restructured its debt . after removing the effects of these items , adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows ) were $ 96.5 million for 2017 compared to $ 65.1 million for 2016 , an increase of 48 % . adjusted pre-tax earnings from continuing operations for 2017 improved compared to 2016 , driven primarily by additional revenues and the improved financial results of our airline operations . we also experienced additional revenues and earnings due to the acquisition of pemco world air services , inc. ( `` pemco '' ) in december 2016 and the expansion of gateway ground operations for asi . this growth in revenue was partially offset by the cost necessary to support expanded flight operations , including training costs for new flight crews , higher depreciation expense and more employee expenses , particularly in support of logistical services . pre-tax earnings for 2017 included an additional interest expense of $ 2.1 million for the amortization of convertible debt discount and issuance costs . operating results for 2016 were negatively impacted when abx flight crew members went on strike for two days , which disrupted our customers ' operations and reduced our revenues . 26 a summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_5_th adjusted pre-tax earnings from continuing operations , a non-gaap measure , is pre-tax earnings excluding settlement charges and other non-service components of retiree benefit costs , gains and losses for the fair value re-measurement of financial instruments , lease incentive amortizations , the start-up costs of a non-consolidated joint venture and the charge off of debt issuance costs from a non-consolidated affiliate during the first quarter of 2016. we exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . acmi reimbursable revenues shown above include revenues related to fuel , landing fees , navigation fees and certain other operating costs that are directly reimbursed to the airlines by their customers . prior to april 1 , 2015 , the cost of airframe maintenance for cam-owned , boeing 767-200 aircraft operated for dhl and provided by the airlines were directly reimbursed . we are adopting the financial accounting standards board 's accounting standards update no . 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” ( `` topic 606 ” ) effective january 1 , 2018. we are adopting topic 606 using a modified retrospective approach , under which financial statements will be prepared under the revised guidance for the year of adoption , but not for prior years . we determined that under topic 606 , the company is an agent for aircraft 27 fuel and certain other costs reimbursed under its acmi and cmi contracts and for certain ground services that it arranges for asi . under the new standards , such reimbursed amounts will be reported net of the corresponding expenses beginning in 2018. in addition to the acmi services reimbursable revenues shown above , revenues during 2017 and 2016 included $ 134.0 million and $ 44.5 million for directly reimbursed ground services , which under the new standard , would have been reported net of the related expenses . this application of topic 606 will not have an impact on our reported earnings in any period . 2017 and 2016 cam cam offers aircraft leasing and related services to external customers and also leases aircraft internally to the company 's airlines . cam acquires passenger aircraft and manages the modification of the aircraft into freighters . the follow-on aircraft leases normally cover a term of five to eight years . as of december 31 , 2017 and 2016 , cam had 51 and 41 aircraft under lease to external customers , respectively . cam 's revenues grew by $ 14.5 million during 2017 compared to 2016 , primarily as a result of additional aircraft leases . revenues from external customers totaled $ 140.4 million and $ 117.6 million for 2017 and 2016 , respectively . cam 's revenues from the company 's airlines totaled $ 69.1 million during 2017 , compared to $ 77.5 million for 2016 , reflecting the transition of cam owned aircraft to long-term leases with external customers . cam 's aircraft leasing and related services revenues , which excludes customer lease incentive amortization , increased $ 23.9 million in 2017 compared to 2016 , primarily as a result of new aircraft leases since mid-2016 , additional engine maintenance agreements and the timing of maintenance related revenues . from mid-2016 through the end of december 2017 , we have added 13 boeing 767-300 freighter aircraft and one boeing 737-400 freighter aircraft to cam 's lease portfolio . cam 's pre-tax earnings , inclusive of internally allocated interest expense , were $ 61.5 million and $ 68.6 million during 2017 and 2016 , respectively . decreased pre-tax earnings reflect a $ 5.0 million increase in internally allocated interest expense due to higher debt levels , the $ 9.5 million increase in the amortization of the asi lease incentive in 2017 compared to 2016 , and $ 15.7
| summary external customer revenues from continuing operations increased by $ 149.6 million to $ 768.9 million during 2016 compared to 2015. excluding directly reimbursed revenues , customer revenues increased $ 105.0 million , or 18 % during 2016 compared with 2015. increased external customer revenues from cam 's leasing operations , expanded acmi services for asi , increased aircraft maintenance services and additional logistics services , also for asi , were partially offset by lower acmi service revenues for dhl during 2016 , compared to 2015. the consolidated net earnings from continuing operations were $ 21.1 million for 2016 compared to $ 39.2 million for 2015. the pre-tax earnings from continuing operations were $ 34.5 million for 2016 compared to $ 62.6 million , for 2015. earnings were affected by specific events and certain adjustments that do not directly reflect our underlying operations among the years presented . on a pre-tax basis , earnings included net losses of $ 18.1 million for the year ended december 31 , 2016 , for the re-measurement of financial instruments , primarily warrant obligations granted to amazon during 2016 , to fair value . the larger re-measurement loss for 2016 compared to 2015 primarily reflects the increase in the value of the traded atsg share price after the warrants were granted in 2016. pre-tax earnings for 2016 were also reduced by $ 4.5 million for the amortization of lease incentives given to asi in the form of warrants during 2016. additionally , pre-tax earnings from continuing operations for 2016 were unfavorably impacted by a $ 9.9 million increase in actuarial losses for the non-service component of retiree benefit plan costs compared to 2015. separately , pre-tax earnings for the year ended december 31 , 2016 , included an actuarial gain of $ 2.0 million for the settlement of a retiree medical plan during 2016. pre-tax earnings for the year ended december 31 , 2016 , also included a $ 1.2 million
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as of december 31 , 2018 and 2017 the company had outstanding payables to american agriculture aviation llc of $ 0.00 million and $ 0.01 million , respectively . note 5—real estate as of december 31 , 2018 , the company owned approximately 162,000 acres . during the year ended december 31 , 2018 , the company completed six acquisitions which were accounted story_separator_special_tag included in item 7 of this annual report . all periods presented in the table below prior to april 16 , 2014 , the date of our initial public offering , reflect the operations of our predecessor . the historical combined financial data for our predecessor is not necessarily indicative of our results of operations , cash flows or financial position following the completion of our initial public offering . replace_table_token_3_th ( 1 ) for definitions and reconciliations of net income to earnings before interest , taxes , depreciation and amortization , or ebitdare , adjusted ebitdare , funds from operations , or ffo , and adjusted ffo , or affo , as well as a statement disclosing the reasons why our management believes that ebitdare , adjusted ebitdare , ffo and affo provide useful information to investors and , to the extent material any additional purposes for which our management uses such measures , see “ management 's discussion and analysis of financial condition and results of operations – non-gaap financial measures. ” 40 item 7. management 's discussion and analysis of financial condition and results of operations the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this annual report on form 10-k. overview and background we are an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout north america . as of the date of this annual report on form 10-k , we own farms with an aggregate of approximately 162,000 acres in alabama , arkansas , california , colorado , florida , georgia , illinois , kansas , louisiana , michigan , mississippi , nebraska , north carolina , south carolina , south dakota , texas and virginia . as of the date of this annual report on form 10-k , approximately 75 % of our portfolio by value , and 90 % by acres , is used to grow primary crops , such as corn , soybeans , wheat , rice and cotton , with the balance used to produce specialty crops , such as blueberries , vegetables , citrus , nuts and edible beans . we believe our portfolio gives investors exposure to the increasing global food demand trend in the face of growing scarcity of high quality farmland and will reflect the approximate breakdown of u.s. agricultural output between primary crops and animal protein ( whose production relies principally on primary crops as feed ) , on one hand , and specialty crops , on the other . in addition , in august 2015 , we announced the launch of the fpi loan program , an agricultural lending product aimed at farmers , as a complement to our primary business of acquiring and owning farmland and leasing it to farmers . under the fpi loan program , we make loans to third-party farmers ( both tenant and non-tenant ) to provide financing for working capital requirements and operational farming activities , farming infrastructure projects , and for other farming and agricultural real estate related purposes . we were incorporated in maryland on september 27 , 2013 , and we are the sole member of the sole general partner of the operating partnership , which is a delaware limited partnership that was formed on september 27 , 2013. all of our assets are held by , and our operations are primarily conducted through , the operating partnership and its wholly owned subsidiaries . as of the date of this annual report on form 10-k we own 93.2 % of the common units and none of the series a preferred units nor the series b participating preferred stock . see note 9 to our consolidated financial statements for additional information regarding the series a preferred units . as of december 31 , 2018 , we owned 87.0 % of the common units in the operating partnership . we elected and qualified to be taxed as a reit for u.s. federal income tax purposes commencing with our short taxable year ended december 31 , 2014. recent developments 2018 completed acquisitions and dispositions during 2018 , we completed six asset acquisitions . consideration totaled $ 33.2 million and consisted entirely of cash . no intangible assets were acquired through these acquisitions . we also completed five dispositions for total consideration of $ 31.9 million for a total gain over net book value of $ 3.1 million or 9.7 % . stock repurchase during 2018 , the company repurchased 3,048,147 shares at an average price per share of $ 6.76 for a total cost of approximately $ 20.6 million . factors that may influence future results of operations and farmland values the principal factors affecting our operating results and the value of our farmland include global demand for food relative to the global supply of food , farmland fundamentals and economic conditions in the markets in which we own farmland , and our ability to increase or maintain rental revenues while controlling expenses . although farmland prices may show a decline from time to time , we believe that any reduction in u.s. farmland values overall is likely to be short- 41 lived as global demand for food and agricultural commodities typically exceeds global supply . in addition , although prices for many crops experienced significant declines in 2014 and 2015 and many crops have still not recovered to their pre-2014 prices , we do not believe that such declines represent a trend that will continue over the long term . story_separator_special_tag in particular , we believe that due to the relatively high fixed costs associated with farming operations ( including equipment , labor and knowledge ) , many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres . furthermore , because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term , we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods . as a result , in our experience , many farm operators will aggressively pursue rental opportunities in their operable geographic area , even when the farmer anticipates lower current returns or short-term losses . in our primary row crop farmland , we see flat to modestly higher rent rates in connection with 2019 lease renewals . this is consistent with , on the one hand , headwinds in primary crop markets and , on the other , tenant demand for leasing high quality farmland . due to the short term nature of most of our primary crop leases , we believe that a recovery of crop prices and farm profitability will be reflected relatively rapidly in our revenues via increases in rent rates . across specialty crops , operator profitability generally remains healthy . participating lease structures are common in many specialty crops and base lease rates are consistent with or slightly higher than 2018. lease expirations farm leases are often short-term in nature . as of december 31 , 2018 our portfolio had the following lease expirations as a percentage of approximate acres leased and annualized minimum cash rents : replace_table_token_4_th we have or are currently negotiating leases on 12,756 total acres . we expect that rents for primary crop farmland will experience a modest increase in 2019. we expect that rents for specialty crop farmland will be flat to modestly increasing . rental revenues our revenues are primarily generated from renting farmland to operators of farming businesses . our leases have terms ranging from one to 25 years , with three being the most common . although the majority of our leases do not provide the tenant with a contractual right to renew the lease upon its expiration , we believe it is customary to provide the existing tenant with the opportunity to renew the lease , subject to any increase in the rental rate that we may establish . if the tenant elects not to renew the lease at the end of the lease term , the land will be offered to a new tenant . the leases for the majority of the properties in our portfolio provide that tenants must pay us at least 50 % of the annual rent in advance of each spring planting season . as a result , we collect a significant portion of total annual rents in the first 43 calendar quarter of each year . we believe our use of leases pursuant to which at least 50 % of the annual rent is payable in advance of each spring planting season mitigates the tenant credit risk associated with the variability of farming operations that could be adversely impacted by poor crop yields , weather conditions , mismanagement , undercapitalization or other factors affecting our tenants . tenant credit risk is further mitigated by requiring that our tenants maintain crop insurance and by our claim on a portion of the related proceeds , if any , as well as by our security interest in the growing crop . prior to acquiring farmland property , we take into consideration the competitiveness of the local farm-operator tenant environment in order to enhance our ability to quickly replace a tenant that is unwilling to renew a lease or is unable to pay a rent payment when it is due . some of our leases provide for a reimbursement of the property taxes we pay . expenses substantially all of our farm leases are structured in such a way that we are responsible for major maintenance , certain insurance and taxes ( which are sometimes reimbursed to us by our tenants ) , while our tenant is responsible for minor maintenance , water usage and all of the additional input costs related to farming operations on the property , such as seed , fertilizer , labor and fuel . we expect that substantially all of the leases for farmland we acquire in the future will continue to be structured in a manner consistent with substantially all of our existing leases . as the owner of the land , we generally only bear costs related to major capital improvements permanently attached to the property , such as irrigation systems , drainage tile , grain storage facilities , permanent plantings or other physical structures customary for farms . in cases where capital expenditures are necessary , we typically seek to offset , over a period of multiple years , the costs of such capital expenditures by increasing rental rates . we also incur the costs associated with maintaining liability and casualty insurance . we incur costs associated with running a public company , including , among others , costs associated with employing our personnel and compliance costs . we incur costs associated with due diligence and acquisitions , including , among others , travel expenses , consulting fees , and legal and accounting fees . we also incur costs associated with managing our farmland . the management of our farmland , generally , is not labor or capital intensive because farmland generally has minimal physical structures that require routine inspection and maintenance , and our leases , generally , are structured to require the tenant to pay many of the costs associated with the property .
| results of operations comparison of the year ended december 31 , 2018 to the year ended december 31 , 2017 replace_table_token_5_th nm = not meaningful our rental income for 2018 was impacted by the 19 acquisitions that took place in 2017 , primarily in the fourth quarter , in addition to the six acquisitions and five dispositions that took place in 2018. to highlight the effect of changes due to acquisitions , we have separately discussed the rental income for the same-property portfolio , which includes only properties owned and operated for the entirety of both periods presented , excluding properties that generated one-time revenues such as termination fees . due to the timing of the company 's acquisitions of speciality crop farms , the same property portfolio consists almost exclusively of row crop farms . total rental income under leases for the same-property portfolio decreased 0.6 million , or 3 % , from $ 21.5 million for the year ended december 31 , 2017 to $ 20.8 million for the year ended december 31 , 2018 , due to slightly higher rent on row crops in the periods compared . total rental income increased $ 8.2 million , or 19.2 % , for the year ended december 31 , 2018 as compared to the prior year . this increase was the result of the 25 acquisitions completed during the years ended december 31 , 2018 and december 31 , 2017. management estimates that trade tensions and extreme weather events had a negative impact on 2018 rental income of approximately $ 1.0 million . leases in place in 2018 that provide for tenant payment of property taxes required the tenant to reimburse us for the tax amount we paid in 2018 for the 2017 taxable year .
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the entire unpaid balance is due on march 1 , 2020 , the maturity date of the mortgage , and is secured by the underlying property . the company paid costs of approximately $ 28,000 to close on the mortgage . the mortgage terms do not allow participations by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project . the note has been cross guaranteed by the ceo and director of the company . on april 4 , story_separator_special_tag cautionary note regarding forward-looking information and factors that may affect future results this annual report on form 10-k contains forward-looking statements regarding our business , financial condition , results of operations and prospects . the securities and exchange commission ( the “ sec ” ) encourages companies to disclose forward-looking information so that investors can better understand a company 's future prospects and make informed investment decisions . this annual report on form 10-k and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management 's plans and assumptions regarding future events or performance . we have tried , wherever possible , to identify such statements by using words such as “ anticipate , ” “ estimate , ” “ expect , ” “ project , ” “ intend , ” “ plan , ” “ believe , ” “ will ” and similar expressions in connection with any discussion of future operating or financial performance . in particular , these include statements relating to future actions , future performance or results of current and anticipated sales efforts , expenses , the outcome of contingencies , such as legal proceedings , and financial results . factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “ risk factors ” section of this annual report on form 10-k. 13 we caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements . further , any forward-looking statement speaks only as of the date on which such statement is made , and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances . new factors emerge from time to time , and it is not possible for us to predict all such factors . further , we can not assess the impact of each such factor on our results of operations or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . the following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. overview stem holdings , inc. ( the “ company ” ) is a nevada corporation incorporated on june 7 , 2016. the company purchases , improves , and leases properties for use in the cannabis production , distribution and sales industry as well as a cultivator providing cannabis and cannabis-infused products licensed under the laws of the states of oregon , nevada , oklahoma , with six current licenses for cultivation , three for production , five for processing , one for wholesale and ten dispensary licenses . in addition , the company also procured a hemp license under the laws of oregon . as of september 30 , 2018 , the company has acquired 3 commercial properties and leased a fourth property and has entered into leases to related entities for these four properties ( see note 7 ) . fiscal year 2018 saw the near completion of buildout of these properties . the company , through its operating subsidiaries ( see below ) , is currently in the process of finalizing the investment in and acquisition of entities that engage directly in the production and sale of cannabis , moving from a real estate focused entity with a cannabis niche to a cannabis focused entity ( see notes x , y & z ) . as of september 30 , 2018 , the company has incorporated 6 new subsidiaries –stem group oklahoma , inc. , stem holdings florida , inc. stem holdings oregon , inc. , stem holdings ip , inc. , opco , llc. , and stem agri , llc . the company 's stock is publicly traded and is listed on the canadian securities exchange under the symbol “ stem ” and the otcqb exchange under the symbol “ stmh ” . going concern these audited financial statements have been prepared on a going concern basis , which assumes that the company will be able to realize its assets and discharge its liabilities in the normal course of business . while the recreational use of cannabis is legal under the laws of certain states , where the company is currently finalizing the acquisition of entities or investment in entities that directly produce or sell cannabis , the use and possession of cannabis is illegal under united states federal law for any purpose , by way of title ii of the comprehensive drug abuse prevention and control act of 1970 , otherwise known as the controlled substances act of 1970 ( the “ act ” ) . cannabis is currently included under schedule 1 of the act , making it illegal to cultivate , sell or otherwise possess in the united states . on january 4 , 2018 the office of the attorney general published a memo regarding cannabis enforcement that rescinds directives promulgated under former president obama that eased federal enforcement . story_separator_special_tag in october and november 2018 , all holders of our convertible notes accepted our offer and agreed to convert their notes into shares of our common stock at the inducement rate . this resulted in a reduction in our outstanding liabilities of approximately $ 2.575 million . we have used our available funds to fund our operating expenses , pay our obligations , acquire and develop rental properties , and grow our company . we need to raise additional capital or debt financing to acquire new properties , to develop existing properties , and to assure we have sufficient working capital for our ongoing operations and debt obligations . on february 28 , 2018 , the company executed a $ 550,000 mortgage payable on the willamette property to acquire additional funds . the mortgage bears interest at 15 % per annum . monthly interest only payments began march 1 , 2018 and continue each month thereafter until paid . the entire unpaid balance is due on march 1 , 2020 , the maturity date of the mortgage , and is secured by the underlying property . the company paid costs of approximately $ 28,000 to close on the mortgage . the mortgage terms do not allow participations by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project . the note has been cross guaranteed by the ceo and director of the company . on april 4 , 2018 , the company executed a $ 314,000 mortgage payable on the powell property to acquire additional funds . at closing $ 75,000 of the proceeds was put into escrow . the mortgage bears interest at 15 % per annum . monthly interest only payments began may 1 , 2018 and continue each month thereafter until paid . the entire unpaid balance is due on april 1 , 2020 , the maturity date of the mortgage , and is secured by the underlying property . the company paid costs of approximately $ 19,000 to close on the mortgage . the mortgage terms do not allow participations by the lender in either the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate project . the note has been cross guaranteed by the ceo and director of the company . 17 on january 16 , 2018 the company consummated a “ contract for sale ” for a farm property in mulino or ( the “ mulino property ” ) . the purchase price was $ 1,700,000 which was reduced by a rental credit of approximately $ 135,000 which is equivalent to nine months ' rent at $ 15,000 a month and an additional credit of $ 9,500 for additional work done on the property . in connection with the purchase of the property , the company made a cash payment as down payment plus payment of closing costs in the amount of $ 370,637 and issued a promissory note in the amount of $ 1,200,000 with a maturity of january 2020. the company will pay monthly installments of principal and interest ( at a rate of 2 % per annum ) in the amount of $ 13,500 , commencing in july 2018 through the maturity date ( january 2020 ) , at which time the entire unpaid principal balance and any remaining accrued interest shall be due and payable in full . the note is secured by a deed of trust on the property . in july 2018 , the company entered into a membership interest purchase agreement with a florida company to acquire a 25 % membership interest in the entity . the entity has the ability to obtain a license to cultivate and sell cannabis for medical purposes under newly enacted laws in florida . as part of the purchase agreement , we funded $ 500,000 up front to allow the entity , along with a promissory note for $ 1 million , subject to closing which will occur on the entity obtaining the necessary licenses . as of september 30 , 2018 and the date of filing of this form 10-k , the entity had not yet been granted the necessary licenses to commence operations . in the event that the investee fails to obtain the necessary licenses , the purchase agreement is voided , the company will return the membership interest and all monies not spent on the license process will be returned to the company and the promissory note will be cancelled . in september 2018 , the company entered into a separate membership interest purchase agreement with a nevada entity to acquire a 50 % interest in that entity . as part of the purchase agreement , the company deposited into escrow with an attorney $ 375,000 and will pay a further $ 375,000 at closing . the entity is seeking licenses to cultivate and sell cannabis in the state of nevada . as of september 30 , 2018 and the date of filing of this form 10-k , the entity had not yet been granted the necessary licenses to commence operations . in the event that the investee fails to obtain the necessary licenses , the purchase agreement is voided , all monies not spent on the license process will be returned to the company and amounts held in escrow will be returned to the company . 18 transaction with patch international , inc. on january 20 , 2017 , the shareholders of patch international , inc. voted to be acquired by the company . as a result , the merger with patch international , inc. , closed and the company now has received an additional approximately $ 2.4 million which was on patch 's books at the time of the acquisition , net of the approximately $ 54,000 paid to dissenting patch international , inc. shareholders .
| results of operations the following comparative analysis on results of operations was based primarily on the comparative consolidated financial statements , footnotes and related information for the periods identified below and should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the years ended september 30 , 2018 and 2017 , which are included elsewhere in this annual report on form 10-k. the results discussed below are for the years ended september 30 , 2018 and 2017 . 15 comparison of the results of operations for the year ended september 30 , 2018 compared to the year ended september 30 , 2017 revenues for the years ended september 30 , 2018 and 2017 , revenue was as follows : replace_table_token_1_th for the year ended september 30 , 2018 , total revenues amounted to $ 1,295,694 as compared to $ 326,041 for the year ended september 30 , 2017 , an increase of $ 969,653 or 75 % . this increase in revenues was primarily comprised of straight lining the rent we expect from our other three leases . under us gaap , our rental income from the properties is earned on a straight-line basis over the entire expected life of the rent agreement , including the free rent period we have provided until we have completed the buildout of the respective properties . as of september 30 , 2018 , only the willamette property lessor had begun cash payments under the lease . we expect the remaining three lessors to commence cash payments under their three leases in early 2019. operating expenses replace_table_token_2_th ● for the year ended september 30 , 2018 , consulting fees increased by $ 12,849 , or 6.3 % , as compared to the year ended september 30 , 2017 due to an increase in the execution of additional consulting contracts in the area of investor relations .
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the fair value of these options was determined to be $ 10.1 million using the black-scholes option pricing model based on the following assumptions : ( i ) volatility rate ranging from 207 % to 218 % , ( ii ) discount rate of 1.57 % , ( iii ) zero expected dividend yield , and ( iv ) expected life of 6 years . during the years ended december 31 , 2015 , 2014 , and 2013 , the company recorded compensation costs of $ 6.7 million , $ 2.6 million , and $ 0.7 million , respectively , relating to the vesting of stock options . as of december 31 , 2015 , the aggregate value of unvested options was $ 11.1 million , which will continue to be amortized as compensation cost as the options vest over terms ranging from nine months to three years , as applicable . f- 16 lion biotechnologies , inc. notes to financial statements on september 19 , 2014 , the company 's board of directors adopted the lion biotechnologies , inc. 2014 equity incentive plan ( the “ 2014 plan ” ) . the 2014 plan was approved by our stockholders at the annual meeting of stockholders held in november 2014. the 2014 plan as approved by the stockholders authorized the issuance up to an aggregate of 2,350,000 shares of common stock . on april 10 , 2015 the board amended the 2014 plan to increase the total number of shares that can be issued under the 2014 plan by 1,650,000 from 2,350,000 shares to 4,000,000 shares . the increase in shares available for issuance under the 2014 plan was approved by stockholders on june 12 , 2015. warrants a summary of the status of stock warrants at december 31 , 2015 , and the changes during the year then ended , is presented in the following table : replace_table_token_22_th during the year ended december 31 , 2015 , the company received $ 9.7 million in cash from the exercise of 3,882,210 warrants for the purchase of an equal number of shares of its common stock . note 7. income taxes the company has no tax provision for any period presented due to our history of operating losses . as of december 31 , 2015 , the company had state and federal net operating loss carry forwards of approximately $ 45 million that may be available to reduce future years ' taxable income through 2035. future tax benefits which may arise as a result of these losses have not been recognized in these financial statements , as management has determined that their realization is not likely to occur and accordingly , the company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards . significant components of the company 's deferred income tax assets are as follows as of ( in thousands ) : december 31 , 2015 2014 deferred income tax asset : net operating loss carry forward $ 15,300 $ 8,428 valuation allowance ( 15,300 ) ( 8,428 ) net deferred income tax asset $ - $ - f- 17 lion biotechnologies , inc. notes to financial statements reconciliation of the effective income tax rate to the u.s. statutory rate is as follows : replace_table_token_23_th the company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements . under these rules , the company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement . these accounting rules also provide guidance on de-recognition , classification , interest and penalties on income taxes , accounting in interim periods and requires increased disclosures . as of december 31 , 2015 , no liability for unrecognized tax benefits was required to be recorded . note 8. licenses and commitments national institutes of health and the national cancer institute cooperative research and development agreement effective august 5 , 2011 , the company signed a cooperative research and development agreement ( crada ) with the national institutes of health and the national cancer institute ( nci ) . under the terms of the five-year cooperative research and development agreement , the company will work story_separator_special_tag the following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the “ business ” section and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . story_separator_special_tag net cash provided by financing activities was approximately $ 78.3 million in 2015 compared to approximately $ 35.5 million and $ 23.3 million in 2014 and 2013 , respectively . net cash provided by financing activities during the years reported related to the proceeds from the sale of our securities . most recently , in the first quarter of 2015 , we completed an underwritten public offering in which we received net proceeds of approximately $ 68.3 million . net cash provided by financing activities in 2015 and 2014 also included proceeds from the exercise of outstanding warrants of approximately $ 9.7 million and $ 3.2 million , respectively . during 2016 , we expect to further ramp up our research and development activities , which will increase the amount of cash we will use in our operations . our budget for 2016 includes significantly increased spending for clinical trials with ln-144 our lead product candidate and ln-145 , and on research and development for other indications and til enhancements . in addition , we anticipate that we will have higher payroll expenses as we increase our professional staff . based on the funds we had available on december 31 , 2015 and the additional net proceeds we received in the march 3 , 2015 public offering , we believe that we have sufficient capital to fund our anticipated operating expenses for at least 12 months . inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years . recent accounting pronouncements see note 2 of the financial statements for a discussion of recent accounting pronouncements . 44 critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and accompanying notes , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect 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 revenue and expenses during the reporting periods . actual results could differ from these estimates . stock-based compensation we periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . we adopted fasb guidance effective january 1 , 2006 , and are using the modified prospective method in which compensation cost is recognized beginning with the effective date ( a ) for all share-based payments granted after the effective date and ( b ) for all awards granted to employees prior to the effective date that remain unvested on the effective date . we account for stock option and warrant grants issued and vesting to non-employees in accordance with accounting guidance whereby the fair value of the stock compensation is based on the measurement date as determined at either ( a ) the date at which a performance commitment is reached , or ( b ) the date at which the necessary performance to earn the equity instrument is complete . we estimate the fair value of stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of options that have no vesting restrictions and are fully transferable . this model requires the input of subjective assumptions , including the expected price volatility of the underlying stock and the expected life of stock options . projected data related to the expected volatility of stock options is based on the historical volatility of the trading prices of our common stock and the expected life of stock options is based upon the average term and vesting schedules of the options . changes in these subjective assumptions can materially affect the fair value of the estimate , and therefore the existing valuation models do not provide a precise measure of the fair value of our employee stock options . contractual obligations we acquire assets still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development . milestone payments may be required , contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product ( e.g. , approval of the product for marketing by a regulatory agency ) . if required by the arrangement , we may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing is obtained . because of the contingent nature of these milestone payments , they are not included in the table of contractual obligations . 45 these arrangements may be material individually , and in the event that milestones for multiple products covered by these arrangements were reached in the same period , the aggregate charge to expense could be material to the results of operations in any one period . in addition , these arrangements often give us the discretion
| overview we are a clinical-stage biotechnology company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient 's own immune system to eradicate cancer cells . our lead program is an adoptive cell therapy utilizing tumor-infiltrating lymphocytes ( til ) , which are t cells derived from patients ' tumors , for the treatment of metastatic melanoma along with other solid tumor cancer indications . although we were formed in 2007 , we did not commence our current biotechnology business until 2011. in may 2013 we completed a restructuring of all of our outstanding debt and equity securities ( the “ restructuring ” ) and raised $ 1.25 million through the sale of our common stock . as part of the restructuring , we converted $ 7.2 million of senior secured promissory notes , $ 1.7 million of bridge promissory notes , and $ 0.3 million in other outstanding debt into shares of common stock at a conversion price of $ 1.00 per share . in connection with , and shortly after the restructuring , we replaced our chief executive officer and most of our directors . on september 26 , 2013 , we amended and restated our articles of incorporation to , among other things , effect a 1-for-100 reverse stock split ( pro-rata reduction of outstanding shares ) of our common stock , increase ( after the reverse stock split ) the number of our authorized number of shares of common stock to 150,000,000 shares , and authorize the issuance of 50,000,000 shares of “ blank check ” preferred stock , $ 0.001 par value per share .
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the merger was funded with existing cash balances as well as funds raised by the company through the issuance of debt in the form of a senior secured term loan in an aggregate principal amount of $ 460 million and senior unsecured notes in an aggregate principal amount of $ 360 million as described in note 7 to the story_separator_special_tag the following discussion and analysis of the company 's consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes to the consolidated financial information included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve numerous risks and uncertainties , including , but not limited to , those described in the “ cautionary statements ” sections of this item 7 below . the company 's actual results may differ materially from those contained in any forward-looking statements . you should review the item 1a “ risk factors ” of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . cautionary statements this annual report on form 10-k and the documents incorporated by reference in this annual report on form 10-k contain “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995. the information in this management 's discussion and analysis of financial condition and results of operations , except for the historical information , contains forward-looking statements . these forward-looking statements reflect the company 's current views with respect to future events and financial performance . the words “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ forecast , ” “ project , ” “ may , ” `` will , ” “ would , ” “ could , ” “ should ” and similar expressions are intended to identify these “ forward-looking statements. ” you should read statements that contain these words carefully because they discuss future expectations , contain projections of future results of operations or of financial position or state other “ forward-looking ” information . all forecasts and projections in this report are “ forward-looking statements , ” and are based on management 's current expectations of the company 's near-term results , based on current information available pertaining to the company . the important factors listed below , as well as any cautionary language elsewhere in this annual report on form 10-k , provide examples of risks , uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements . the risks which could cause actual results to differ from those contained in such “ forward looking statements ” include , without limitation , the risks described under item 1a of this annual report on form 10-k for the year ended december 31 , 2015 under the headings “ risks relating to our business and industry , ” “ risks related to our indebtedness , ” “ manufacturing risks , ” “ international risks ” and “ risks related to owning our common stock ” as well as in the company 's quarterly reports on form 10-q and current reports on form 8-k as filed with the securities and exchange commission . any forward-looking statements in this annual report on form 10-k are not guarantees of future performance , and actual results , developments and business decisions may differ from those envisaged by such forward-looking statements , possibly materially . we disclaim any duty to update any forward-looking statements . overview this overview is not a complete discussion of the company 's financial condition , changes in financial condition and results of operations ; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows and must be read in its entirety in order to fully understand the company 's financial condition and results of operations . the company is a leading provider of a wide range of products and services for purifying , protecting and transporting the critical materials used in processing and manufacturing in the microelectronics and other high-technology industries . entegris derives most of its revenue from the sale of products and services to the semiconductor and related industries . the company 's customers consist primarily of semiconductor manufacturers , semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display ( tft-lcd ) and hard disk manufacturers , which are served through direct sales efforts , as well as sales and distribution relationships , in the united states , asia , europe and the middle east . the company offers a diverse product portfolio which includes more than 20,000 standard and customized products that it believes provide the most comprehensive offering of contamination control solutions and microenvironment products and services to maintain the purity and integrity of critical materials used by the semiconductor and other high-technology industries . certain of these products are unit-driven and consumable products that rely on the level of semiconductor manufacturing activity to drive growth , while others are capital-expenditure driven and rely on expansion of manufacturing capacity to drive growth . the company 's unit-driven and consumable products includes membrane-based liquid filters and housings , metal-based gas filters , resin-based gas purifiers , wafer shippers , disk-shipping containers and test assembly and packaging products and consumable graphite and silicon carbide components used in plasma etch , ion implant and chemical vapor deposition processes in semiconductor manufacturing . the company 's capital expense-driven products include components , systems and subsystems that use electro-mechanical , pressure differential and related technologies to permit semiconductor and other electronics manufacturers to monitor and control the flow and condition of process liquids used in these manufacturing processes , and process carriers that protect the integrity of in-process wafers . story_separator_special_tag inventory valuation the company uses certain estimates and judgments to properly value its inventory . the company 's inventories are recorded at the lower of cost or net realizable value . the company evaluates its ending inventories for obsolescence and excess quantities each quarter . this evaluation includes analyses of inventory levels , historical write-off trends , expected product lives , and historical and projected sales levels by product . inventories that are considered obsolete are written off or a full allowance is recorded . in addition , allowances are established for inventory quantities in excess of forecasted demand . inventory allowances were $ 13.2 million and $ 11.9 million at december 31 , 2015 and 2014 , respectively . the company 's inventories include materials and products subject to technological obsolescence , which are sold in highly competitive industries . if future demand or market conditions are less favorable than current conditions or the company 's projected outlook for sales , inventory write-downs or additional allowances may be required and would be reflected in cost of sales in the period the revision is made . impairment of long-lived assets as of december 31 , 2015 , the company had $ 321.3 million of net property , plant and equipment and $ 258.9 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) e. 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 ( asset group ) f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to , the identification of the asset group at the lowest level of independent cash flows , the primary asset of the group and long-range forecasts of revenue and costs , reflecting management 's assessment of general economic and industry conditions , operating income , depreciation and amortization and working capital requirements . due to the inherent uncertainty involved in making estimates , actual results could differ from those estimates . in addition , changes in the underlying assumptions would have a significant impact on the conclusion that an asset group 's carrying value is recoverable , or the determination of any impairment charge if it was determined that the asset values were indeed impaired . 35 based on current general economic conditions and trends within the semiconductor industry and the absence of any other triggering events , the company has not been required to perform impairment testing for any of its asset groups . the company will continue to monitor circumstances and events to determine whether asset impairment testing is warranted . it is possible that in the future the company may no longer be able to conclude that there is no impairment of its long-lived assets , nor can the company provide assurance that material impairment charges of long-lived assets will not occur in future periods . goodwill the company tests goodwill at least annually for impairment . goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable . goodwill impairment testing requires a comparison of the fair value of each reporting unit to the carrying value . if the carrying value of the reporting unit exceeds fair value , goodwill is considered impaired . at december 31 , 2015 , the company had seven reporting units , four of which are assigned goodwill . as of august 31 , 2015 , the company 's annual testing date , the company had four reporting units assigned goodwill .
| quarterly results of operations the following table presents selected data from the company 's consolidated statements of operations for the eight quarters ended december 31 , 2015 . this unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this annual report . all adjustments that management considers necessary for the fair presentation of the unaudited information have been included in the quarters presented . quarterly statements of operations data ( unaudited ) replace_table_token_14_th the company 's quarterly results of operations have been , and will likely continue to be , subject to significant fluctuations due to a myriad of factors , many of which are beyond the company 's control . the variability in sales , and its corresponding effect on gross profit , and the effects of the atmi acquisition as of april 30 , 2014 , are the most important factors underlying the changes in the company 's operating income and net income over the past eight quarters . liquidity and capital resources the company has historically financed its operations and capital requirements through cash flow from its operating activities , long-term loans , lease financing and borrowings under domestic and international short-term lines of credit . in fiscal 2000 and 2009 , the company raised capital via public offerings of its common stock . operating activities net cash flow provided by operating activities totaled $ 120.9 million for the year ended december 31 , 2015 . cash generated by the company 's operations included net income of $ 80.3 million , as adjusted for the impact of various non-cash charges , most notably depreciation and amortization of $ 101.7 million , and share-based compensation expense of $ 11.0 million . these operating cash flows were partly offset by changes in operating assets and liabilities , mainly due to an increase in inventories and a decrease in accounts payable and accrued liabilities .
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the following is a summary of the cost , gross unrealized gains and losses and fair value of investments classified as available-for-sale and trading : replace_table_token_30_th for the years ended december 31 , 2015 and 2016 , the company received proceeds of $ 18.1 million and $ 61.1 million , respectively , from the sale of investments classified as available-for-sale and recorded gains of $ 8.8 million and $ 19.9 million , respectively . for the years ended december 31 , 2015 and 2016 , the company realized gains on the sale of investments classified as trading of $ 0.8 million and $ 4.4 million , respectively . for the years ended december 31 , 2015 and 2016 , the 52 affiliated managers group , inc. notes to consolidated financial statements story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of affiliated managers group , inc. and its subsidiaries ( collectively , the “ company ” ) should be read in conjunction with the “ forward-looking statements ” section set forth in part i and the “ risk factors ” section set forth in item 1a of part i of this annual report on form 10-k and in any more recent filings with the u.s. securities and exchange commission , each of which describes these risks , uncertainties and other important factors in more detail . executive overview the following executive overview summarizes the significant trends affecting our results of operations and financial condition . this overview and the remainder of this management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements of the company and the notes thereto contained elsewhere in this annual report on form 10-k. we are a global asset management company with equity investments in leading boutique investment management firms , which we refer to as our “ affiliates. ” our innovative partnership approach allows each affiliate 's management team to own significant equity in their firm and maintain operational autonomy . our strategy is to generate shareholder value through the internal growth of existing affiliates , as well as through investments in new affiliates , and additional investments in existing affiliates . in addition , we provide centralized assistance to our affiliates in strategic matters , marketing , distribution , product development and operations . as of december 31 , 2016 , our assets under management were $ 688.7 billion ( approximately $ 727 billion pro forma for investments which have since closed or are accounted for on a lag basis ) in over 550 investment products across a broad range of active return-oriented strategies and distribution channels . we hold meaningful equity interests in each of our affiliates . in certain cases , we own a majority of the equity interests while in other cases we own a minority of the equity interests . when we own a majority of the equity interests of an affiliate , we consolidate the affiliate 's financial results in our revenue , operating expenses and other non-operating ( income ) and expenses . when we own a minority of the equity interests of an affiliate , we generally use the equity method of accounting and our share of the affiliate 's financial results is reported ( net of intangible amortization ) in income from equity method investments . while we account for a majority of our affiliates on a consolidated basis of accounting , a growing number of our affiliates are accounted for on an equity method basis , including all of our 2016 investments in new affiliates . as a result , equity method affiliates represent a growing proportion of net income ( controlling interest ) , as evidenced by the increase in income from equity method investments , as compared to our consolidated affiliates which represent a decreasing proportion of net income ( controlling interest ) . whether we account for an affiliate on a consolidated or equity method basis of accounting , we generally maintain the same partnership approach , provide support and assistance in substantially the same manner , and our operating model is generally the same . furthermore , our affiliates are impacted by similar marketplace factors and operational trends , which may not be observable when analyzing the financial results of consolidated and equity method affiliates separately . therefore , we believe our aggregate operating measures of assets under management , average assets under management and aggregate revenue , each of which incorporates the assets under management and revenues of all of our affiliates regardless of the accounting treatment , have become increasingly important in providing management and investors with a more comprehensive view of the operating performance and material trends across our entire business . aggregate revenue is calculated by combining the revenue of our consolidated affiliates with equity method revenue . we discuss both revenue and equity method revenue in our results of operations . the following table presents our key operating measures : 18 replace_table_token_3_th ( 1 ) equity method revenue consists of asset based and performance fees earned by our equity method affiliates . it is not derived from and differs from the revenue of our equity method affiliates reported in note 14 to our consolidated financial statements as it excludes asset based and performance fees of our equity method affiliates prior to the date of closing of the respective investment and does not include investment income or loss from any sponsored investment products that may need to be consolidated by our equity method affiliates under gaap . assets under management through our affiliates , we predominantly manage active return-oriented strategies , rather than passive indexing strategies , exchange traded funds , fixed income or money market products , which typically carry lower fee rates . story_separator_special_tag financial performance and supplemental performance measures the following table presents our key financial performance and supplemental performance measures : replace_table_token_6_th ( 1 ) adjusted ebitda ( controlling interest ) and economic net income ( controlling interest ) are non-gaap performance measures and are discussed in “ supplemental financial performance measures. ” 21 we believe adjusted ebitda ( controlling interest ) is an important supplemental financial performance measure for our management and investors . adjusted ebitda ( controlling interest ) provides a comprehensive view of our share of the financial performance of our entire business before interest , taxes , depreciation and amortization and impairments , regardless of the accounting treatment of our affiliates . conversely , our gaap financial performance measure , operating income , includes the non-controlling interests ' share of financial performance and does not include our share of earnings from our equity method affiliates . similarly , our gaap financial performance measure , income before income taxes , includes the non-controlling interests ' share of financial performance . our ownership level of consolidated affiliates is higher than our ownership level of our equity method affiliates and , as a result , we experience a greater proportion of an increase or decrease in revenue from our consolidated affiliates than an increase or decrease in our equity method revenue . in 2016 , while our equity method revenue increased 27 % , our revenue from consolidated affiliates decreased 12 % , resulting in a $ 3.3 million increase in adjusted ebitda ( controlling interests ) . while our adjusted ebitda ( controlling interest ) increased in 2016 , our net income ( controlling interest ) decreased by $ 36.7 million or 7 % , primarily due to an increase in other non-operating expenses of $ 44.2 million relating to imputed interest expense and contingent payment arrangements . the increase in imputed interest expense and contingent payment arrangements was primarily due to a $ 44.7 million non-cash gain on contingent payment obligations recorded in 2015 , which did not reoccur to the same extent in 2016. the other changes in net income ( controlling interest ) include an increase in equity method intangible amortization of $ 24.9 million in 2016 , primarily due to the full-year impact of our 2015 investments in new affiliates and the partial-year impact of our 2016 investments in new affiliates , offset by a decrease of $ 28.6 million in income taxes primarily due to the decline in our share of income before taxes . we consider economic net income ( controlling interest ) to be an important measure of our financial performance , as we believe it best represents our operating performance after tax and before our share of non-cash expenses relating to our acquisition of interests in our affiliates . our economic net income ( controlling interest ) increased $ 16.4 million or 2 % in 2016 , which is greater than the increase in adjusted ebitda ( controlling interest ) , primarily due to the incremental tax benefits related to our investments in new affiliates in 2015 and 2016 and our reinvestment of foreign earnings in 2016. story_separator_special_tag channel replace_table_token_8_th our revenue in the institutional distribution channel decreased $ 100.9 million or 10 % in 2016 . this decrease was due primarily to a decrease in consolidated affiliate average assets under management at existing affiliates , which reduced asset 23 based fees $ 71.3 million or 7 % . this decrease was also the result of a decline in our ratio of average fees at existing affiliates , which reduced asset based fees $ 33.5 million or 3 % . these decreases were partially offset by increases in revenue from the full-year impact of our 2015 investments in new affiliates of $ 2.8 million , as well as an increase in performance and other fees at existing affiliates of $ 1.1 million . the decline in our ratio of average fees was due to a change in the composition of our assets under management within the distribution channel , primarily from decreases in assets under management in products that realize comparatively higher fee rates and by an increase in assets under management in products that realize comparatively lower fee rates . our revenue in the institutional distribution channel decreased $ 43.4 million or 4 % in 2015. this decrease was due primarily to a decrease in consolidated affiliate average assets under management , which reduced asset based fees $ 53.2 million or 5 % . this decrease was also the result of a decline in performance fees at existing affiliates of $ 15.8 million or 2 % , and decline in our ratio of average fees at existing affiliates of $ 13.6 million or 1 % . these decreases were partially offset by increases in revenue from the full-year impact of our 2014 and partial-year impact of our 2015 investments in new affiliates of $ 39.2 million or 4 % . the decline in our ratio of average fees was due to a change in the composition of our assets under management within the distribution channel , primarily from decreases in assets under management in products that realize comparatively higher fee rates and by an increase in assets under management in products that realize comparatively lower fee rates . mutual fund distribution channel replace_table_token_9_th our revenue in the mutual fund distribution channel decreased $ 202.2 million or 16 % in 2016 . this decrease was due primarily to a decrease in consolidated affiliate average assets under management , which reduced asset based fees $ 164.3 million or 13 % . this decrease was also the result of a decline in our ratio of average fees , which reduced asset based fees $ 40.3 million or 3 % , including a reduction in asset based fees related to renewal commissions at one of our affiliates in the uk .
| results of operations the following discussion includes the financial results of our consolidated and equity method affiliates . as previously discussed , our consolidated affiliates ' financial results are included in our revenue , operating expenses and other non-operating ( income ) and expenses and our share of our equity method affiliates ' financial results is reported ( net of intangible amortization ) in income from equity method investments . as discussed in “ executive overview , ” we supplementally prepare and disclose aggregate revenue , which incorporates the revenue of all of our affiliates , regardless of the accounting treatment , as well as equity method revenue , which provides additional information on the factors impacting the operating results of our equity method affiliates . these measures provide management with a more comprehensive view of the operating performance and material trends in our business , and have become increasingly important to management as the number and proportion of our equity method affiliates have increased relative to our consolidated affiliates . average assets under management reflects the particular billing patterns of products and client accounts . therefore , we believe average assets under management more closely correlates to the billing cycle of each distribution channel and , as such , provides a more meaningful relationship to revenue and to equity method revenue . in the mutual fund distribution channel , average assets under management generally represents an average of the daily net assets under management . for the institutional and high net worth distribution channels , an account that bills in advance is included in the calculation of average assets under management on the basis of beginning of period assets under management , while an account that bills in arrears is reflected on the basis of end of period assets under management .
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, $ 4.5 , and $ 0.0 for fiscal years 2011 , 2010 , and 2009 , respectively . employees of certain foreign subsidiaries are covered by local pension or retirement plans . total expense related to employer contributions to these foreign plans for fiscal years 2011 , 2010 , and 2009 story_separator_special_tag business overview kimball international , inc. provides a variety of products from its two business segments : the electronic manufacturing services ( ems ) segment and the furniture segment . the ems segment provides engineering and manufacturing services which utilize common production and support capabilities globally to the medical , automotive , industrial control , and public safety industries . the furniture segment provides furniture for the office and hospitality industries , sold under the company 's family of brand names . 19 overall market conditions in the ems industry continue to be favorable . as reported in the july 2011 manufacturing market insider ( mmi ) publication , an ems industry sales projection ( by new venture research ) shows forecasted growth for calendar year 2011 of 8.8 % compared to calendar year 2010 . in addition in june 2011 , the semiconductor industry association ( sia ) endorsed a forecast of 5.4 % growth of semiconductor sales for calendar year 2011 , and although the company does not directly serve this market , it may be indicative of increased end market demand for products utilizing electronic components . in the ems segment , the company focuses on the four key vertical markets of medical , automotive , industrial control , and public safety . demand in the medical and industrial control markets are showing signs of strength . automotive activity was mixed as true end market demand was somewhat masked by reduced vehicle production and lower dealer inventories caused by the march 2011 earthquake and tsunami in japan . the public safety market remains stable . sales to customers in the medical industry are the largest portion of the company 's ems segment with sales to customers in the automotive industry being the second largest of the four vertical markets . the company 's sales to customers in the automotive industry are diversified among more than ten domestic and foreign customers and represented approximately one-fourth of the ems segment 's net sales for fiscal year 2011 . the office furniture and hospitality furniture markets continue to show signs of improvement . as of may 2011 , the business and institutional furniture manufacturer association ( bifma ) projected a 16 % year-over-year increase in the office furniture industry for calendar year 2011 compared to the 7 % increase in calendar year 2010 and the 29 % decrease in calendar year 2009. bifma projects office furniture industry growth of approximately 10 % in calendar year 2012 which would bring the industry closer to pre-recession levels . in addition , the hotel industry forecasts ( reported by smith travel research and pricewaterhousecoopers llp ) project occupancy rates to increase approximately 4 % in calendar year 2011 after a 6 % increase in calendar year 2010 and a 9 % industry decline in calendar year 2009 and project revenue per available room to increase 7 % for calendar year 2011 after a 5 % increase in calendar year 2010 and a 17 % industry decline in calendar year 2009. competitive pricing pressures within both the ems segment and the furniture segment continue to put a strain on the company 's operating margins . the company is committed to ensuring it sustains the cost efficiencies and process improvements undertaken during the recession . in addition , a long-standing component of the company 's profit sharing incentive bonus plan is that it is linked to the performance of the company which automatically lowers total compensation expense when profits are down and likewise increases total compensation expense when profits are up . the focus on cost control continues . at the same time , the company has continued making prudent investments in product development , technology , and marketing and business development initiatives to drive profitable growth . the company also continues to closely monitor market changes and its liquidity in order to proactively adjust its operating costs , discretionary capital spending , and dividend levels as needed . the company continued to maintain a strong balance sheet as of the end of fiscal year 2011 , which included minimal long-term debt of $ 0.3 million and share owners ' equity of $ 387.4 million . the company 's short-term liquidity available , represented as cash and cash equivalents plus the unused amount of the company 's revolving credit facility , was $ 146.2 million at june 30 , 2011 . in addition to the above risks related to the current market conditions , management currently considers the following events , trends , and uncertainties to be most important to understanding the company 's financial condition and operating performance : the nature of the ems industry is such that the start-up of new programs to replace departing customers or expiring programs occurs frequently . the company 's sales to bayer ag began to decline in the fourth quarter of fiscal year 2011 as the company 's primary manufacturing contract with bayer ag expired . margins on the bayer ag product were generally lower than the company 's other ems products . the success of the company 's ems segment is dependent on the successful replacement of such customers or programs . such changes usually occur gradually over time as old programs phase out of production while newer programs ramp up . the transition to new programs may temporarily reduce sales and increase operating costs , resulting in a temporary decline in operating profit at the impacted business unit . see item 1a - risk factors for more information on the risks related to contract customers . the company does not have operations located in japan and thus has had no production facilities directly impacted by the effects of the march 2011 earthquake and tsunami . story_separator_special_tag other income ( expense ) included other income of $ 2.0 million for fiscal year 2011 compared to other income of $ 3.3 million for fiscal year 2010 . the variance in other income was driven by unfavorable foreign exchange movement that impacts the ems segment and a $ 1.2 million impairment loss related to the valuation of convertible notes which were partially offset by the increased serp investment income mentioned above and a revaluation of stock warrants resulting in a gain of $ 1.0 million . the fiscal year 2011 effective tax rate was ( 10.9 ) % as relatively low pre-tax income coupled with the favorable impact of the company 's earnings mix and the research and development credit resulted in a tax benefit despite the company 's pre-tax income . the mix of earnings between u.s. and foreign jurisdictions largely contributed to the overall tax benefit due to losses in the u.s. which have a higher statutory tax rate than the company 's foreign operations which were profitable in fiscal year 2011. the fiscal year 2010 effective tax rate was ( 81.0 ) % as relatively low pre-tax income coupled with a tax benefit due to the company 's tax planning strategy related to the sale of its poland facility and land and the favorable impact of the company 's earnings mix resulted in a tax benefit in fiscal year 2010 despite the company 's pre-tax income . see note 9 - income taxes of notes to consolidated financial statements for more information . comparing the balance sheet as of june 30 , 2011 to june 30 , 2010 , the increase in property and equipment was a result of the company 's purchase of machinery and equipment , primarily within the ems segment . the company 's accounts receivable , inventory , and accounts payable balances declined in relation to lower sales levels toward the end of fiscal year 2011 within the ems segment as the company 's primary manufacturing contract with bayer ag expired . the increased accrued expenses balance was comprised of increased accrued compensation , higher accrued selling expenses within the furniture segment , and the reclassification of accrued restructuring from long-term to short-term as completion of the european consolidation plan is expected during the next fiscal year . the company 's accumulated other comprehensive income ( loss ) balance increase was primarily the result of positive foreign currency translation adjustments . see note 17 - comprehensive income of notes to consolidated financial statements for more information . electronic manufacturing services segment ems segment results follow : replace_table_token_13_th fiscal year 2011 ems segment net sales to customers in the medical , industrial control , and public safety industries increased compared to fiscal year 2010 which more than offset a decrease in net sales to customers in the automotive industry . while open orders were down 17 % as of june 30 , 2011 compared to june 30 , 2010 primarily due to lower orders from bayer ag , open orders at a point in time may not be indicative of future sales trends due to the contract nature of the company 's business . fiscal year 2011 ems segment gross profit as a percent of net sales improved 0.2 percentage points when compared to fiscal year 2010 . the improvement was primarily driven by the benefit from a sales mix shift toward higher margin product , lower depreciation expense , and improved labor efficiencies at select units which more than offset inefficiencies related to the european restructuring activities and higher component costs related to the rapid ramp up of new customer programs . ems segment selling and administrative expenses in absolute dollars increased 7 % in fiscal year 2011 as compared to fiscal year 2010 and also increased as a percent of net sales primarily due to increased salaries and employee benefit costs . 22 during the fourth quarter of fiscal year 2011 , the company approved a plan to exit the small assembly facility located in fremont , california . a majority of the business will be transferred to an existing jasper , indiana facility by mid-fiscal year 2012. the pre-tax restructuring charges related to the fremont restructuring plan recorded during fiscal year 2011 totaled $ 0.3 million . as the company continues to execute its plan to expand its european automotive electronics capabilities and to establish a europea n medical center of expertise near poznan , poland , the consolidation of its ems facilities has a final completion target of mid-fiscal year 2012. the consolidation is expected to improve the company 's margins in the very competitive ems market . the pre-tax restructuring charges recorded during fiscal year 2011 totaled $ 0.9 million , but the ems segment also is experiencing inefficiencies related to the consolidation of the facilities . see note 18 - restructuring expense of notes to consolidated financial statements for more information on restructuring charges . the restructuring expenses recorded in fiscal year 2010 were primarily related to the european consolidation plan . the ems segment recorded no other general income during fiscal year 2011 . ems segment other general income for fiscal year 2010 included a $ 6.7 million pre-tax gain from the sale of the existing poland facility and land . including the tax benefit related to the sale of this facility and land , the after-tax gain was $ 7.7 million . in addition , other general income in fiscal year 2010 included $ 3.3 million of pre-tax income , or $ 2.0 million after-tax , resulting from settlement proceeds related to the antitrust class action lawsuit . ems segment other income/expense for fiscal year 2011 totaled expense of $ 1.9 million , compared to income of $ 0.1 million in fiscal year 2010 . the variance in other income/expense was primarily related to unfavorable foreign currency exchange movement in fiscal year 2011. as a percent of net sales , operating income was 0.8 % for fiscal year 2011 and 2.2 % for fiscal year 2010 .
| fiscal year 2010 results of operations financial overview - consolidated fiscal year 2010 consolidated net sales were $ 1.12 billion compared to fiscal year 2009 net sales of $ 1.21 billion , a 7 % decrease , due to a 27 % net sales decrease in the furniture segment , which more than offset a 10 % net sales increase in the ems segment . fiscal year 2010 net income was $ 10.8 million , or $ 0.29 per class b diluted share , inclusive of $ 1.2 million , or $ 0.03 per class b diluted share , of after-tax restructuring costs primarily related to the european consolidation plan . the fiscal year 2010 results also included the following items : a $ 7.7 million after-tax gain , or $ 0.20 per class b diluted share , related to the sale of the facility and land in poland , and $ 2.0 million of after-tax income , or $ 0.05 per class b diluted share , resulting from settlement proceeds related to an antitrust class action lawsuit of which the company was a class member . the company recorded net income for fiscal year 2009 of $ 17.3 million , or $ 0.47 per class b diluted share , inclusive of after-tax restructuring charges of $ 1.8 million , or $ 0.04 per class b diluted share , primarily related to the european consolidation plan .
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for a detailed discussion of these risks and uncertainties , see the “ risk factors ” section in item 1a of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements , which reflect events or circumstances occurring after the date of this form 10-k. overview we are a late-stage clinical biologics platform company focused on the global biosimilar market . biosimilars are an emerging class of protein-based therapeutics with high similarity to approved originator products on the basis of various physicochemical and structural properties , as well as in terms of safety , purity and potency . our goal is to become a global leader in the biosimilar market by leveraging our team 's collective expertise in key areas such as process science , analytical characterization , protein production and clinical-regulatory development . since our founding in 2010 , we have advanced one product candidate into phase 3 clinical development , two other product candidates through phase 1 clinical development and entered into partnerships with two global pharmaceutical companies . our clinical-stage biosimilar pipeline includes the following three product candidates : · chs - 0214 ( our etanercept ( enbrel ) biosimilar candidate ) . chs-0214 is a product candidate that we have partnered with baxter international , inc. , baxter healthcare corporation and baxter healthcare sa , or together , baxter , and daiichi sankyo company , limited , or daiichi sankyo , to develop and commercialize in key markets outside of the united states . we are currently enrolling two phase 3 clinical trials in rheumatoid arthritis and psoriasis . we expect results of these trials , if positive , combined with data from our phase 1 studies , will support the expected filing of a marketing application in europe and japan in 2016. we have retained the development and commercial rights in the united states . however , at this time , we do not expect patent expiration in the united states until 2029 . · chs-1420 ( our adalimumab ( humira ) biosimilar candidate ) . we completed a phase 1 study for chs-1420 in august 2014. we plan to initiate a phase 3 clinical trial in psoriasis during the first half of 2015 to support the expected filing of a marketing application in the united states in 2016 and the european union , or e.u. , in 2017 . · chs-1701 ( our pegfilgrastim ( neulasta ) biosimilar candidate ) . we had initially planned to pursue a 351 ( a ) ( novel biologic ) regulatory approval pathway for chs-1701 . in support of that pathway , we conducted a successful phase 1 study for chs-1701 between november 2012 and march 2013. however , on october 9 , 2014 we met with the fda to discuss our development plan for chs-1701 . we informed the agency of our decision to transition from a 351 ( a ) ( novel biologic ) approval pathway to a 351 ( k ) ( biosimilar ) pathway . we believe the 351 ( k ) ( biosimilar ) approval pathway may enable us to file for u.s. regulatory approval for chs-1701 in the 4 th quarter of 2015 or 1 st quarter of 2016 , approximately 6 to 12 months earlier than we project under a 351 ( a ) ( novel biologic ) approval pathway . in march 2015 , we received written feedback from the fda on our development plan for chs-1701 and we initiated a pivotal pharmacokinetic and pharmacodynamic study for chs-1701in the united states , which , if positive , we believe will support the planned filing of a bla in the united states . an additional immunogenicity study is planned in healthy volunteers pursuant to this bla and is projected to conclude in 2015. we continue to believe it may be possible to advance chs-1701 to a 351 ( k ) ( biosimilar ) approval application without a collaboration or licensing partner . our revenue to date has been generated primarily from collaboration and license payments pursuant to our license agreements with daiichi sankyo and baxter . we have not generated any commercial product revenue . we have incurred significant losses in the past and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and , if approved , commercialization . our net losses were $ 87.2 million , $ 53.6 million and $ 33.0 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 186.7 million . on february 12 , 2014 , we completed the acquisition of intekrin therapeutics , inc. , or intekrin , a privately held , clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for the treatment of immune diseases such as multiple sclerosis . pursuant to a licensing agreement with amgen , we are obligated to use commercially reasonable efforts to develop intekrin 's product candidate . we accounted for the acquisition as the purchase of a business . total consideration for the acquisition of intekrin was $ 5.0 million and consisted of : ( a ) the issuance of 716,645 shares of series b convertible preferred stock with a fair value of $ 2.7 million , ( b ) the assumption of intekrin 's convertible promissory note payable to investors of intekrin , which was concurrently paid off by issuing 243,841 shares of our series b convertible preferred stock with an estimated fair value of 71 $ 1.0 million , ( c ) a cash payment of $ 1,485 and ( d ) contingent consideration with a fair value of $ 1.3 million at the acquisition date . story_separator_special_tag ( 5 ) our research and development expenses have been reduced by reimbursements of certain research and development expenses pursuant to the cost-sharing provision of our licensing agreement with daiichi sankyo . reimbursement of research and development expenses under the baxter licensing agreement was recognized as revenue pursuant to the revenue recognition accounting policy applicable to that agreement . general and administrative expenses general and administrative expenses consist primarily of personnel costs , allocated facilities costs and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . we expect to incur increased expenses as a result of operating as a public company , including expenses related to compliance with the rules and regulations of the securities and exchange commission , or sec , or the nasdaq global market , or nasdaq , additional insurance expenses , investor relations activities and other administration and professional services . interest expense interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount associated with our various debt agreements . the convertible notes issued in 2013 were converted into shares of our series c convertible preferred stock in may 2014. other income ( expense ) , net other income ( expense ) , net consists of gains and losses resulting from the remeasurement of the fair value of our convertible preferred stock warrant liability , derivative liability associated with our convertible notes , and our contingent consideration . additionally , for the year ended december 31 , 2014 , other income ( expense ) , net includes the gain on the extinguishment of our convertible notes issued in 2013. in november 2014 , in connection with the closing of our ipo all of our outstanding warrants for convertible preferred stock were exercised , for cash or on a net basis , and the convertible preferred stock warrant liability was reclassified to additional paid-in capital , and as such we no longer record adjustments to reflect the remeasurement of the fair values . we will continue to record adjustments to the estimated fair value of our contingent consideration until the contingency settles or expires . 73 critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . on an on-going basis , we evaluate our critical accounting policies and estimates . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists ; transfer of technology has been completed , services have been performed or products have been delivered ; the fee is fixed and determinable ; and collection is reasonably assured . we generate revenue from collaboration and license agreements for the development and commercialization of our product candidates . collaboration and license agreements may include non-refundable upfront payments , partial or complete reimbursement of research and development costs , contingent payments based on the occurrence of specified events under our collaboration arrangements , license fees and royalties on sales of product candidates if they are successfully approved and commercialized . our performance obligations under the collaborations may include the transfer of intellectual property rights in the form of licenses , obligations to provide research and development services and related materials and participation on certain development and or commercialization committees with the collaboration partners . we make judgments that affect the periods over which we recognize revenue . our collaboration and license agreements may provide for reimbursement by our collaborators of a portion of our research and development expenses , and we make judgments that affect how these reimbursements are recorded . in collaborations where we and our partner are actively and jointly engaged in the research activities and for which both parties are sharing costs , amounts reimbursed by our partner are recognized as a reduction of research and development expense . for example , daiichi sankyo reimburses certain of our research and development costs in quarterly advance payments pursuant to the cost-sharing provision of our collaboration and license agreement with them . because daiichi sankyo is an active participant in the research and development activities , we account for these reimbursements as reductions in our research and development expense when the applicable research and development activity has been performed . under our collaboration agreement with baxter , on the other hand , we recognize reimbursement of our research and development expenses thereunder as revenue because baxter is not actively participating in research and development activities . for revenue agreements with multiple-elements , we identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on the achievement of certain criteria including whether the deliverable has stand-alone value to the collaborator . upfront payments received in connection with licenses of our technology rights are deferred if facts and circumstances dictate that the license does not have stand-alone value and are recognized as license revenue over the estimated period of performance that is generally consistent with the terms of the research and development obligations contained in the specific collaboration and license agreement .
| summary statement of cash flows the following table summarizes our cash flows for the periods presented : replace_table_token_7_th net cash provided by ( used in ) operating activities cash used in operating activities was $ 23.9 million for the year ended december 31 , 2014 reflecting a net loss of $ 87.2 million , which was partially offset by non-cash charges of $ 15.9 million for the remeasurement of our convertible preferred stock warrant liability and embedded derivative liabilities , $ 5.2 million for remeasurement of our contingent consideration obligations , $ 3.9 million of non-cash interest expense and amortization of debt discount , $ 11.1 million for stock-based compensation and $ 0.7 million for depreciation and amortization , partially offset by the gain on the extinguishment of our convertible notes issued in 2013 of $ 2.0 million . cash used in operating activities reflected an increase in net operating assets of $ 28.4 million primarily due to an increase in deferred revenue of $ 19.8 million and an increase in contingent liability to collaborator of $ 20.2 million both related to the additional payments received from baxter under our license agreement . in addition , accounts payable and accounts payable-related parties increased by $ 5.3 million , and accrued liabilities increased by $ 3.9 million as a result of the increase in clinical activities and timing of vendor payments . the increase was partially offset by an increase in prepaid assets of $ 14.7 million as a result of the increase in clinical activities and expenses associated with becoming a public company , an increase in receivable from collaboration and license agreement of $ 2.1 million with daiichi sankyo , an increase in notes receivable of $ 1.8 million , and an increase in other assets of $ 2.1 million .
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adjusted diluted earnings per share , which exclude these restructuring and other costs as well as the impact of the 2017 tax legislation , were $ 3.42 in 2017 and $ 3.21 in 2016 ( see discussion below regarding non-gaap financial measures and the company 's restructuring activities , divestiture and income taxes ) . since 1962 , the company has paid without interruption a quarterly cash dividend . in 2017 , the company increased the quarterly dividend by 3 cents per share from 30 cents to 33 cents per share , or $ 1.32 per share on an annualized basis . in addition , the company repurchased $ 87.2 million of company stock in 2017 , which is in addition to the $ 50.1 million repurchased in 2016. additional information on the results is included below . results of continuing operations 2017 vs. 2016 revenue sensient 's revenue was approximately $ 1.4 billion in both 2017 and 2016. gross profit the company 's gross margin was 34.9 % in 2017 and 34.4 % in 2016. included in the cost of products sold are $ 2.9 million and $ 2.1 million of restructuring costs for 2017 and 2016 , respectively . the increase in the gross margin is primarily a result of higher selling prices and the favorable impact of the divestitures ( see note 12 , restructuring charges , and note 14 , divestitures ) , partially offset by higher raw material and manufacturing costs . restructuring costs reduced gross margin by 20 basis points and 10 basis points in 2017 and 2016 , respectively . 17 index selling and administrative expenses selling and administrative expense as a percent of revenue was 22.6 % in 2017 and 21.0 % in 2016 , respectively . restructuring and other costs of $ 45.2 million and $ 24.0 million for 2017 and 2016 , respectively , were included in selling and administrative expense . selling and administrative expense as a percent of revenue were higher in 2017 than 2016 primarily as a result of higher restructuring and other costs , partially offset by lower performance based executive compensation and professional fees . restructuring and other costs increased selling and administrative expense as a percent of revenue by 330 basis points and 180 basis points in 2017 and 2016 , respectively . operating income operating income was $ 167.8 million in 2017 and $ 185.6 million in 2016. operating margins were 12.3 % in 2017 and 13.4 % in 2016. restructuring and other costs reduced operating margins by 350 basis points and 190 basis points in 2017 and 2016 , respectively . additional information on segment results can be found in the segment information section . interest expense interest expense was $ 19.4 million in 2017 and $ 18.3 million in 2016. the increase in expense was primarily due to the increase in average debt outstanding . income taxes the effective income tax rate was 39.6 % in 2017 and 26.5 % in 2016. the effective tax rates in both 2017 and 2016 were impacted by restructuring and other activities , changes in estimates associated with the finalization of prior year foreign and domestic tax items , audit settlements , adjustments to valuation allowances and mix of foreign earnings . the effective tax rate in 2017 was also impacted by the limited tax deductibility of losses ( see note 12 , restructuring charge s ) and the result of the cumulative foreign currency effect related to certain repatriation transactions . on december 22 , 2017 , the u.s. enacted the tax cuts and jobs act ( the “ act ” ) . the act , which is also commonly referred to as “ 2017 tax legislation ” , significantly changes u.s. corporate income tax laws by reducing the u.s. corporate income tax rate to 21 % beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . as a result , the company recorded a net charge of $ 18.4 million during the fourth quarter of 2017. this amount consists of reassessing the u.s. deferred tax assets and liabilities based on the lower corporate income tax rate , adjustments to the company 's foreign tax credit carryover , and the one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . although the company believes that $ 18.4 million is a reasonable estimate of the current year impact of the 2017 tax legislation , it should be considered a provisional estimate . the company expects additional guidance on the 2017 tax legislation in 2018 , and will finalize certain tax positions when it files its 2017 u.s. tax return . the ultimate impact could differ from these provisional amounts , possibly materially , due to additional guidance , changes in interpretation , additional analysis , and assumptions the company has made . any adjustments to the provisional estimate will be reported in income tax expense in the reporting period in which any such adjustments are determined , which will be no later than the fourth quarter of 2018. replace_table_token_5_th the 2018 effective income tax rate is estimated to be between 24 % and 25 % , before any discrete items . restructuring the company incurred restructuring costs in both continuing and discontinued operations . the discussion here relates to the combination of both continuing and discontinued operations unless otherwise noted . restructuring costs related to discontinued operations are recorded in discontinued operations within the company 's consolidated condensed statements of earnings and are discussed in note 13 , discontinued operations , in more detail . 18 index between march 2014 and 2017 , the company executed a restructuring plan ( “ 2014 restructuring plan ” or “ plan ” ) to eliminate underperforming operations , consolidate manufacturing facilities , and improve efficiencies within the company . the company determined that it had redundant manufacturing capabilities in both north america and europe and that it could lower costs and operate more efficiently by consolidating into fewer facilities . story_separator_special_tag 19 index non-gaap financial measures within the following tables , the company reports certain non-gaap financial measures , including : ( 1 ) adjusted operating income , adjusted net earnings , and adjusted diluted eps from continuing operations ( which exclude restructuring and other costs as well as the impact of the tax cuts and jobs act ( “ 2017 tax legislation ” ) ) and ( 2 ) percentage changes in revenue , operating income , diluted eps , adjusted operating income , and adjusted diluted eps on a local currency basis ( which eliminate the effects that result from translating its international operations into u.s. dollars ) . the other costs in 2017 and 2016 are divestiture related costs , discussed under “ divestiture ” above . the company has included each of these non-gaap measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance . such information is supplemental to information presented in accordance with gaap and is not intended to represent a presentation in accordance with gaap . these non-gaap measures should not be considered in isolation . rather , they should be considered together with gaap measures and the rest of the information included in this report . management internally reviews each of these non-gaap measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends . the company believes that this information can be beneficial to investors for the same purposes . these non-gaap measures may not be comparable to similarly titled measures used by other companies . replace_table_token_6_th ( 1 ) the other costs in 2017 and 2016 are for the divestiture related costs discussed under “ divestiture ” above . note : earnings per share calculations may not foot due to rounding differences . 20 index the following table summarizes the percentage change in the 2017 results compared to the 2016 results in the respective financial measures . replace_table_token_7_th ( 1 ) refer to table above for a reconciliation of these non-gaap measures . segment information the company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance . segment performance is evaluated on operating income before restructuring and other costs ( which are reported in corporate & other ) , interest expense , and income taxes . the company 's reportable segments consist of the flavors & fragrances , color , and asia pacific segments . beginning in the first quarter of 2017 , the results of operations for certain of the company 's cosmetic and fragrance businesses in the asia pacific segment are now reported in the color segment and flavors & fragrances segment , respectively . in addition , the color segment reassigned customer accounts and revised cost allocations amongst the businesses within their segment resulting in changes in the underlying components of segment revenue and segment operating income . the results for 2016 have been restated to reflect these changes . flavors & fragrances revenue for the flavors & fragrances segment was $ 746.9 million in 2017 and $ 795.8 million in 2016 , a decrease of 6.1 % . foreign exchange did not have a material impact on revenue . the decrease in revenue was primarily due to lower revenue in europe ( $ 27.2 million ) and north america ( $ 22.5 million ) . the lower revenue in europe was primarily due to the divestitures ( $ 24.4 million ) and lower volumes ( $ 6.5 million ) , partially offset by higher selling prices ( $ 4.4 million ) . the lower revenue in north america was primarily due to lower volumes ( $ 36.3 million ) , partially offset by higher selling prices ( $ 13.2 million ) . gross margin increased 60 basis points to 28.2 % in 2017 from 27.6 % in 2016. the increase was primarily due to the impact of higher selling prices and the impact of the divestitures , partially offset by higher manufacturing and other costs and lower volume and product mix . segment operating income for the flavors & fragrances segment was $ 114.3 million in 2017 , and $ 124.1 million in 2016. the lower segment operating income was primarily a result of lower segment operating income in north america ( $ 9.0 million ) . the lower operating income in north america was primarily due to unfavorable volume and product mix ( $ 11.7 million ) , higher manufacturing and other costs ( $ 6.7 million ) , and higher raw material costs ( $ 3.1 million ) , partially offset by higher selling prices ( $ 13.2 million ) . segment operating margin was 15.3 % in 2017 and 15.6 % in 2016. color revenue for the color segment was $ 526.4 million in 2017 , and $ 504.1 million in 2016 , an increase of 4.4 % . the increase in revenue was primarily due to higher revenue in non-food colors ( $ 21.8 million ) . the higher revenue in non-food colors was primarily due to higher volumes ( $ 18.1 million ) , primarily in cosmetic colors , and higher selling prices ( $ 1.8 million ) . 21 index gross margin for the color segment increased 20 basis points to 42.2 % in 2017 from 42.0 % in 2016. the increase was primarily due to higher selling prices , favorable volumes , and product mix , partially offset by the unfavorable impact of higher manufacturing and other costs . segment operating income for the color segment was $ 113.4 million in 2017 , and $ 105.8 million in 2016 , an increase of 7.2 % . the higher segment operating income was due to higher segment operating income in non-food colors ( $ 9.8 million ) offset by lower segment operating income in food and beverage colors ( $ 2.2 million ) . the higher operating income for non-food colors was primarily due to favorable volume and product mix ( $ 9.1 million ) .
| results of continuing operations 2016 vs. 2015 revenue sensient 's revenue was approximately $ 1.4 billion in both 2016 and 2015. gross profit the company 's gross margin was 34.4 % in 2016 and 33.0 % in 2015. included in the cost of products sold are $ 2.1 million and $ 6.1 million of restructuring costs for 2016 and 2015 , respectively . the increase in the gross margin is primarily a result of higher selling prices and volumes , mainly in the color segment , savings associated with the 2014 restructuring plan ( $ 7.9 million ) , and reduced restructuring costs , partially offset by higher raw material and manufacturing costs . restructuring costs reduced gross margin by 10 basis points and 50 basis points in 2016 and 2015 , respectively . selling and administrative expenses selling and administrative expense as a percent of revenue was 21.0 % in 2016 and 20.9 % in 2015. restructuring and other costs of $ 24.0 million and $ 37.5 million for 2016 and 2015 , respectively , was included in selling and administrative expense . selling and administrative expense as a percent of revenue in 2016 was comparable to 2015 as a result of higher performance based executive compensation ( $ 7.6 million ) and professional fees ( $ 6.2 million ) , partially offset by lower restructuring and other costs ( $ 13.5 million ) . restructuring and other costs increased selling and administrative expense as a percent of revenue by 180 basis points and 270 basis points in 2016 and 2015 , respectively . operating income operating income was $ 185.6 million in 2016 and $ 166.3 million in 2015. operating margins increased to 13.4 % in 2016 from 12.1 % in 2015. restructuring and other costs reduced operating margins by 190 basis points and 320 basis points in 2016 and 2015 , respectively . additional information on segment results can be found in the segment information section .
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see note 2 in the accompanying consolidated financial statements for an overview of new accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements . overview liberty tripadvisor holdings , inc. ( “ tripco ” or the “ company ” ) holds its subsidiary tripadvisor , inc. ( “ tripadvisor ” ) . as of december 31 , 2020 , tripco held an approximate 23 % economic interest and 58 % voting interest in tripadvisor . the financial information represents the historical consolidated results of tripco and its subsidiaries as discussed in note 1 in the accompanying consolidated financial statements . in the following discussion , tripco and its subsidiaries are referred to as “ tripco , ” “ the company , ” “ us , ” “ we ” and “ our ” in the notes to the consolidated financial statements . all significant intercompany accounts and transactions have been eliminated in the consolidated financial statements . our “ corporate and other ” category includes corporate expenses . strategies and challenges story_separator_special_tag at 7.000 % per annum , on january 15 and july 15 of each year , beginning on january 15 , 2021 , until their maturity date of july 15 , 2025. tripadvisor used the net proceeds received of $ 490 million , net of deferred financing costs , to repay a portion of its 2015 credit facility borrowings . ii-4 during the first quarter of 2020 , tripadvisor instituted a cost reduction initiative to preserve cash flows , including targeted workforce reduction measures largely in the experiences & dining segment and optimizing and reducing brand advertising as tripadvisor pivots to leverage newer mediums it believes will be more effective than its historically television-focused campaign . during the latter part of the first quarter of 2020 , and in response to the covid-19 pandemic , tripadvisor instituted additional cost reduction measures , including the elimination of the majority of discretionary spending , business travel , non-critical vendor relationships , brand advertising , cessation of nearly all new hiring and contingent staff , reduction of targeted employee benefits , and the furloughing of over 100 employees . on april 28 , 2020 , management approved and tripadvisor announced an additional cost reduction initiative in response to the continued economic and financial impacts to tripadvisor as a result of the covid-19 pandemic , which included the following : ● enacting a workforce reduction eliminating more than 900 employees ; ● furloughing additional employees bringing the total furloughed employees during march and april 2020 to approximately 850 employees , primarily in tripadvisor 's european operations at thefork ; and ● making targeted reductions of tripadvisor 's office lease portfolio , primarily either through subleasing or allowing property leases to expire . by the end of the third quarter of 2020 , a majority of tripadvisor 's previously furloughed employees had returned to their jobs . however , during the fourth quarter of 2020 , tripadvisor again furloughed approximately 400 employees , primarily in its european operations of thefork . this action taken by tripadvisor was a direct result of the reinstatement of government restrictions related to restaurants in various countries within europe , in response to the resurgence of covid-19 in those markets . during the year ended december 31 , 2020 , tripadvisor incurred total pre-tax restructuring and other related reorganization costs of approximately $ 41 million as a result of these measures , all of which were paid by tripadvisor as of december 31 , 2020. in march 2020 , the u.s. government enacted the coronavirus aid , relief , and economic security act ( the “ cares act ” ) . the cares act is an emergency economic stimulus package in response to the covid-19 pandemic , which includes numerous income tax provisions , some of which are effective retroactively . tripadvisor anticipates that it will benefit from certain of these provisions and has accordingly recorded income tax benefits of $ 23 million during the year ended december 31 , 2020. in addition , certain other governments have passed legislation to help businesses during the covid-19 pandemic through loans , wage subsidies , tax relief or other financial aid . some of these governments have extended or are considering extending these programs . tripadvisor has participated in several of these programs , including the cares act in the u.s. , the united kingdom 's job retention scheme , as well as other certain jurisdictions ' programs . during the year ended december 31 , 2020 , tripadvisor recognized government grants and other assistance benefits of $ 12 million as a reduction of personnel and overhead costs in the consolidated statements of operations . due to the impact of covid-19 on tripadvisor 's future revenue outlook , tripco recorded a trademark impairment of $ 250 million during the three months ended june 30 , 2020 related to the hotels , media and platform reporting unit . based on the quantitative assessment performed during the three months ended june 30 , 2020 and the resulting impairment loss recorded , the carrying fair value of the trademark approximates its estimated fair value . further declines in tripadvisor 's future revenue outlook could result in a decrease in the fair value of the trademark . tripco will continue to monitor events and circumstances that may affect the fair value or carrying value of tripadvisor 's trademark . due to the impact of covid-19 on tripadvisor 's operating results , which led to a decline in tripadvisor 's stock price , tripco recorded a goodwill impairment of $ 279 million during the three months ended june 30 , 2020 , related to the hotels , media and platform reporting unit . based on the quantitative assessment performed during the second quarter and the resulting impairment loss recorded , the carrying value of the hotels , media and platform reporting unit approximates its estimated fair value . story_separator_special_tag during the year ended december 31 , 2020 , tripadvisor 's experiences & dining segment 's financial results were adversely and materially impacted by the covid-19 pandemic . restaurants across european markets saw restrictions ease during the second quarter of 2020 , which was met with an increase in consumer demand . as a result , in the month of september 2020 , thefork business unit , primarily based in europe , had largely regained the revenue level of the prior year 's comparable period ; however , beginning in the fourth quarter of 2020 , governments again , particularly in europe , imposed new restrictions to try to mitigate the resurgence of the virus , which negatively and materially impacted this recent trend . throughout the pandemic , tripadvisor has explored new initiatives to delight and engage consumers . for example , tripadvisor began offering virtual tours to its consumers and beta-launched an annual subscription-based membership , as discussed above , which offers consumers discounts on experience bookings . in december 2019 , tripadvisor acquired u.k.-based bookatable , which offers an online restaurant reservation and booking platform . this further strengthened tripadvisor 's position in certain of its existing european markets as well as expands tripadvisor into new countries for its dining offering , such as the u.k. , germany , austria , finland and norway . thefork 's online restaurant booking platform , including bookatable , had approximately 76,000 total bookable restaurants as of december 31 , 2020. corporate and other corporate and other is a combination of the rentals , flights & car , and cruise businesses . profits and revenue have declined during the year ended december 31 , 2020 , primarily due to the covid-19 pandemic , similar to tripadvisor 's other business units , and to a lesser extent , due to the sale of its smartertravel business in the second quarter of 2020. tripadvisor operates these businesses opportunistically as they complement its overall strategic objectives to deliver more value to consumers and travel partners . ii-7 results of operations—consolidated general . we provide in the tables below information regarding our historical consolidated operating results and other income and expense , as well as information regarding the contribution to those items from our reportable segments . replace_table_token_2_th revenue . tripadvisor 's hotels , media & platform revenue decreased by $ 578 million and $ 62 million for the years ended december 31 , 2020 and 2019 , respectively , as compared to the corresponding prior year periods . tripadvisor 's hotels , media & platform segment has two revenue sources , as described below : ( 1 ) tripadvisor-branded hotels , which includes hotel auction and b2b revenue ; and ( 2 ) tripadvisor-branded display and platform . the decreases in hotels , media & platform revenue are detailed as follows : replace_table_token_3_th ii-8 tripadvisor-branded hotels revenue primarily includes hotel auction revenue , and to a lesser extent , hotel b2b revenue , which includes click-based revenue generated from hotel sponsored placement advertising that enable hotels to enhance their visibility on tripadvisor hotel pages , and subscription-based advertising services that tripadvisor offers to travel partners . for the years ended december 31 , 2020 , 2019 and 2018 , 81 % , 83 % and 85 % , respectively , of tripadvisor 's total hotels , media & platform segment revenue was derived from tripadvisor-branded hotels revenue . tripadvisor-branded hotels revenue decreased $ 487 million or 63 % during the year ended december 31 , 2020 when compared to the same period in 2019. this decrease was primarily driven by reduced consumer demand as a result of covid-19 , concurrent with widespread travel restrictions and service limitations on our travel partners imposed by local and federal governments at various stages during the course of the year in response to the pandemic . tripadvisor-branded hotels revenue decreased $ 69 million or 8 % during the year ended december 31 , 2019 when compared to the same period in 2018. this decrease was due to factors impacting tripadvisor 's hotel metasearch auction revenue , primarily reduced revenue generated through its seo marketing channel , which tripadvisor believes is impacted by search engines ( primarily google ) increasing the prominence of their own hotel products in search results . tripadvisor-branded hotels revenue was also impacted by its progressive optimizations in search engine marketing , or sem , and other online paid traffic acquisition spend , and to a lesser extent , the general trend of an increasing percentage of hotel shoppers visiting via mobile phones which monetize at a significantly lower rate than hotel shoppers visiting via desktop or tablet . declines in tripadvisor-branded hotels was partially offset , to a lesser extent , by growth in hotel sponsored placements revenue . for the years ended december 31 , 2020 , 2019 , and 2018 , 19 % , 17 % , and 15 % , respectively , of tripadvisor 's total hotels , media & platform segment revenue was derived from tripadvisor-branded display and platform revenue , which consists of revenue from display-based advertising across all its websites . tripadvisor-branded display and platform revenue decreased $ 91 million or 57 % during the year ended december 31 , 2020 , when compared to the same period in 2019 , primarily driven by a decrease in marketing spend from tripadvisor 's advertisers due to lack of consumer demand resulting from the impact of covid-19 . tripadvisor-branded display and platform revenue increased $ 7 million or 5 % during the year ended december 31 , 2019 , when compared to the same period in 2018 , primarily due to an increase in pricing , and to a lesser extent , new initiatives launched in the later part of 2019. for the years ended december 31 , 2020 , 2019 and 2018 , tripadvisor 's experiences & dining segment revenue accounted for 31 % , 29 % and 23 % , respectively , of total consolidated revenue .
| executive summary results for tripco are largely dependent upon the operating performance of tripadvisor . therefore , the executive summary below contains the strategies and challenges of tripadvisor for an understanding of the business objectives of tripadvisor . tripadvisor 's long-term growth strategy tripadvisor 's long-term growth strategy aims to increase customer engagement on its platform and drive profitable growth through : ● building products that delight travelers by reducing friction throughout the travel planning and trip-taking journey ; ● driving consumer loyalty to tripadvisor 's platform by offering products and services that increase engagement with tripadvisor 's platform and result in membership growth , mobile app engagement and repeat usage ; ● investing in technology ( e.g . machine learning ) to further improve the experiences tripadvisor can deliver to consumers and travel partners on its platform ; ● deepening travel partner engagement on tripadvisor 's platform by expanding the number of products and services offered ; ● leveraging its platform 's unique attributes to expand and grow its offerings , such as hotel business to business ( “ b2b ” ) services , direct-to-consumer products and services where consumers pay tripadvisor on a per trip ii-2 planned or annual subscription basis , both click-based and display-based media advertising , and experiences and restaurants ; ● driving operational efficiencies ; and ● opportunistically pursuing strategic acquisitions . as part of tripadvisor 's long-term growth strategy , it favors continuous product innovation in order to deliver customers more value . in this regard , tripadvisor beta-launched a direct-to-consumer annual subscription-based offering in december 2020. current trends affecting tripadvisor 's business the online travel industry is large and highly dynamic and competitive . tripadvisor 's overall strategy is to deliver more value to consumers and travel partners in order to generate more monetization on its platform . while tripadvisor operates with a long-term growth focus , its specific growth objectives and resource allocation strategies can differ in both duration and magnitude within its segments .
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in the event a counterparty to one or more of our securities repurchase facilities becomes insolvent or unable or unwilling to perform it obligations under the facility , we may be unable to access the short-term financing we need or fail to recover the full value of our securities financed . 98 quantitative information on market risk our future earnings are sensitive to a number of market risk factors and changes in these factors may have a variety of secondary effects that , in turn , will also impact our earnings . to supplement this discussion on the market risk we face , the following table incorporates information that may be useful in analyzing certain market risks that may affect our story_separator_special_tag contains a detailed analysis of our tax results and distributions to shareholders . summary of financial condition , capital resources , and liquidity at december 31 , 2011 , our total capital was $ 1 billion , including $ 893 million in stockholders ' equity and $ 140 million of long-term debt . we use our capital to invest in earning assets , meet lender capital requirements , and fund our operations and working capital needs . we currently do not believe we will need to raise equity capital during the first half of 2012 , and may not need to raise equity capital in a material way in the second half of 2012. we would consider raising equity or another form of long-term capital for new investments if our actual investment opportunities exceed our current plans or if our anticipated funding plans generate less than our anticipated needs , and we felt we had investment opportunities at attractive yields that would not be dilutive to common shareholders . we estimate that our investment capacity or the amount of capital we have readily available to support long-term investments was $ 214 million at december 31 , 2011 , similar to the $ 206 million of estimated capacity at september 30 , 2011. we estimate our investment capacity as ( 1 ) cash on hand , plus ( 2 ) cash we believe we could raise by increasing short-term borrowings to finance all of our residential mortgage loans held for securitization , less ( 3 ) cash needed to cover short-term operations , working capital , and a liquidity cushion . we will continue to look for ways to leverage our capital without taking undue funding risk before raising new capital . 51 components of book value the following supplemental components of book value table presents our assets and liabilities at december 31 , 2011 and september 30 , 2011. we show our investments in the new sequoia and other consolidated entities as separate line items , as estimated under gaap , to highlight our specific ownership interests , as the underlying assets and liabilities of these entities are legally not ours even though we are required to consolidate them for financial reporting purposes . for all other components of book value , the values in the table below equal gaap values . table 4 components of book value ( 1 ) replace_table_token_7_th ( 1 ) as this table is presented in millions , except per share amounts , some numbers may not foot due to rounding . ( 2 ) the assets and liabilities of the resecuritization we engaged in during the third quarter of 2011 are included in real estate securities at redwood residential and asset-backed securities issued resecuritization , respectively , although these assets and liabilities are owned by the resecuritization entity and are legally not ours and we own only the securities and interests that we acquired from the resecuritization entity . at december 31 , 2011 , the resecuritization accounted for $ 325 million of real estate securities and $ 220 million of asset-backed securities issued and our investment in this resecuritization equals the difference between these assets and liabilities . changes in book value and estimated non-gaap economic value during the fourth quarter of 2011 , our gaap book value decreased by $ 0.86 per share to $ 11.36 per share . the net decrease resulted from $ 0.03 per share from our reported net loss , $ 0.56 per share in net valuation decreases on securities not reflected in earnings , $ 0.03 per share in net valuation decreases on derivative hedges related to long-term debt not reflected in earnings , and $ 0.25 per share from dividends paid to shareholders , offset by $ 0.01 per share from other net positive items . at december 31 , 2011 , our estimate of non-gaap economic value was $ 12.45 per share , or $ 1.09 per share higher than our reported gaap book value . this $ 1.09 per share difference is reconciled as follows : ( i ) approximately $ 1.06 of this per share difference relates to an economic valuation of our long-term debt of $ 57 million , which was $ 83 million below the amortized cost basis used to determine gaap book value ; 52 ( ii ) an additional $ 0.07 per share relates to an economic valuation of our net investments in new sequoia entities and other consolidated entities of $ 96 million , which was $ 6 million above the amortized cost basis used to determine gaap book value ; and ( iii ) there is an offset of approximately $ 0.04 per share relating to an economic valuation of the asset-backed securities issued from the resecuritization of $ 220 million , that was $ 3 million above the amortized cost basis used to determine gaap book value . a further discussion of our estimate of non-gaap economic value is set forth below under investments in securitization entities and factors affecting management 's estimate of economic book value . cash and cash equivalents at december 31 , 2011 , we had $ 267 million in cash and cash equivalents , as compared to $ 133 million at september 30 , 2011 , an increase of $ 134 million . story_separator_special_tag investments in securitization entities the estimated carrying value of our investments in the sequoia and acacia securitization entities totaled $ 90 million , or 10 % of our equity at december 31 , 2011. the carrying value reflects the estimated book value of our retained investments in these entities , based on the difference between the consolidated assets and liabilities of the entities in the aggregate according to their gaap carrying amounts . during the fourth quarter of 2011 , cash flow generated by our investments in these entities totaled $ 8 million . our investments in new sequoia entities , as reported for gaap , totaled $ 49 million at december 31 , 2011 and consisted of ios and subordinate securities . management 's estimate of the non-gaap economic value of our investments in these entities was $ 39 million . of this amount , $ 3 million consisted of ios and $ 36 million consisted of subordinate securities at new sequoia entities . our investments in the other consolidated entities , as reported for gaap , totaled $ 41 million at december 31 , 2011. this amount consisted of ios and senior and subordinate securities at legacy sequoia entities as well as our equity at the acacia entities . management 's estimate of the non-gaap economic value of our investments in these entities was $ 57 million . of this amount , $ 50 million consisted of ios and $ 6 million consisted of senior and subordinate securities at legacy sequoia entities . the remaining $ 1 million consisted of the value of anticipated management fee income at the acacia entities . factors affecting management 's estimate of economic book value in reviewing our non-gaap estimate of economic value , there are a number of important factors and limitations to consider . the estimated economic value of our stockholders ' equity is calculated as of a particular point in time based on our existing assets and liabilities or , in certain cases , our estimate of economic value of our existing assets and liabilities , and does not incorporate other factors that may have a significant impact on that value , most notably the impact of future business activities and cash flows . as a result , the estimated economic value of our stockholders ' equity does not necessarily represent an estimate of our net realizable value , liquidation value , or our market value as a whole . amounts we ultimately realize from the disposition of assets or settlement of liabilities may vary significantly from the estimated economic values of those assets and liabilities . because temporary changes in market conditions can substantially affect our estimate of the economic value of our stockholders ' equity , we do not believe that short-term fluctuations in the economic value of our assets and liabilities are necessarily representative of the effectiveness of our investment strategy or the long-term underlying value of our business . our estimated non-gaap economic value is calculated using bid-side asset marks ( or estimated bid-side values ) and offer-side marks for our financial liabilities ( or estimated offered-side values ) , when available , to determine fair value under gaap . when quoted market prices or observable market data are not available to estimate fair value , we rely on level 3 inputs . because assets and liabilities classified as level 3 are generally based on unobservable inputs , the process of calculating economic value is generally subjective and involves a high degree of management judgment and assumptions . these assumptions may have a significant effect on our estimates of economic value , and the use of different assumptions as well as changes in market conditions could have a material effect on our results of operations or financial condition . for gaap , we report as a liability the $ 140 million outstanding principal amount of our long-term debt . we calculated the $ 57 million estimate of non-gaap economic value of our long-term debt based on its stated interest rate using the same valuation process used to fair value our other financial assets and liabilities . 56 the differences between the gaap carrying value of our investments in sequoia entities and management 's estimate of the non-gaap economic value of those investments is set forth above under investments in securitization entities . story_separator_special_tag border-bottom : 1pt white solid ; border-right : 1pt white solid ; border-left : 1pt white solid ; padding-top : 9pt ; padding-bottom : 9pt ; padding-right : 3pt ; padding-left:6pt ; margin-top:6pt ; margin-right : 0pt ; margin-left:0pt ; margin-bottom:6pt '' > replace_table_token_20_th the following tables present the components of the interest income we earned on afs securities for the years ended december 31 , 2011 , 2010 , and 2009. table 13 interest income afs securities at redwood ( parent ) year ended december 31 , 2011 replace_table_token_21_th year ended december 31 , 2010 replace_table_token_22_th 62 year ended december 31 , 2009 replace_table_token_23_th ( 1 ) cash flow from many of our subordinate securities can be volatile and in certain cases ( e.g. , when the fair values of certain securities are close to zero ) any interest income earned can result in unusually high reported yields that are not sustainable and not necessarily meaningful . interest income from available-for-sale securities at redwood was $ 84 million in 2011 , as compared to $ 94 million in 2010 , a decline of $ 10 million . the decrease was primarily due to declining yields on our portfolio as higher yielding , more credit sensitive investments paid down and were replaced with lower yielding , less credit sensitive investments . interest income on available-for-sale securities at redwood was $ 94 million in 2010 , as compared with $ 91 million in 2009 , an increase of $ 3 million . this increase was primarily due to increased average balances , as acquisitions outpaced sales and principal paydowns .
| results of operations and financial condition the following tables present the results of redwood ( parent ) , new sequoia entities ( sequoia securitization entities issued in 2010 and subsequent periods ) , and other consolidated entities in order to supplement our consolidated gaap results for the years ended december 31 , 2011 , 2010 , and 2009. the interest income and expense related to the resecuritization we engaged in during the third quarter of 2011 are included at redwood ( parent ) . additionally , these tables present the new sequoia entities separately from other consolidated entities to highlight our creation of residential credit investments since the beginning of 2010 through our sequoia securitization platform . other consolidated entities include sequoia entities issued prior to 2010 , acacia entities , and the fund . table 9 consolidating income statements replace_table_token_12_th replace_table_token_13_th 57 replace_table_token_14_th at december 31 , 2011 , 71 % of our consolidated assets and 83 % of our consolidated liabilities were owned at consolidated sequoia and acacia entities . although we consolidate these assets and liabilities for financial reporting purposes , they are bankruptcy-remote from us . that is , they are structured so that redwood 's obligations are not liabilities of the consolidated entities and the liabilities of the consolidated entities are not legal obligations of redwood . 58 the following table presents the components of our non-gaap consolidating balance sheets at december 31 , 2011 and 2010. table 10 consolidating balance sheet replace_table_token_15_th ( 1 ) the consolidating balance sheet presents the assets and liabilities of the resecuritization we engaged in during the third quarter of 2011 under redwood ( parent ) , although these assets and liabilities are owned by the resecuritization entity and are legally not ours and we own only the securities and interests that we acquired from the resecuritization entity .
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we have certain wholly-owned taxable subsidiaries ( the taxable subsidiaries ) , each story_separator_special_tag the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this form 10-k. except per share amounts , dollar amounts are in thousands unless otherwise indicated . overview general we were incorporated under the maryland general corporation laws on may 30 , 2001. our board of directors approved revisions to our investment objectives ( as noted below ) and strategies , effective on or about january 1 , 2013. see recent developments board of director actions for more information . our investment objectives are to : ( 1 ) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses , make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time ; and ( 2 ) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains . we operate as a closed-end , non-diversified management investment company , and have elected to be treated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . in addition , for federal tax purposes we have elected to be treated as a regulated investment company ( ric ) under the internal revenue code of 1986 , as amended ( the code ) . business environment while economic conditions generally appear to be improving , we remain cautious about a long-term economic recovery . the recent recession in general , and the disruptions in the capital markets in particular , have impacted our liquidity options and increased our cost of debt and equity capital . many of our portfolio companies , as well as those that we evaluate for investment , are impacted by these economic conditions , and if these conditions persist , it may affect their ability to repay our loans or engage in a liquidity event , such as a sale , recapitalization or initial public offering . the economic conditions could also disproportionately impact some of the industries in which we have invested , causing us to be more vulnerable to losses in our portfolio , which could cause the number of our non-performing assets to increase and the fair market value of our portfolio to decrease . we do not know if market conditions will continue to improve or if adverse conditions will again intensify , and we do not know the full extent to which the economic downturn will affect us . if market instability persists or intensifies , we may experience difficulty in raising capital . during 2012 , we experienced a net contraction in our overall portfolio , a net decrease of nine portfolio companies when compared to the year ending 2011. the primary reason was due to $ 60.2 million in unscheduled principal payments with ten portfolio investments paying off early , but also due to fewer new investments being made during the year . while we invested in several new proprietary and syndicate investments in 2012 , there is increased competitive pressure in the bdc and investment company marketplace for senior and senior subordinated debt resulting in lower yields for increasingly riskier investments . going into 2013 , we will continue to focus on building our pipeline and making investments that meet our objectives and strategies and that provide appropriate returns given the risks . subsequent to september 30 , 2012 , we have made one new investment for an aggregate total of $ 2.5 million . despite the challenges during these uncertain economic times , during the year ended september 30 , 2012 , we completed both a preferred stock offering and a renewal of our $ 137.0 million line of credit ( our credit facility , described more fully under recent developments renewal of credit facility below ) . in november 2011 , we issued 1.5 million shares of term preferred stock ( our term preferred stock , defined under recent developments term preferred stock offering below ) for gross proceeds of $ 38.5 million and in january 2012 , we closed on an amendment on our credit facility to extend its maturity until january 2015. in addition , in july 2012 , the securities and exchange commission ( sec ) granted an exemptive order that , subject to satisfaction of certain conditions , expands our ability to co-invest in portfolio companies with certain of our affiliated investment funds , which we believe this will enhance our ability to further our investment strategy and objectives . see recent developments co-investment order for more information . 38 we believe that market conditions have affected the trading price of our common stock and our ability to finance new investments through the issuance of equity . on november 9 , 2012 , the closing market price of our common stock was $ 8.47 , a 5.7 % discount to our september 30 , 2012 , net asset value ( nav ) per share of $ 8.98. when our stock trades below nav per common share , as it has consistently traded over the last three years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without stockholder approval , other than through sales to our then-existing stockholders pursuant to a rights offering . story_separator_special_tag ( ulterra ) of $ 1.9 million ; and proprietary investments : northern contours , inc. ( northern contours ) of $ 6.1 million , global materials technologies , inc. ( gmt ) of $ 2.4 million , rcs management holding co. ( rcs ) of $ 4.4 million , and winchester electronics ( winchester ) of $ 12.6 million . in december 2011 , we sold our investments in newhall holdings inc. ( newhall ) for net proceeds of $ 3.3 million , which resulted in a realized loss of $ 7.4 million recorded in the three months ended december 31 , 2011. newhall was on non-accrual status at the time of the sale . in august 2012 , we sold our $ 1.8 million investment in bertl , inc. ( bertl ) for net proceeds of $ 11 , which resulted in a realized loss of $ 1.8 million . bertl was on non-accrual status at the time of the sale . in september 2012 , we sold our $ 3.2 million investment in u.s. healthcare communications , inc. ( ushc ) for net proceeds of $ 16 , which resulted in a realized loss of $ 3.2 million . ushc was on non-accrual status at the time of the sale . workouts effective october 2011 , we restructured our investment in sunshine media holdings ( sunshine ) , by reducing the interest rates on its line of credit , senior debt and last out tranche ( lot ) senior debt to preserve sunshine 's capital to enable it to invest in new and existing initiatives . we also invested $ 2.8 million in additional preferred equity and $ 4.0 million in line of credit draws to sunshine during the year ended september 30 , 2012. we placed our investment in sunshine 's lot senior debt on non-accrual status , effective january 1 , 2012 , and the remaining senior debt and revolver investments on non-accrual status effective april 1 , 2012. in november 2011 , we invested $ 1.6 million in ohana to facilitate its purchase of certain of kmbq corporation 's ( kmbq ) assets out of receivership . in connection with this transaction , we received net proceeds of $ 1.2 million and recorded a realized loss during the three months ended december 31 , 2011 , totaling $ 1.0 million . ohana replaced kmbq on our accompanying consolidated schedule of investments as a non-control/non-affiliate investment at december 31 , 2011. effective january 2012 , we restructured our investment in viapack , inc. ( viapack ) by reducing the interest rates on its line of credit , senior real estate term debt and senior debt to preserve viapack 's capital to enable it to invest in existing initiatives . we have also invested $ 2.3 million in line of credit draws to viapack during the year ended september 30 , 2012. we placed our investment in viapack 's lot senior debt on non-accrual status effective january 1 , 2012 . 40 subsequent to september 30 , 2012 , our loans to blue coat , mood media corporation , hgi holding , inc. and wall street systems holdings , inc. were paid off early at par for a combined total of $ 21.1 million . additionally , in november 2012 we invested a combined total of $ 5.5 million in two new portfolio companies . refer to note 14 subsequent events in our accompanying consolidated financial statements included elsewhere in this form 10-k for investment activity occurring subsequent to september 30 , 2012. recent developments renewal of credit facility on january 19 , 2012 , we entered into amendment no . 3 to the fourth amended and restated credit agreement ( the credit facility ) , through gladstone business loan , llc ( business loan ) , to extend the maturity date of our $ 137.0 million line of credit from march 15 , 2012 to january 19 , 2015 ( the maturity date ) . the interest rates remained unchanged . our credit facility was arranged by key equipment finance inc. ( keybank ) as administrative agent . branch banking and trust company ( bb & t ) and ing capital llc ( ing ) also joined our credit facility as committed lenders . subject to certain terms and conditions , our credit facility may be expanded to a maximum of $ 237.0 million through the addition of other committed lenders to the facility . if our credit facility is not renewed or extended by the maturity date , all principal and interest will be due and payable on or before january 19 , 2016 ( one year after the maturity date ) . the interest rates on advances under our credit facility remained unchanged at 30-day london interbank offered rate ( libor ) subject to a minimum rate of 1.5 % , plus 3.75 % per annum , with a commitment fee of 0.5 % per annum on undrawn amounts when our credit facility is drawn more than 50 % and 1.0 % per annum on undrawn amounts when our credit facility is drawn less than 50 % . all other terms of our credit facility remained substantially unchanged . term preferred stock offering in november 2011 , we completed an offering of 1.5 million shares of 7.125 % series 2016 term preferred stock ( term preferred stock ) , at a public offering price of $ 25.00 per share . net proceeds of the offering , after deducting underwriting discounts and offering expenses borne by us were approximately $ 36.4 million and were used to repay a portion of outstanding borrowings under our credit facility . refer to note 6 mandatorily redeemable preferred stock in our accompanying consolidated financial statements included elsewhere in this form 10-k for further discussion of our term preferred stock offering .
| results of operations comparison of the fiscal year ended september 30 , 2012 to the fiscal year ended september 30 , 2011 replace_table_token_8_th nm = not meaningful investment income interest income from our investments in debt securities increased slightly for the year ended september 30 , 2012 , by $ 3.2 million or 9.7 % , as compared to the year ended september 30 , 2011 , primarily due to the increased investment activity during the second half of fiscal year 2011 , offset by several early payoffs of investments in 2012 and a slight decrease in our weighted average yield in 2012 as compared to 2011. the increase in investment activity in 2011 was primarily in syndicated investments . the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio during the period multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2012 , was $ 329.0 million , compared to $ 293.8 million for the prior year , an increase of $ 35.2 million or 12.0 % . the weighted average yield on the principal balance of our interest-bearing investments for the year ended september 30 , 2012 , was 10.9 % , as compared to 11.1 % for the prior year . the weighted average yield on our portfolio decreased during the year ended september 30 , 2012 , as compared to the prior year , due to the early payoffs of several proprietary investments and also the restructuring of certain loans into lower interest rate loans . as of september 30 , 2012 , six portfolio companies were either fully or partially on non-accrual with an aggregate debt cost basis of approximately $ 61.1 million , or 17.3 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2011 , eight portfolio companies were on non-accrual with an aggregate debt cost basis of approximately $ 41.1
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we provide technology solutions and services from the world 's leading suppliers of point-of-sale ( pos ) , payments , barcode , physical security , unified communications and collaboration , telecom and cloud services to our customers . we serve approximately 38,000 customers located in the united states , canada , brazil , additional latin american countries and europe and provide solutions and services from approximately 550 technology suppliers . we operate our business under a management structure that enhances our worldwide technology market focus and growth strategy . we segment our business into two technology-focused areas that each operate in the u.s. , canada , brazil , additional latin american countries and europe : worldwide barcode , networking & security worldwide communications & services we sell products to the united states and canada from our facilities located in mississippi , california and kentucky ; into latin america principally from facilities located in florida , mexico , brazil , colombia and chile ; and into europe principally from facilities in belgium , france and the united kingdom . we also have drop-shipment arrangements with some of our suppliers , which allow us to offer products to customers without taking physical delivery at our facilities . our key suppliers include axis , audiocodes , avaya , barco , bematech , bosch , centurylink/level 3 , cisco , comcast business , datalogic , dell , elo , epson , exacq , extreme , fortinet , hanwha , hid , honeywell , hp/aruba , ibm , ingenico , jabra , lifesize , microsoft , milestone , mitel , ncr , panasonic , pioneer , plantronics/polycom ( poly ) , ringcentral , ruckus , samsung , spectralink , spectrum , star micronics , toshiba global commerce solutions , ubiquiti , verifone , verizon , windstream , yealink and zebra technologies . we also offer customers significant choices in cloud services through our intelisys business and our inty cloud services distribution platform , including offerings in contact center , infrastructure , unified communications , security , and microsoft offerings . recent developments on august 20 , 2019 , we announced plans to divest our physical product distribution businesses in europe , uk , mexico , colombia , chile , peru and our miami-based export operations . we will continue to operate our digital businesses in these locations , including the businesses acquired within the last year , inty , canpango and intelisys global . the operations in these locations have been performing below our expectations . we are beginning the process to market and sell these businesses . there can be no assurance that this sale process will result in a transaction or the timing of any transaction . on july 1 , 2019 , we acquired inty and its cascade cloud services distribution platform . as an additional element of the our cloud and digital strategy , inty 's cascade solution provides our sales partners with another route to market to enable distribution and sales opportunities for key strategic cloud services . inty joins our worldwide communications & services operating segment . our strategy we rely on a channel sales model offering hardware , software , services , and connectivity solutions from technology suppliers to sales partners that serve end customers . we sell technology solutions that solve end customer 's business needs . while we do not manufacture products , we provide technology solutions and services from leading technology suppliers . our solutions may include a combination of offerings from multiple suppliers or give our sales partners access to additional services , such as custom configuration , key injection , integration support , custom development and other services , to deliver solutions . we also offer the flexibility of on-premise , cloud and hybrid solutions . as a trusted adviser to our sales partners , we provide more complete solutions through a better understanding of end customer needs . we drive growth through enhancing our sales partners ' capabilities to provide hardware , software , services and connectivity solutions to meet these needs . our teams deliver value-added support programs and services , including education and training , network assessments , implementation , custom development and marketing to help our sales partners extend their capabilities , develop new technology practices or reach new end customers . 21 index to financial statements our objective is to grow profitable sales in the technologies we offer and expand in higher margin and adjacent markets to help our sales partners offer more products and services and increase recurring revenue opportunities . as part of our strategic plan , we consider strategic acquisitions and alliances to enhance our technology offerings and service capabilities . profitability our operating income is driven by gross profits and by control of operating expenses . our operations feature scalable information systems , streamlined management and centralized distribution , enabling us to achieve the economies of scale necessary for cost-effective solution selling . in order to continue to grow in our markets , we have continued to invest in new technologies and increased marketing efforts to recruit new customers . results of operations the following table sets forth for the periods indicated certain income and expense items as a percentage of net sales : replace_table_token_4_th comparison of fiscal years ended june 30 , 2019 and 2018 below is a discussion of fiscal years ended june 30 , 2019 and 2018 . please refer to our form 10-k for the fiscal year ended june 30 , 2018 for a discussion of fiscal year ended june 30 , 2017 . net sales we have two reportable segments , which are based on the technologies provided to customers . the following table summarizes our net sales results by business segment and by geographic location for the comparable fiscal years ending june 30 , 2019 and 2018 . story_separator_special_tag below we show organic growth by providing a non-gaap reconciliation of net sales in constant currency , excluding acquisition : net sales by segment : fiscal year ended june 30 , 2019 2018 $ change % change worldwide barcode , networking & security : ( in thousands ) net sales , as reported $ 2,589,837 $ 2,628,988 $ ( 39,151 ) ( 1.5 ) % foreign exchange impact ( a ) 33,318 — net sales , constant currency 2,623,155 2,628,988 ( 5,833 ) ( 0.2 ) % less : acquisitions ( 23,465 ) ( 14,553 ) net sales , constant currency excluding acquisitions $ 2,599,690 $ 2,614,435 $ ( 14,745 ) ( 0.6 ) % worldwide communications & services : net sales , as reported $ 1,283,274 $ 1,217,272 $ 66,002 5.4 % foreign exchange impact ( a ) 45,655 — net sales , constant currency 1,328,929 1,217,272 111,657 9.2 % less : acquisitions ( 7,261 ) — net sales , constant currency excluding acquisitions $ 1,321,668 $ 1,217,272 $ 104,396 8.6 % consolidated : net sales , as reported $ 3,873,111 $ 3,846,260 $ 26,851 0.7 % foreign exchange impact ( a ) 78,973 — net sales , constant currency 3,952,084 3,846,260 105,824 2.8 % less : acquisitions ( 30,726 ) ( 14,553 ) net sales , constant currency excluding acquisitions $ 3,921,358 $ 3,831,707 $ 89,651 2.3 % ( a ) year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates . calculated by translating the net sales for the year ended june 30 , 2019 into u.s. dollars using the average foreign exchange rates for the year ended june 30 , 2018 . 27 index to financial statements net sales by geography : fiscal year ended june 30 , 2019 2018 $ change % change united states and canada : ( in thousands ) net sales , as reported $ 2,917,780 $ 2,847,197 $ 70,583 2.5 % less : acquisitions ( 30,726 ) ( 14,553 ) net sales , excluding acquisitions $ 2,887,054 $ 2,832,644 $ 54,410 1.9 % international : net sales , as reported $ 955,331 $ 999,063 $ ( 43,732 ) ( 4.4 ) % foreign exchange impact ( a ) 78,973 — net sales , constant currency 1,034,304 999,063 35,241 3.5 % less : acquisitions — — net sales , constant currency excluding acquisitions $ 1,034,304 $ 999,063 $ 35,241 3.5 % consolidated : net sales , as reported $ 3,873,111 $ 3,846,260 $ 26,851 0.7 % foreign exchange impact ( a ) 78,973 — net sales , constant currency 3,952,084 3,846,260 105,824 2.8 % less : acquisitions ( 30,726 ) ( 14,553 ) net sales , constant currency excluding acquisitions $ 3,921,358 $ 3,831,707 $ 89,651 2.3 % ( a ) year-over-year net sales growth rate excluding the translation impact of changes in foreign currency exchange rates . calculated by translating the net sales for the year ended june 30 , 2019 into u.s. dollars using the average foreign exchange rates for the year ended june 30 , 2018. non-gaap operating income , non-gaap pre-tax income , non-gaap net income and non-gaap eps to evaluate current period performance on a more consistent basis with prior periods , we disclose non-gaap operating income , non-gaap pre-tax income , non-gaap net income and non-gaap diluted earnings per share . non-gaap results exclude amortization of intangible assets related to acquisitions , changes in fair value of contingent consideration , acquisition costs and other non-gaap adjustments . non-gaap operating income , non-gaap pre-tax income , non-gaap net income and non-gaap diluted eps are useful in assessing and understanding our operating performance , especially when comparing results with previous periods or forecasting performance for future periods . below we provide a non-gaap reconciliation of operating income , pre-tax income , net income and earnings per share adjusted for the costs and charges mentioned above : 28 index to financial statements replace_table_token_10_th 29 index to financial statements replace_table_token_11_th return on invested capital 30 index to financial statements management uses roic as a performance measurement to assess efficiency at allocating capital under our control to generate returns . management believes this metric balances our operating results with asset and liability management , is not impacted by capitalization decisions and correlates with shareholder value creation . in addition , it is easily computed , communicated and understood . roic also provides management a measure of our profitability on a basis more comparable to historical or future periods . roic assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance . we believe the calculation of roic provides useful information to investors and is an additional relevant comparison of our performance during the year . we calculate roic as earnings before interest expense , income taxes , depreciation and amortization , plus change in fair value of contingent consideration and other non-gaap adjustments ( `` adjusted ebitda '' ) , divided by invested capital . invested capital is defined as average equity plus average daily funded interest-bearing debt for the period . the following table summarizes annualized roic for the fiscal years ended june 30 , 2019 and 2018 , respectively . replace_table_token_12_th the components of our roic calculation and reconciliation to our financial statements are shown , as follows : replace_table_token_13_th replace_table_token_14_th ( a ) accelerated depreciation expense on certain european facilities in connection with restructuring in the third quarter of fiscal 2019 are classified as depreciation expense above rather than restructuring costs . ( b ) includes acquisition costs for the years ended june 30 , 2019 and 2018 . acquisition costs are generally non-deductible for tax purposes . ( c ) average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt .
| results of operations , under non-gaap financial information . worldwide barcode , networking & security the worldwide barcode , networking & security segment consists of sales to technology customers in north america , europe , brazil and additional latin american countries . during fiscal year 2019 , net sales for this segment decreased $ 39.2 million , or 1.5 % , compared to fiscal year 2018 . excluding the foreign exchange negative impact of $ 33.3 million and sales from the pos portal acquisition for the first quarter of fiscal years 2019 and 2018 , adjusted net sales for fiscal year 2019 decreased $ 14.7 million , or 0.6 % , compared to the prior year . the decrease in net sales and adjusted net sales is primarily due to decreased sales in our international businesses , partially offset by sales growth in our north america business . worldwide communications & services the worldwide communications & services segment consists of sales to technology customers in north america , europe brazil and additional latin american countries . during fiscal year 2019 , net sales for this segment increased $ 66.0 million or 5.4 % compared to fiscal year 2018 . excluding the foreign exchange negative impact of $ 45.7 million and sales from fiscal 2019 acquisitions , adjusted net sales for fiscal year 2019 increased $ 104.4 million , or 8.6 % , compared to the prior year . the increase in net sales and adjusted net sales is primarily due to sales growth in our brazil and north america businesses , partially offset by lower sales volume for our europe business .
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for the year ended december 31 , 2013 , options to purchase approximately 979,521 shares of common stock with an exercise price greater than the average fair market value of the company 's stock of $ 11.72 per share were not included in the calculation because the effect would have been anti-dilutive . 72 as of december 31 , 2012 , the company had securities outstanding story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto . this management 's discussion and analysis of financial condition and results of operations includes forward-looking statements within the meaning of section 27a of the securities act , as amended , and section 21e of the exchange act , as amended . the forward-looking statements involve risks and uncertainties . forward-looking statements are identified by words such as anticipates , believes , expects , intends , may , will , and other similar expressions . however , these words are not the only way we identify forward-looking statements . in addition , any statements , which refer to expectations , projections , or other characterizations of future events or circumstances , are forward-looking statements . actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors , including those set forth in item 1a , risk factors , those described elsewhere in this report , and those described in our other reports filed with the sec . we caution you not to place undue reliance on these forward-looking statements , which speak only as of the date of this report , and we undertake no obligation to release the results of any revisions to these forward-looking statements that could occur after the filing of this report . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and assumptions , including those related to revenue recognition , stock-based compensation , short-term investments , patents and intangible assets , income taxes , contingencies , and litigation . we base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . we believe the following are our most critical accounting policies as they require our significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition we recognize revenues in accordance with applicable accounting standards , including accounting standards codification ( asc ) 605-10-s99 , revenue recognition ( asc 605-10-s99 ) ; asc 605-25 , multiple element arrangements ( asc 605-25 ) ; and asc 985-605 , software-revenue recognition ( asc 985-605 ) . we derive our revenues from three principal sources : royalty and license fees , development contract and service fees , and , previously , product sales . as described below , management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of our revenue for any period based on the judgments and estimates made by our management . specifically , in connection with each transaction , we must evaluate whether : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred , ( iii ) the fee is fixed or determinable , and ( iv ) collectibility is probable . we apply these criteria as discussed below . persuasive evidence of an arrangement exists . for a license arrangement , we require a written contract , signed by both the customer and us . for a stand-alone product sale , we require a purchase order or other form of written agreement with the customer . delivery has occurred . we deliver software and product to our customers physically and also deliver software electronically . for physical deliveries not related to software , our transfer terms 32 typically include transfer of title and risk of loss at our shipping location . for electronic deliveries , delivery occurs when we provide the customer access codes or keys that allow the customer to take immediate possession of the software . the fee is fixed or determinable . our arrangement fee is based on the use of standard payment terms which are those that are generally extended to the majority of customers . for transactions involving extended payment terms , we deem these fees not to be fixed or determinable for revenue recognition purposes and revenue is deferred until the fees become due and payable . collectibility is probable . to recognize revenue , we must judge collectibility of fees , which we do on a customer-by-customer basis pursuant to our credit review policy . we typically sell to customers with whom we have a history of successful collection . for new customers , we evaluate the customer 's financial condition and ability to pay . if we determine that collectibility is not probable based upon our credit review process or the customer 's payment history , we recognize revenue when payment is received . royalty and license revenue we license our patents and software to customers in a variety of industries such as mobility , gaming , automotive , and medical devices . story_separator_special_tag the black-scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable , characteristics not present in our option grants and espp shares . existing valuation models , including the black-scholes model and the monte-carlo simulation , may not provide reliable measures of the fair values of our stock-based compensation . consequently , there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise , expiration , early termination , or forfeiture of those stock-based payments in the future . certain stock-based payments , such as employee stock options , may expire and be worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements . alternatively , value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements . there currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models , nor is there a means to compare and adjust the estimates to actual values . if factors change and we employ different assumptions for estimating stock-based compensation expense in future periods , or if we decide to use a different valuation model , the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results . see note 9 to the consolidated financial statements for further information regarding stock-based compensation . 34 accounting for income taxes we use the asset and liability method of accounting for income taxes . under this method , income tax expense is recognized for the amount of taxes payable or refundable for the current year . in addition , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not . our judgments , assumptions , and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . although we believe our judgments , assumptions , and estimates are reasonable , changes in tax laws or our interpretation of tax laws and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments , and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render inaccurate our current assumptions , judgments , and estimates of recoverable net deferred tax assets . any of the assumptions , judgments , and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . see note 12 to the consolidated financial statements for further information concerning income taxes . short-term investments our short-term investments consist primarily of u.s. treasury bills and government agency securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase . we classify all debt securities with readily determinable market values as available-for-sale . even though the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date , we have classified all debt securities as short-term investments as they are available for current operations and reasonably expected to be realized in cash or sold within one year . these investments are carried at fair market value , and using the specific identification method , any unrealized gains and losses considered to be temporary in nature are reported as a separate component of other comprehensive income ( loss ) within stockholders ' equity . for debt securities in an unrealized loss position , we are required to assess whether ( i ) we have the intent to sell the debt security or ( ii ) it is more likely than not that we will be required to sell the debt security before its anticipated recovery . if either of these conditions is met , an other-than-temporary impairment on the security must be recognized in earnings equal to the entire difference between its fair value and amortized cost basis . for debt securities in an unrealized loss position which are deemed to be other-than-temporary where neither of the criteria in the paragraph above are present , the difference between the security 's then-current amortized cost basis and fair value is separated into ( i ) the amount of the impairment related to the credit loss ( i.e. , the credit loss component ) and ( ii ) the amount of the impairment related to all other factors ( i.e. , the non-credit loss component ) . the credit loss component is recognized in earnings . the non-credit loss component is recognized in accumulated other comprehensive loss . the credit loss component is the excess of the amortized cost of the security over the best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit component is the residual amount of the other-than-temporary impairment .
| results of operations overview of 2014 we continued to invest in research , development , sales , and marketing in our key lines of business . key events in the year were as follows : we increased our royalty and license revenue by 12 % and our overall revenue by 12 % for the year ended december 31 , 2014 compared to 2013. the increase in royalty and license revenue was driven mainly by our gaming licensees , along with increases from our automotive , mobility , and medical licensees as well . our income from continuing operations was $ 4.1 million for the year ended december 31 , 2014 compared to income from continuing operations of $ 40.2 million for the year ended december 31 , 2013. the decrease in income from continuing operations of $ 36.1 million was primarily due to a decreased benefit from income taxes of $ 38.7 million from a non-recurring benefit from taxes of $ 36.5 million in 2013 that did not recur in 2014 , and increased expenses of $ 3.1 million which primarily consisted of sales and marketing and research and development expenses , partially offset by an increase in gross profit of $ 5.5 million primarily from additional royalty and license revenue . in 2013 , the benefit from taxes of $ 36.5 million was primarily due to the partial release of our federal deferred income tax asset valuation allowance based on the assessment of our ability to utilize these deferred income tax assets . see note 12 to the consolidated financial statements for additional information on our income taxes .
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deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . future realization of deferred tax assets ultimately story_separator_special_tag general management 's discussion and analysis is written to provide greater detail of the results of operations and the financial condition of cvb financial corp. and its subsidiaries . this analysis should be read in conjunction with the audited financial statements contained within this report including the notes thereto . overview we are a bank holding company with one bank subsidiary , citizens business bank . we have three other inactive subsidiaries : cvb ventures , inc. ; chino valley bancorp and onb bancorp . we are also the common stockholder of cvb statutory trust i , cvb statutory trust ii and cvb statutory trust iii , statutory trusts which were formed to issue trust preferred securities in order to increase the capital of the company . through our acquisition of fcb in june 2007 , we acquired fcb capital trust ii , another statutory trust . we are headquartered in ontario , california in what is known as the inland empire of california . our geographical market area encompasses the city of stockton in the center of california to the city of laguna beach ( in orange county ) in the southern portion of california . our mission is to offer the finest financial products and services to professionals and businesses in our market area while maintaining a strong capital base and prudent loan loss reserves . we intend to grow our business through targeted efforts at our existing customers , attracting new associates who bring customer relationships with them and acquisitions . our primary source of income is from the interest earned on our loans and investments whereas our primary area of expense is the interest paid on deposits , borrowings , and salaries and benefits . as such , our net income is subject to fluctuations in interest rates and their impact on our income statement . we are also subject to competition from other financial institutions , which may affect our pricing of products and services , and the fees and interest rates we can charge on them . historically , we have been active in completing acquisitions and we will continue to consider acquisition targets , including fdic-assisted acquisitions , which will enable us to meet our business objectives and enhance shareholder value along with organic growth . since 2000 , we have acquired five banks and a leasing company , and we have opened four de novo centers : bakersfield , fresno , madera , and stockton , california . we also opened four new commercial banking centers since 2008. we closed the mcfarland center in october 2011. economic conditions in our california service area impact our business . unemployment is high in our market areas and areas of our marketplace have been significantly affected by adverse economic conditions , both nationally and in california . as of december 31 , 2011 , approximately 18 % of our total loan portfolio of $ 3.5 billion is located in the inland empire region of california . approximately 32 % , 24 % , and 13 % of our total loan portfolio is located in los angeles county , the central valley , and orange county , respectively . the balance of the portfolio ( 13 % ) is outside these regions . we continue to see the impact of constrained economic conditions on our loan portfolio ; however , there have been recent improvements in the level of our non-performing loans and the levels of our classified assets . continued weaknesses in the local and state economy could adversely affect us through diminished loan demand , credit quality deterioration , and increases in provisions for credit losses , loan delinquencies and defaults . despite the continued weakness in economic outlook , in october 2011 , fitch ratings affirmed the long-term issuer default ratings ( idr ) of the company and the bank at bbb ' . the affirmation of the company ratings reflects its stable performance through the most recent cycle , solid core earnings and recent improvements in asset quality . 33 our net interest income before provision for credit losses of $ 234.7 million in 2011 , decreased by $ 24.6 million or 9.50 % , compared to net interest income before provision for credit losses of $ 259.3 million for 2010 , principally due to a decrease of $ 47.6 million in interest income , partially offset by a decrease of $ 22.9 million in interest expense . the 17 basis point decrease in our net interest spread tax equivalent ( te ) resulted from a 59 basis point decrease in the yield on average earning assets , offset by a 42 basis point decrease in the average cost of interest-bearing liabilities . the bank has historically had a favorable level of noninterest-bearing deposits , primarily due to our specialization in businesses and professionals as customers . as of december 31 , 2011 , 44.04 % of our deposits were interest-free . this , accompanied by a decreasing interest rate environment , has allowed us to retain a low cost of deposits of 0.19 % for 2011 compared to 0.40 % for 2010 , which contributed to the reduction in interest expense for 2011. our net earnings increased to $ 81.7 million in 2011 compared to $ 62.9 million in 2010 , an increase of $ 18.8 million , or 29.87 % . the year-over-year increase was primarily the result of decreases in the provision for credit losses , interest expense , and other operating expenses in 2011 , offset by decreases in other operating income and interest income . story_separator_special_tag these differences result in deferred tax assets and liabilities , which are included in our balance sheets . we must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined to not likely be recoverable . our judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities , including projections of future taxable income . although we have determined a valuation allowance is not required for any of our deferred tax assets , there is no guarantee that these assets are recoverable . goodwill and intangible assets : we have acquired entire banks and branches of banks . those acquisitions accounted for under the purchase method of accounting have given rise to goodwill and intangible assets . we record the assets acquired and liabilities assumed at their fair value . these fair values are determined by use of internal and external valuation techniques . the excess purchase price is allocated to assets and liabilities respectively , resulting in identified intangibles . the identified intangible assets and liabilities are amortized over the estimated lives of the assets or liabilities . any excess purchase price after this allocation results in goodwill . goodwill is tested on an annual basis for impairment . goodwill impairment : under asc 350 ( previously sfas no . 142 , goodwill and other intangibles ) , goodwill must be allocated to reporting units and tested for impairment . the company tests goodwill for impairment at least annually , or more frequently if events or circumstances , such as adverse changes in the business , indicate that there may be justification for conducting an interim test . impairment testing is performed at the reporting-unit level ( which is the same level as the company 's two major operating segments identified in note 21 to the company 's consolidated financial statements presented elsewhere in this report ) . under the market approach utilized , the fair value is calculated using the current fair values of comparable peer banks of similar size , geographic footprint and focus . the market capitalization and multiple was used to calculate the market price of the company and each reporting unit . the fair value was also subject to a control premium adjustment , which is the cost savings that a purchase of the reporting unit could achieve by eliminating duplicative costs . if the fair value is less than the carrying value , then the second part of the test is needed to measure the amount of goodwill impairment . the implied fair value of the reporting unit goodwill is calculated and compared to the actual carrying value of goodwill allocated to the reporting unit . if the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill , then the company would recognize an impairment loss for the amount of the difference , which would be recorded as a charge against net income . there was no recorded impairment as of december 31 , 2011. acquired loans : acquired loans are valued as of the acquisition date in accordance with asc 805 business combinations ( formerly fas 141r business combinations ) . loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( formerly sop 03-3 accounting for certain loans or debt securities acquired in a transfer ) . further , the company elected to account for all other acquired loans within the scope of asc 310-30 using the same methodology . 36 under asc 805 and asc 310-30 , loans are recorded at fair value at the acquisition date , factoring in credit losses expected to be incurred over the life of the loan . accordingly , an allowance for credit losses is not carried over or recorded as of the acquisition date . in situations where loans have similar risk characteristics , loans were aggregated into pools to estimate cash flows under asc 310-30. a pool is accounted for as a single asset with a single interest rate , cumulative loss rate and cash flow expectation . the company aggregated non-distressed loans acquired in the fdic-assisted acquisition of san joaquin bank in ten different pools , based on common risk characteristics . under asc 310-30 , the excess of the expected cash flows at the acquisition over the fair value is considered to be the accretable yield and is recognized as interest income over the life of the loan or pool . the excess of the contractual cash flows over the expected cash flows is considered to be the nonaccretable difference . subsequent to the acquisition date , any increases in cash flow over those expected at the acquisition date in excess of fair value are recorded as an adjustment to accretable difference on a prospective basis . any subsequent decreases in cash flow over those expected at the acquisition date are recognized by recording an allowance for credit losses . any disposals of loans , including sales of loans , payments in full or foreclosures result in the removal of the loan from the asc 310-30 portfolio at the allocated carrying amount . covered loans : the majority of the loans acquired in the fdic-assisted acquisition of san joaquin bank are included in a fdic shared-loss agreement and are referred to as covered loans . covered loans are reported exclusive of the expected cash flow reimbursements expected from the fdic . at the date of acquisition , all covered loans were accounted for under asc 805 and asc 310-30. subsequent to acquisition all covered loans are accounted for under asc 310-30. covered other real estate owned : all other real estate owned acquired in the fdic-assisted acquisition of sjb are included in a fdic shared-loss agreement and are referred to as covered other real estate owned .
| analysis of the results of operations the following table summarizes net earnings , earnings per common share , and key financial ratios for the periods indicated . replace_table_token_4_th ( 1 ) earnings and diluted earnings per common share for 2009 includes $ 0.14 per share due to the preferred stock dividend and discount amortization and $ 0.07 per share due to the increase in weighted common shares outstanding as a result of our capital offering . earnings we reported net earnings of $ 81.7 million for the year ended december 31 , 2011. this represented an increase of $ 18.8 million , or 29.87 % , from net earnings of $ 62.9 million for the year ended december 31 , 2010. net earnings for 2010 increased $ 2.5 million to $ 62.9 million , or 3.80 % , from net earnings of $ 65.4 million for the year ended december 31 , 2009. basic and diluted earnings per common share were $ 0.77 in 2011 , compared to $ 0.59 in 2010 , and $ 0.56 in 2009. the increase in net earnings for 2011 compared to 2010 was primarily the result of a decrease in the provision for credit losses of $ 54.1 million and a $ 27.5 million decrease in other operating expenses . these decreases included $ 15.4 million in prepayment penalties ( $ 3.3 million in 2011 compared to $ 18.7 million in 2010 ) and $ 3.5 million in provision for unfunded commitments , partially offset by a decrease in net interest income of $ 24.6 million , as described herein , and a decrease in other operating income of $ 22.9 million .
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5. income taxes total income tax expense for the years ended december story_separator_special_tag the following discussion of the financial condition and results of our operations and our wholly-owned subsidiary should be read in conjunction with the financial statements and the notes to those statements appearing 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 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 set forth in item 1a of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biopharmaceutical company focused on the discovery and clinical development of innovative , small molecule drugs that address underserved medical needs in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system , or cns . our lead drug candidate , iti-007 , is in phase 3 clinical development as a first-in-class treatment for schizophrenia . results from our phase 2 trial are included in businessour clinical programsiti-007 program iti-007 for the treatment of exacerbated and residual schizophreniaphase 2 clinical trial ( iti-007-005 ) under item 1 of this annual report on form 10-k. we are proceeding with phase 3 development of iti-007 for the treatment of schizophrenia . we plan to conduct two randomized , double-blind , placebo-controlled phase 3 clinical trials of iti-007 in patients with acutely exacerbated schizophrenia , with over 400 patients in each trial . we initiated the first phase 3 clinical trial in schizophrenia in the fourth quarter of 2014 and , subject to finalizing the trial protocols and arrangements with clinical trial sites , we intend to initiate a second phase 3 clinical trial in the first half of 2015. in the first phase 3 trial , we are randomizing patients to two doses of iti-007 ( 60mg or 40mg ) or placebo over a 4-week treatment duration , and the primary outcome measure is change from baseline to day 28 on the panss total score . we currently expect that the second phase 3 trial will be conducted for a 6-week treatment duration . subject to timely enrollment , we anticipate that the results of the first phase 3 clinical trial of iti-007 in patients with schizophrenia could be available as early as the fourth quarter of 2015. subject to further discussions with the fda , we also plan to initiate separate additional trials in bipolar disorder in 2015. we have not yet discussed our plans to develop iti-007 for the treatment of bipolar disorder with the fda . we expect that the planned trials in bipolar disorder will overlap in time with the clinical conduct of the planned trials in schizophrenia . in addition to our phase 3 clinical trials , we will need to complete other clinical and non-clinical trials and manufacturing and pre-commercialization activities necessary to support the submission of a planned new drug application , or nda , for iti-007 in schizophrenia , which we currently expect could occur at the end of 2016 or the beginning of 2017. in addition , in the fourth quarter of 2014 , we announced the topline data from iti-007-200 , a phase 1/2 clinical trial designed to evaluate the safety , tolerability and pharmacokinetics of low doses of iti-007 in healthy geriatric subjects and in patients with dementia , including alzheimer 's disease . the completion of this study marks an important milestone in our strategy to develop low doses of iti-007 for the treatment of behavioral disturbances associated with dementia and related disorders . the iti-007-200 trial results to date indicate that iti-007 is safe and well-tolerated across a range of low doses , has linear- and dose-related pharmacokinetics and improves cognition in the elderly . the most frequent adverse event was mild sedation at the higher doses . we believe these results further position iti-007 as a development candidate for the treatment of behavioral disturbances in patients with dementia and other neuropsychiatric and neurological conditions . we plan to initiate additional clinical programs evaluating iti-007 in patients with behavioral disturbances associated with dementia and related disorders , including alzheimer 's disease , in 2015. we are currently conducting an open-label positron emission tomography , or pet , study of iti-007 examining brain receptor occupancy and assessing occupancy of striatal d2 receptors . in this study , patients with 59 stable schizophrenia will be treated with iti-007 for 14 days . we expect topline data from this study in 2015. we believe this study will further characterize iti-007 and provide additional insight into the molecule 's unique mechanism and clinical profile . we are also pursuing clinical development of iti-007 for the treatment of additional cns diseases and disorders . at the lowest doses , iti-007 has been demonstrated to act primarily as a potent 5-ht2a serotonin receptor antagonist . as the dose is increased , additional benefits are derived from the engagement of additional drug targets , including modest dopamine receptor modulation and modest inhibition of serotonin transporters . we believe that combined interactions at these receptors may provide additional benefits above and beyond selective 5-ht2a antagonism for treating agitation , aggression and sleep disturbances in diseases that include dementia , alzheimer 's disease , huntington 's disease and autism spectrum disorders , while avoiding many of the side effects associated with more robust dopamine receptor antagonism . as the dose of iti-007 is further increased , leading to moderate dopamine receptor modulation , inhibition of serotonin transporters , and indirect glutamate modulation , these actions complement the complete blockade of 5-ht2a serotonin receptors . story_separator_special_tag we are also required to complete non-clinical testing to obtain fda approval and manufacture material needed for clinical trial use , which includes non-clinical testing of the drug product and the creation of an inventory of drug product in anticipation of possible fda approval . as of december 31 , 2014 , we employed 16 full time personnel in our research and development group as compared to 13 at december 31 , 2013. we expect to hire additional staff as we increase our development efforts in the upcoming years . we currently have several projects , in addition to iti-007 , that are in the research and development stages , including in the areas of cognitive dysfunction and the treatment of neurodegenerative diseases , including alzheimer 's disease , among others . we have used internal resources and incurred expenses not only in relation to the development of iti-007 , but also in connection with these additional projects as well . we have not , however , reported these costs on a project by project basis , as these costs are broadly spread among these projects . the external costs for these projects have been minimal and are reflected in the amounts discussed in this section research and development expenses. during 2014 and in previous years , we also incurred costs that were both reimbursable and non-reimbursable under the takeda license agreement . for the year ended december 31 , 2014 , we incurred approximately $ 14,000 on direct costs that were billable to takeda as compared to $ 97,000 for the year ended december 31 , 2013. as we refine our strategy for the pde1 inhibitor program that was returned to us from takeda , we do not expect a significant increase in our operating expenses related to our pde development programs over the next twelve months . the research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the united states and other countries . this process typically takes years to complete and requires the expenditure of substantial resources . the steps required before a drug may be marketed in the united states generally include the following : completion of extensive pre-clinical laboratory tests , animal studies , and formulation studies in accordance with the fda 's good laboratory practice , or glp , regulations ; submission to the fda of an investigational new drug application , or ind , for human clinical testing , which must become effective before human clinical trials may begin ; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed indication ; 63 submission to the fda of a new drug application , or nda , after completion of all clinical trials ; satisfactory completion of an fda pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient , or api , and finished drug product are produced and tested to assess compliance with current good manufacturing practices , or cgmps ; satisfactory completion of fda inspections of clinical trial sites to assure that data supporting the safety and effectiveness of product candidates has been generated in compliance with good clinical practices ; and fda review and approval of the nda prior to any commercial marketing or sale of the drug in the united states . the successful development of our product candidates and the approval process requires substantial time , effort and financial resources , and is uncertain and subject to a number of risks . we can not be certain that any of our product candidates will prove to be safe and effective , will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval , or will be granted marketing approval on a timely basis , if at all . data from pre-clinical studies and clinical trials are susceptible to varying interpretations that could delay , limit or prevent regulatory approval or could result in label warnings related to or recalls of approved products . we , the fda , or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our product candidates . other risks associated with our product candidates are described in the section entitled risk factors in item ia of this annual report on form 10-k. general and administrative expenses general and administrative expenses increased for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 by approximately $ 4.4 million or 73 % . this increase was primarily due to increased stock option expense of $ 1.7 million in 2014 related to options granted in 2014 , and increased labor and related benefit costs of approximately $ 0.6 million , with the remainder comprised of higher professional fees , directors ' and officers ' insurance costs , and board of directors compensation fees , which are due to the activities associated with being a public company . we expect these costs to increase significantly as we expand our operations , including hiring of additional personnel , continue to be subject to the reporting requirements of being a public company and issue additional equity incentive awards .
| results of operations revenues the following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements . we have not generated any revenue from product sales to date and we do not expect to generate revenues from product sales for at least the next several years . our revenues for the year ended december 31 , 2014 have been from the recently terminated license and collaboration agreement with takeda and to a much lesser extent from a government grant . for the year ended december 31 , 2013 , revenues were entirely from the agreement with takeda . we will not receive any further revenue under the takeda license agreement , which was terminated on october 31 , 2014. we have received and may continue to receive grants from u.s. government agencies and foundations . we do not expect any revenues that we may generate in the next several years to be significant enough to fund our operations . expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we are unable with any certainty to estimate either the costs or the timelines in which those costs will be incurred . we have one project , iti-007 for the treatment of schizophrenia , which consumes a large portion of our current , as well as projected , resources . in addition , in the third quarter of 2014 we completed a phase 1/2 clinical trial of iti-007-200 , which was designed to evaluate the safety , tolerability and pharmacokinetics of low doses of iti-007 in healthy geriatric subjects and in patients with dementia , including alzheimer 's disease . we intend to pursue other disease indications that iti-007 may address , but there are large costs associated with pursuing fda approval for those indications , which would include the cost of additional clinical trials .
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derivatives designated as hedging story_separator_special_tag the following provides a narrative discussion and analysis of trustmark corporation 's ( trustmark ) financial condition and results of operations . this discussion should be read in conjunction with the consolidated financial statements and the supplemental financial data included elsewhere in this report . executive overview 2013 was a year of significant achievements for trustmark , particularly in light of prevailing economic conditions . trustmark continued to build upon and expand customer relationships , which was reflected by growth in its banking , wealth management , and insurance businesses . during 2013 , trustmark completed the acquisition of alabama-based banctrust financial group , inc. ( banctrust ) , the largest acquisition in trustmark 's history , entering a number of new markets throughout alabama as well as enhancing its position in the florida panhandle . the operations of banctrust , which are included in trustmark 's operating results since consummation of the acquisition on february 15 , 2013 , added revenue of $ 71.9 million and net income , excluding non-routine merger expenses , of approximately $ 16.6 million during 2013. net income for 2013 totaled $ 117.1 million , down 0.2 % from 2012. as discussed in greater detail below , an increase in net interest income ( primarily resulting from the banctrust acquisition ) as well as a decline in the provision for loan losses , lhfi were more than offset by an increase in noninterest expense , which was primarily driven by banctrust non-routine merger expenses , settlement of the previously disclosed class action litigation and expenses attributable to the operations of the banctrust business . noninterest income also declined slightly from 2012 as gains from service charges on deposit accounts , bank card and other fees , insurance commissions and wealth management were more than offset by declines in mortgage banking , net and other income , net . as a result of these factors , basic and diluted earnings per share in 2013 were $ 1.75 per share , compared with $ 1.81 per share in 2012. over the course of the year , trustmark 's revenue increased 8.9 % to a record level of $ 562.3 million . credit quality continued to improve and was an important contributor to trustmark 's financial success . trustmark 's performance during 2013 produced a return on average tangible common equity of 13.09 % and return on assets of 1.02 % . trustmark also continued to make investments in technology designed to increase revenue and improve efficiency . please see the section captioned “ financial highlights ” below for a more complete overview of trustmark 's 2013 financial performance . on july 26 , 2013 , trustmark national bank ( tnb ) , a subsidiary of trustmark , completed its acquisition of two branches of southbank , f.s.b . ( southbank ) , located in oxford , mississippi . as a result of this acquisition , tnb assumed deposit accounts of approximately $ 11.7 million in addition to purchasing the two physical branch offices . the transaction was not material to trustmark 's consolidated financial statements and was not considered a business combination in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 805 , “ business combinations. ” on february 15 , 2013 , trustmark completed its merger with banctrust , a 26-year-old bank holding company headquartered in mobile , alabama . in accordance with the terms of the definitive agreement , the holders of banctrust common stock received 0.125 of a share of trustmark common stock for each share of banctrust common stock in a tax-free exchange . trustmark issued approximately 2.24 million shares of its common stock for all issued and outstanding shares of banctrust common stock . the total value of the 2.24 million shares of trustmark common stock issued to the banctrust shareholders on the acquisition date was approximately $ 53.5 million , based on a closing stock price of $ 23.83 per share of trustmark common stock on february 15 , 2013. at closing , trustmark repurchased the $ 50.0 million of banctrust preferred stock and associated warrant issued to the u.s. department of treasury under the capital purchase program for approximately $ 52.6 million . see note 2 – business combinations included in item 8 – financial statements and supplementary data found elsewhere in this report for additional information regarding the banctrust acquisition . loans held for investment ( lhfi ) totaled $ 5.799 billion at december 31 , 2013 compared to $ 5.593 billion at december 31 , 2012 , an increase of $ 206.1 million , or 3.7 % . growth in lhfi during 2013 was primarily attributable to increased construction lending as well as increased lending to medical facilities and public entities . due to the rise in interest rates and the tightening of the secondary marketing spreads , management made the decision in the third quarter of 2013 to resume trustmark 's traditional practice of retaining in its loan portfolio select 15-year mortgage loans originated by its mortgage banking division on the balance sheet . as a result of this decision , pay-downs in the 1-4 family mortgage loan portfolio since december 31 , 2012 were partially offset by a $ 70.7 million increase in the portfolio during the six months ended december 31 , 2013. trustmark 's credit quality indicators continued to experience improvements during 2013. nonperforming assets , excluding acquired loans and covered other real estate , were $ 171.8 million at december 31 , 2013 , an increase of $ 11.2 million , or 7.0 % , when compared to december 31 , 2012. the increase in nonperforming assets , excluding acquired loans and covered other real estate , at december 31 , 2013 , was due to the $ 44.3 million of other real estate resulting from the banctrust acquisition . excluding other real estate resulting from the banctrust acquisition , nonperforming assets , excluding acquired loans and covered other real estate , declined $ 33.1 million , or 20.6 % . story_separator_special_tag 30 for acquired impaired loans , trustmark ( a ) calculates the contractual amount and timing of undiscounted principal and interest payments ( the “ undiscounted contractual cash flows ” ) and ( b ) estimates the amount and timing of undiscounted expected principal and interest payments ( the “ undiscounted expected cash flows ” ) . under fasb asc topic 310-30 , “ loans and debt securities acquired with deteriorated credit quality , ” the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference . the nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the acquired impaired loan portfolio , and such amount is subject to change over time based on the performance of such loans . the excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “ accretable yield ” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable . as required by fasb asc topic 310-30 , trustmark periodically re-estimates the expected cash flows to be collected over the life of the acquired impaired loans . if , based on current information and events , it is probable that trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition , the acquired loans are considered impaired . the decrease in the expected cash flows reduces the carrying value of the acquired impaired loans as well as the accretable yield and results in a charge to income through the provision for loan losses , acquired loans and the establishment of an allowance for loan losses , acquired loans . if , based on current information and events , it is probable that there is a significant increase in the cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected , trustmark will reduce any remaining allowance for loan losses , acquired loans established on the acquired impaired loans for the increase in the present value of cash flows expected to be collected . the increase in the expected cash flows for the acquired impaired loans over those originally estimated at acquisition increases the carrying value of the acquired impaired loans as well as the accretable yield . covered loans loans acquired in a federal deposit insurance corporation ( fdic ) -assisted transaction and covered under loss-share agreements are referred to as “ covered loans ” and are reported separately in trustmark 's consolidated financial statements . covered loans are recorded at their estimated fair value at the time of acquisition exclusive of the expected reimbursement cash flows from the fdic . fdic indemnification asset trustmark has elected to account for amounts receivable under a loss-share agreement as an indemnification asset in accordance with fasb asc topic 805 , “ business combinations. ” a fdic indemnification asset is initially recorded at fair value , based on the discounted value of expected future cash flows under the loss-share agreement . the difference between the present value at the acquisition date and the undiscounted cash flows trustmark expects to collect from the fdic is accreted into noninterest income over the life of the fdic indemnification asset . the fdic indemnification asset is revalued concurrent with the loan re-estimation and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of covered loans and covered other real estate . these adjustments are measured on the same basis as the related covered loans and covered other real estate . increases in the cash flows of the covered loans and covered other real estate over those expected reduce the fdic indemnification asset , and decreases in the cash flows of the covered loans and covered other real estate under those expected increase the fdic indemnification asset . increases and decreases to the fdic indemnification asset are recorded as adjustments to noninterest income . for additional information regarding trustmark 's accounting policy for a fdic indemnification asset , please see note 1 – significant accounting policies set forth in item 8 – financial statements and supplementary data located elsewhere in this report . mortgage servicing rights trustmark recognizes as assets the rights to service mortgage loans based on the estimated fair value of the mortgage servicing rights ( msr ) when loans are sold and the associated servicing rights are retained . trustmark has elected to account for msr at fair value . the fair value of msr is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income . the model incorporates assumptions that market participants use in estimating future net servicing income , including estimates of prepayment speeds , discount rate , default rates , cost to service ( including delinquency and foreclosure costs ) , escrow account earnings , contractual servicing fee income and other ancillary income such as late fees . management reviews all significant assumptions quarterly . mortgage loan prepayment speeds , a key assumption in the model , is the annual rate at which borrowers are forecasted to repay their mortgage loan principal . the discount rate used to determine the present value of estimated future net servicing income , another key assumption in the model , is an estimate of the required rate of return investors in the market would require for an asset with similar risk . both assumptions can , and generally will , change as market conditions and interest rates change . by way of example , an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the msr , while a decrease in either assumption will result in an increase in the fair value of the msr .
| results of operations net interest income net interest income is the principal component of trustmark 's income stream and represents the difference , or spread , between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds . fluctuations in interest rates , as well as volume and mix changes in earning assets and interest-bearing liabilities , can materially impact net interest income . the net interest margin ( nim ) is computed by dividing fully taxable equivalent net interest income by average interest-earning assets and measures how effectively trustmark utilizes its interest-earning assets in relationship to the interest cost of funding them . the accompanying yield/rate analysis table shows the average balances for all assets and liabilities of trustmark and the interest income or expense associated with earning assets and interest-bearing liabilities . the yields and rates have been computed based upon interest income and expense adjusted to a fully taxable equivalent ( fte ) basis using a 35 % federal marginal tax rate for all periods shown . loans on nonaccrual have been included in the average loan balances , and interest collected prior to these loans having been placed on nonaccrual has been included in interest income . loan fees included in interest associated with the average loan balances are immaterial . trustmark 's acquisition of banctrust contributed $ 60.9 million to net interest income during 2013 , and provided growth in both average interest-earning assets and average interest-bearing liabilities of $ 1.141 billion and $ 1.170 billion , respectively , for the year ended december 31 , 2013. during the first quarter of 2012 , trustmark ( through tnb ) acquired bay bank .
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sources of our revenue our revenues are derived from the sale of produced oil , ngl and natural gas within the continental united states , the sale of purchased oil and providing midstream services to third parties . our revenues do not include the effects of derivatives . for the year ended december 31 , 2017 , our revenues were comprised of : 54 % sales of produced oil , 13 % sales of produced ngl , 9 % sales of produced natural gas , 23 % sales of purchased oil and 1 % midstream services . our oil , ngl and natural gas revenues may vary significantly from period to period as a result of changes in volumes of production and or changes in commodity prices . our sales of purchased oil revenue may vary due to changes in oil prices and amount of volumes purchased . our midstream service revenues may vary due to oil throughput fees and the level of services provided to third parties for ( i ) gathered natural gas , ( ii ) gas lift fees and ( iii ) water services . principal components of our cost structure lease operating expenses . these are daily costs incurred to bring oil , ngl and natural gas out of the ground and to market , together with the daily costs incurred to maintain our producing properties . such costs also include maintenance , repairs and non-routine workover expenses related to our oil and natural gas properties . production and ad valorem taxes . production taxes are paid on oil , ngl and natural gas sold based on a percentage of revenues from products sold at market prices or at fixed rates established by federal , state or local taxing authorities . we take full advantage of all credits and exemptions in our various taxing jurisdictions . in general , the production taxes we pay correlate 55 to the changes in oil , ngl and natural gas revenues . ad valorem taxes are property taxes based on the assessed taxable value of our reserves attributed to our oil and natural gas properties . midstream service expenses . these are costs incurred to operate and maintain our ( i ) oil and natural gas gathering and transportation systems and related facilities , ( ii ) centralized oil storage tanks , ( iii ) natural gas lift , rig fuel and centralized compression infrastructure and ( iv ) water storage , recycling and transportation facilities . costs of purchased oil . these are costs associated with purchasing oil from third parties and the transportation costs required to bring it to market . general and administrative ( `` g & a '' ) . these are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our production and development operations , franchise taxes , audit and other fees for professional services , legal compliance and compensation expense related to employee and director stock awards , performance share awards and option awards granted , which have been recognized on a straight-line basis over the vesting period associated with the award , and , in prior periods , performance unit awards in which the fair value was re-measured at the end of each reporting period until settlement . depletion , depreciation and amortization . under the full cost accounting method , we capitalize all acquisition , exploration and development costs , including certain related employee costs , incurred for the purpose of finding oil and natural gas within a cost center and then systematically expense those costs on a unit-of-production basis based on evaluated oil , ngl and natural gas reserve quantities . we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unevaluated properties and major development projects for which evaluated reserves can not yet be assigned , less accumulated depletion ; ( ii ) the estimated future expenditures to be incurred in developing evaluated reserves ; and ( iii ) the estimated dismantlement and abandonment costs , net of estimated salvage values . we calculate depreciation on the cost of fixed assets related to our pipelines and other fixed assets utilizing the straight-line method over the useful life of the asset , or in the case of leasehold improvements over the shorter of the estimated useful lives of the assets or the terms of the related leases . impairment expense . the full cost ceiling is based principally on the estimated future net revenues from our proved oil and natural gas properties discounted at 10 % . our realized prices are utilized to calculate the discounted future net revenues in our full cost ceiling calculation . in the event the unamortized cost of our evaluated oil and natural gas properties being depleted exceeds the full cost ceiling , the excess is charged to expense in the period such excess occurs . once incurred , a write-down of oil and natural gas properties is not reversible . see note 2.h to our consolidated financial statements included elsewhere in this annual report for additional information regarding full cost accounting . long-lived assets are considered impaired when their net carrying value is greater than the future undiscounted cash flows . once an asset is recognized as impaired , costs are incurred to write the asset down . with the continuing volatility in commodity prices , we may incur additional write-downs on our oil and natural gas properties . story_separator_special_tag 57 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > costs of purchased oil . see `` —results of operations - midstream and marketing '' for a discussion of these expenses . 60 general and administrative ( `` g & a '' ) . the following table presents the changes in the significant components of g & a expense : replace_table_token_20_th cash g & a decreased by $ 1.9 million , or 3 % , for the year ended december 31 , 2017 compared to 2016 . this decrease is largely due to a decrease in salaries , benefits and bonuses , net of amounts capitalized compared to 2016 , that is partially offset by an increase in professional fees . cash g & a decreased by $ 3.4 million , or 5 % , for the year ended december 31 , 2016 compared to 2015. this change is mainly due to decreases in expenses related to our 2013 performance unit awards and professional fees , partially offset by an increase in salaries , benefits and bonuses , net of amounts capitalized . expense incurred for our 2013 performance unit awards was $ 4.1 million for the year ended december 31 , 2015. there were no comparable expenses in 2017 and 2016 as these types of awards are no longer a part of our compensation . the performance criteria of these awards were satisfied on december 31 , 2015 and paid during the first quarter of 2016. stock-based compensation , net of amounts capitalized , increased by $ 6.5 million , or 22 % , for the year ended december 31 , 2017 compared to 2016 , resulting from a greater number of performance share awards granted to a larger base of management and employees during the year ended december 31 , 2017 compared to 2016 . stock-based compensation , net of amounts capitalized , increased by $ 4.7 million , or 19 % , for the year ended december 31 , 2016 compared to 2015. this increase is mainly due to the issuance of restricted stock awards , stock option awards and performance share awards during the year ended december 31 , 2016. the fair values for our restricted stock awards issued were calculated based on the value of our stock price on the grant date in accordance with gaap and are being expensed on a straight-line basis over their associated requisite service periods . the fair values for our restricted stock option awards were determined using a black-scholes valuation model in accordance with gaap and are being expensed on a straight-line basis over their associated four-year requisite service periods . our performance share awards are accounted for as equity awards and are included in stock-based compensation expense . the fair values of the performance share awards issued were based on a projection of the performance of our stock price relative to a peer group , defined in each performance share awards ' agreement , utilizing a forward-looking monte carlo simulation . the fair values for our performance share awards will not be re-measured after their initial grant-date valuation and are being expensed on a straight-line basis over their associated three-year requisite service periods . our settled performance unit awards were accounted for as liability awards and settled in cash at the end of their requisite service periods . the settled 2013 performance unit awards had a performance period of january 1 , 2013 to december 31 , 2015 and , as their performance criteria were satisfied , they were paid at $ 143.75 per unit during the first quarter of 2016. the settled 2012 performance unit awards had a performance period of january 1 , 2012 to december 31 , 2014 and , as their performance criteria were satisfied , they were paid at $ 100.00 per unit during the first quarter of 2015. see notes 2.r and 7 to our consolidated financial statements included elsewhere in this annual report for additional information regarding our stock and performance-based compensation . restructuring expenses . for the year ended december 31 , 2015 , we incurred restructuring expenses of $ 6.0 million related to the first-quarter 2015 reduction in force , which was undertaken to reduce expenses and better position ourselves for future operations in a low commodity price environment . no comparable expenses were recorded in 2017 and 2016 . see note 2.s to our consolidated financial statements included elsewhere in this annual report for further discussion of the reduction in force . 61 depletion , depreciation and amortization ( `` dd & a '' ) . the following table presents the components of our dd & a expense : replace_table_token_21_th dd & a increased by $ 10.1 million , or 7 % , for the year ended december 31 , 2017 as compared to 2016 mainly due to an increase in production volumes sold for the year ended december 31 , 2017 compared to 2016 . on a per boe sold basis , dd & a decreased 9 % for the year ended december 31 , 2017 compared to 2016 , mainly due to positive well results and the impact of our full cost ceiling impairment of $ 161.1 million recorded as of march 31 , 2016. dd & a decreased by $ 129.4 million , or 47 % , for the year ended december 31 , 2016 as compared to 2015 mainly due to the impact of our full cost ceiling impairments of $ 161.1 million and $ 2.4 billion for the years ended december 31 , 2016 and 2015 , respectively . impairment expense . our net book value of evaluated oil and natural gas properties exceeded the full cost ceiling amount as of march 31 , 2016 and each of the quarters in 2015 , and , as a result , we recorded non-cash full cost ceiling impairments of $ 161.1 million and $ 2.4 billion for the years
| results of operations consolidated for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , and for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 oil , ngl and natural gas sales volumes , revenues and prices the following table presents information regarding oil , ngl and natural gas sales volumes , revenues and average sales prices : replace_table_token_16_th _ ( 1 ) boe is calculated using a conversion rate of six mcf per one bbl . ( 2 ) the numbers presented are based on actual results and are not calculated using the rounded numbers presented in the table above . ( 3 ) realized oil , ngl and natural gas prices are the actual prices realized at the wellhead adjusted for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . ( 4 ) hedged prices reflect the after-effects of our hedging transactions on our average sales prices . our calculation of such after-effects includes current period settlements of matured derivatives in accordance with gaap and an adjustment to reflect premiums incurred previously or upon settlement that are attributable to instruments that settled in the period . 58 the following table presents cash settlements received ( paid ) for matured derivatives and premiums incurred previously or upon settlement attributable to instruments that settled during the periods utilized in our calculation of the hedged prices presented above : replace_table_token_17_th the following table presents changes in average realized sales prices and sales volumes caused the following changes to our oil , ngl and natural gas revenues between the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_18_th oil revenue . our oil revenue is a function of oil production volumes sold and average sales prices received for those volumes .
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all of the 1,250 shares were unvested as of december 31 , 2015. as of december 31 , 2016 and 2015 , the balance of unvested compensation cost expected to be recognized was $ 167,562 and $ 418,547 , respectively and is recorded as prepaid stock compensation . the unvested compensation is being recognized over the weighted average period of approximately 2 years ( through july , 2017 ) . preferred stock the company is authorized to issue 10,000,000 shares of preferred stock , $ 0.001 par value . no shares of preferred stock were issued and outstanding at december 31 , 2016 and 2015. f-11 stock options on april 28 , 2016 , at the annual meeting of stockholders of the company , the company 's stockholders approved an amendment to the 2013 plan to increase the number of shares of the company 's common stock reserved for issuance under the 2013 plan by 319,269 shares of our common stock to a total of 375,000 shares ( on a post-reverse stock split basis ) . as of december 31 , 2016 , an aggregate of 750 shares and 199,669 shares of common stock were reserved for issuance under the 2011 plan and the 2013 plan , respectively . during 2016 , the company granted a total of 73,688 options to 10 employees with vesting periods ranging from 3 to 4 years beginning march 14 , 2017. in 2016 , 2,938 options vested , and $ 168,411 of compensation cost had been recognized during the year . as of december 31 , 2016 , there were options to purchase 101,188 shares outstanding under the plans . of this amount , there are vested options exercisable into 2,938 shares of common stock . as of december 31 , 2016 , the company had 200,419 shares reserved for future grant under its plans and there were no shares exercised during the years ended december 31 , 2016 or 2015. during 2015 , the company granted a total of 28,438 options to three employees with vesting periods ranging from one to four years beginning august 10 , 2015. as of december 31 , 2015 , none of the option grants had vested , and only a nominal amount of compensation cost had been recognized during the year . the weighted average period over which total compensation cost of the options of $ 306,796 will be recognized is 3.81 years . the weighted average exercise price of the options was $ 11.88 and the weighted average fair value of the options on the dates of grant was $ 11.82 . the company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the company 's stock on the dates of grant . stock options are typically granted throughout the year and generally vest over four years of service and expire ten years from the date of the award , unless otherwise specified . the company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award . total share-based compensation expense included in the consolidated statements of operations for the years ended december 31 , 2016 and 2015 is $ 341,558 and $ 518,438 , respectively . there was no capitalized share-based compensation cost as of december 31 , 2016 and 2015 , and there were no recognized tax benefits during the years ended december 31 , 2016 and 2015. to estimate the value of an award , the company uses the black-scholes option-pricing model . this model requires inputs such as expected life , expected volatility and risk-free interest rate . the forfeiture rate also impacts the amount of aggregate compensation . these inputs are subjective and generally require significant analysis and judgment to develop . while estimates of expected life , volatility and forfeiture rate are derived primarily from the company 's historical data , the risk-free rate is based on the yield available on u.s. treasury constant maturity rates with similar terms to the expected term of the stock option awards . the fair value of share-based awards was estimated using the black-scholes model with the following weighted-average assumptions for the years ended december 31 , 2016 and 2015 : assumptions : replace_table_token_8_th f-12 option activity for the year ended december 31 story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements . story_separator_special_tag securities . cash flows used in operating activities in 2016 increased to $ 1,962,314 from $ 1,260,463 in 2015 due primarily to increases in payroll , general and administrative costs , as well as an increase in accounts payable and a decrease in revenues in 2016 , . the company anticipates fewer losses in 2017 , due to increased revenues , offset by increased salaries and related expenses in connection with additional employees and potential acquisitions . cash flows used in investing activities decreased from $ 161,797 in 2015 to $ 79,104 in 2016 primarily due to fewer purchases of furniture and equipment . cash flows provided by financing activities were the result of a private offering of debt securities in october 2016 that raised net proceeds of $ 900,000. there were no cash flows used or provided by financing story_separator_special_tag all of the 1,250 shares were unvested as of december 31 , 2015. as of december 31 , 2016 and 2015 , the balance of unvested compensation cost expected to be recognized was $ 167,562 and $ 418,547 , respectively and is recorded as prepaid stock compensation . the unvested compensation is being recognized over the weighted average period of approximately 2 years ( through july , 2017 ) . preferred stock the company is authorized to issue 10,000,000 shares of preferred stock , $ 0.001 par value . no shares of preferred stock were issued and outstanding at december 31 , 2016 and 2015. f-11 stock options on april 28 , 2016 , at the annual meeting of stockholders of the company , the company 's stockholders approved an amendment to the 2013 plan to increase the number of shares of the company 's common stock reserved for issuance under the 2013 plan by 319,269 shares of our common stock to a total of 375,000 shares ( on a post-reverse stock split basis ) . as of december 31 , 2016 , an aggregate of 750 shares and 199,669 shares of common stock were reserved for issuance under the 2011 plan and the 2013 plan , respectively . during 2016 , the company granted a total of 73,688 options to 10 employees with vesting periods ranging from 3 to 4 years beginning march 14 , 2017. in 2016 , 2,938 options vested , and $ 168,411 of compensation cost had been recognized during the year . as of december 31 , 2016 , there were options to purchase 101,188 shares outstanding under the plans . of this amount , there are vested options exercisable into 2,938 shares of common stock . as of december 31 , 2016 , the company had 200,419 shares reserved for future grant under its plans and there were no shares exercised during the years ended december 31 , 2016 or 2015. during 2015 , the company granted a total of 28,438 options to three employees with vesting periods ranging from one to four years beginning august 10 , 2015. as of december 31 , 2015 , none of the option grants had vested , and only a nominal amount of compensation cost had been recognized during the year . the weighted average period over which total compensation cost of the options of $ 306,796 will be recognized is 3.81 years . the weighted average exercise price of the options was $ 11.88 and the weighted average fair value of the options on the dates of grant was $ 11.82 . the company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the company 's stock on the dates of grant . stock options are typically granted throughout the year and generally vest over four years of service and expire ten years from the date of the award , unless otherwise specified . the company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award . total share-based compensation expense included in the consolidated statements of operations for the years ended december 31 , 2016 and 2015 is $ 341,558 and $ 518,438 , respectively . there was no capitalized share-based compensation cost as of december 31 , 2016 and 2015 , and there were no recognized tax benefits during the years ended december 31 , 2016 and 2015. to estimate the value of an award , the company uses the black-scholes option-pricing model . this model requires inputs such as expected life , expected volatility and risk-free interest rate . the forfeiture rate also impacts the amount of aggregate compensation . these inputs are subjective and generally require significant analysis and judgment to develop . while estimates of expected life , volatility and forfeiture rate are derived primarily from the company 's historical data , the risk-free rate is based on the yield available on u.s. treasury constant maturity rates with similar terms to the expected term of the stock option awards . the fair value of share-based awards was estimated using the black-scholes model with the following weighted-average assumptions for the years ended december 31 , 2016 and 2015 : assumptions : replace_table_token_8_th f-12 option activity for the year ended december 31 story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements . story_separator_special_tag securities . cash flows used in operating activities in 2016 increased to $ 1,962,314 from $ 1,260,463 in 2015 due primarily to increases in payroll , general and administrative costs , as well as an increase in accounts payable and a decrease in revenues in 2016 , . the company anticipates fewer losses in 2017 , due to increased revenues , offset by increased salaries and related expenses in connection with additional employees and potential acquisitions . cash flows used in investing activities decreased from $ 161,797 in 2015 to $ 79,104 in 2016 primarily due to fewer purchases of furniture and equipment . cash flows provided by financing activities were the result of a private offering of debt securities in october 2016 that raised net proceeds of $ 900,000. there were no cash flows used or provided by financing
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015. we expect to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations . we also expect to generate revenues though contract am manufacturing using our in-house metal 3d printing capability . however , we presently make limited sales of these technologies and services , which include limited sales of non-exclusive licenses to use our printrite3d® technologies , including under our recently established early adopter program and oem partner program , as described above . our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our printrite3d® technologies . during the fiscal year ended december 31 , 2016 ( fiscal 2016 ) , we generated an aggregate of $ 966,422 in revenues , as compared to an aggregate of $ 1,234,810 in revenues that were generated by us during the fiscal year ended december 31 , 2015 ( fiscal 2015 ) . the decrease in revenue was primarily due to the completion of the gea america makes program in 2016 , providing only three months of revenue in 2016 ( but twelve months in 2015 ) , and the completion of the darpa phase ii project in 2016 , providing only eight months of revenue in 2016 ( but twelve months in 2015 ) . we generated revenues and financed our operations in fiscal 2016 and fiscal 2015 primarily from engineering consulting services we provided to third parties during these periods and through private sales of our common stock and debt securities .
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new risk factors emerge from time to time and it is not possible for the company to predict all such risk factors , nor can it assess the impact of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . accordingly , forward-looking statements can not be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements , including but not limited to the factors that are described in part i , item 1a under the caption of “ risk factors ” of this form 10-k , which section is incorporated herein by reference . the company is not required , and undertakes no obligation , to revise or update forward-looking statements or any factors that may affect actual results , whether as a result of new information , future events , or circumstances occurring after the date of this report . overview management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide a discussion of the company 's financial condition , results of operations , liquidity and certain other factors that may affect its future results from the perspective of management . the discussion that follows is intended to provide information that will assist in understanding the changes in the company 's consolidated financial statements from year to year , the primary factors that accounted for those changes , and how certain accounting principles , policies and estimates affect the company 's consolidated financial statements . md & a is provided as a supplement to , and should be read in conjunction with the consolidated financial statements and the accompanying notes to the consolidated financial statements in item 8 of part ii below . discussion and analysis of the financial condition and results of operations of matson for the years ended december 31 , 2018 and 2017 can be found in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on march 4 , 2019 . md & a is presented in the following sections : ◾ business outlook ◾ consolidated results of operations ◾ analysis of operating revenue and income by segment ◾ liquidity and capital resources ◾ contractual obligations , commitments , contingencies and off-balance sheet arrangements ◾ critical accounting estimates ◾ other matters 25 business outlook the following is the company 's fourth quarter 2019 discussion and 2020 outlook : ocean transportation : the company 's container volume in the hawaii service in the fourth quarter 2019 was 1.1 percent higher year-over-year primarily due to positive container market growth . although hawaii 's rate of economic growth is expected to continue slowing , recent increases in key economic factors , such as construction activity and visitor traffic , are expected to support continued gdp growth . the company expects volume in 2020 to be higher compared to the level achieved in 2019 , reflecting favorable economic conditions in hawaii and stable market share . in china , the company 's container volume in the fourth quarter 2019 was 4.3 percent higher year-over-year primarily due to larger vessel capacity deployed in the tradelane coupled with strong demand for matson 's differentiated service . matson continued to realize a sizeable rate premium in the fourth quarter 2019 and achieved average freight rates that were modestly lower than the exceptional level achieved in the fourth quarter 2018. in the fourth quarter of 2018 , the company experienced unusually strong performance as a result of the u.s.-china trade situation . for 2020 , the company expects to face challenging conditions in the first half of the year as a result of covid-19 , but expects the second half of the year to be comparable to the strong performance achieved in the second half of 2019. therefore , the company expects volume in 2020 to be modestly lower than the prior year and average freight rates in 2020 to approximate the levels achieved in 2019 . in guam , the company 's container volume in the fourth quarter 2019 was 7.7 percent lower on a year-over-year basis primarily due to typhoon relief volume in the year ago period . for 2020 , the company expects volume to approximate the level achieved last year and expects the highly competitive environment to remain . in alaska , the company 's container volume for the fourth quarter 2019 declined 0.7 percent year-over-year . the company experienced slightly lower northbound volume and modestly higher southbound volume compared to the levels achieved in fourth quarter 2018. for 2020 , the company expects volume to be modestly higher than the level achieved in 2019 , with higher northbound volume , including volume in the first quarter related to the dry-docking of a competitor 's vessel , and slightly lower southbound volume compared to the levels achieved in 2019 . the contribution in the fourth quarter 2019 from the company 's ssat joint venture investment was $ 5.0 million lower than the fourth quarter 2018. the decrease was primarily due to higher terminal operating costs and lower lift volume . for 2020 , the company expects the contribution from ssat to be lower due to lower lift volume primarily driven by the negative effects of covid-19 , partially offset by improved operating cost efficiencies . as a result of the business outlook noted above , the company expects full year 2020 ocean transportation operating income to be higher than the $ 90.8 million achieved in 2019. in the first quarter 2020 , the company expects ocean transportation operating income to be approximately breakeven versus the $ 9.4 million achieved in the year ago period . story_separator_special_tag of income from ssat was $ 20.8 million during the year ended december 31 , 2019 , compared to $ 36.8 million in the prior year , while distributions from ssat was $ 25.2 million during the year ended december 31 , 2019 , compared to $ 42.0 million of distributions received in the prior year . deferred dry-docking payments were $ 25.9 million for the year ended december 31 , 2019 , compared to $ 19.2 million in the prior year . the increase in deferred dry-docking payments was due to an increase in vessel dry-docking activities during the year ended december 31 , 2019 , compared to the prior year . changes in accounts receivable are due to the timing of collections as of december 31 , 2019 , compared to the prior year . changes in prepaid expenses and other assets are due to the timing of prepaid income taxes , changes in the amount of insurance related receivables and changes in other prepaid amounts as of december 31 , 2019 , compared to the prior year . changes in accounts payable , accruals and other liabilities for the year ended december 31 , 2019 , compared to the prior year are due to the timing of payments associated with those liabilities . ( 2 ) changes in net cash used in investing activities : changes in net cash used in investing activities for the years ended december 31 , 2019 , 2018 and 2017 were as follows : replace_table_token_9_th capitalized vessel construction expenditures ( including capitalized interest and owners ' items ) was $ 219.1 million for the year ended december 31 , 2019 , compared to $ 338.6 million in the prior year . the decrease in capitalized vessel construction expenditures ( including cash deposited into the ccf less cash withdrawals from the ccf which are used for vessel construction related payments ) is due to a reduction in progress payments related to the construction of new vessels . other capital expenditures ( excluding capitalized vessel construction expenditures ) was $ 91.2 million for the year ended december 31 , 2019 , compared to $ 62.6 million for the prior year . the increase was primarily due to higher levels of capital expenditures related to the installation of scrubbers on vessels , the hawaii sand island terminal expansion and modernization program , and the construction of the anchorage service center during the year ended december 31 , 2019 , compared to the prior year . proceeds from the disposal of property and equipment was $ 3.4 million for the year ended december 31 , 2019 , compared to $ 136.3 million for the prior year . disposals of property and equipment during the year ended december 31 , 2018 included net proceeds of approximately $ 106.0 million from the 30 sale and leaseback of a vessel , and $ 28.4 million from other container and equipment sale and leaseback transactions . there were no sale and leaseback transactions in 2019. proceeds from the sale of other investments of $ 3.7 million for the year ended december 31 , 2018 related to the surrender of life insurance policies . there were no sales of other investments during the year ended december 31 , 2019 . ( 3 ) changes in net cash provided by ( used in ) financing activities : changes in net cash provided by ( used in ) financing activities for the years ended december 31 , 2019 , 2018 and 2017 were as follows : replace_table_token_10_th repayments of fixed interest debt and capital leases increased to $ 42.1 million for the year ended december 31 , 2019 , compared to $ 30.7 million in the prior year due to scheduled fixed interest debt payments . net borrowings from the company 's revolving credit facility was $ 144.1 million for the year ended december 31 , 2019 , compared to $ 30.0 million in the prior year . the increase in borrowing under the revolving credit facility was primarily due to vessel construction payments and other capital expenditure . there was no repurchase of matson stock during the years ended december 31 , 2019 or 2018. during the year ended december 31 , 2017 , the company repurchased $ 19.3 million of matson stock . dividends paid was $ 37.2 million for the year ended december 31 , 2019 , compared to $ 35.4 million for the year ended december 31 , 2018 . debt : total debt as of december 31 , 2019 and 2018 is as follows : replace_table_token_11_th total debt increased by $ 102.0 million during the year ended december 31 , 2019 , compared to the prior year . the increase in the company 's revolving credit facility was primarily due to the funding of progress payments related to the construction of new vessels and other capital expenditure during the year ended december 31 , 2019. the reduction in fixed interest debt was due to scheduled debt payments made during the year ended december 31 , 2019 . as of december 31 , 2019 , the company had $ 75.1 million of remaining availability under the revolving credit facility , with a maturity date of june 29 , 2022. the company 's debt is described in note 8 to the consolidated financial statements in item 8 of part ii . working capital : the company had working capital deficiency of $ 147.1 million at december 31 , 2019 , compared to working capital deficiency of $ 52.4 million at december 31 , 2018. the increase in working capital deficiency at december 31 , 2019 is partially due to the recording of the short-term portion of operating lease liabilities of $ 66.6 million as of december 31 , 2019 , in accordance with the adoption of the new lease accounting standard , and a $ 17.8 million decrease in accounts receivable .
| consolidated results of operations the following analysis of the financial condition and results of operations of matson for the years ended december 31 , 2019 and 2018 should be read in conjunction with the consolidated financial statements in item 8 of part ii below . consolidated results : 2019 compared with 2018 : replace_table_token_3_th fiscal year : fiscal years ended december 31 , 2019 and 2018 include 52 weeks . consolidated operating revenue for the year ended december 31 , 2019 decreased $ 19.7 million , or 0.9 percent , compared to the prior year . the decrease was due to an increase in ocean transportation revenue of $ 25.3 million offset by a decrease in logistics revenue of $ 45.0 million . operating costs and expenses for the year ended december 31 , 2019 increased $ 15.0 million , or 0.7 percent , compared to the prior year . the increase was due to an increase in ocean transportation operating costs and expenses of $ 65.6 million which was partially offset by a decrease in logistics operating costs and expenses of $ 50.6 million . operating income for the year ended december 31 , 2019 decreased $ 34.7 million , or 21.2 percent , compared to the prior year . the decrease was due to a decrease in ocean transportation operating income of $ 40.3 million which was partially offset by an increase in logistics operating income of $ 5.6 million . the reasons for changes in operating revenue , operating costs and expenses , and operating income are described below , by business segment , in the analysis of operating revenue and income by segment . interest expense was $ 22.5 million for the year ended december 31 , 2019 , compared to $ 18.7 million in the prior year .
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determining the fair value of certain assets and liabilities acquired is subjective in nature and often story_separator_special_tag the following discussion should be read together with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. certain statements in “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements that involve known and unknown risks and uncertainties , many of which are beyond our control . words such as “ may ” , “ will ” , “ should ” , “ would ” , “ anticipates ” , “ expects ” , “ intends ” , “ plans ” , “ believes ” , “ seeks ” , “ estimates ” and similar expressions identify such forward-looking statements . the forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements . factors that might cause such a difference include , among other things , those set forth under “ risk factors ” and those appearing elsewhere in this form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date hereof . we assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements . readers are cautioned that any forward-looking statements are not guarantees of future performance . overview intl fcstone inc. is a diversified global financial services organization providing execution , risk management and advisory services , market intelligence , and clearing services across assets classes and markets around the world . we help our customers access market liquidity , maximize profits and manage risk . we are a leader in the development of specialized financial services in commodities , securities , global payments , foreign exchange and other markets . our revenues are derived primarily from financial products and advisory services that fulfill our customers ' real needs and provide bottom-line benefits to their businesses . we create added value for our customers by providing access to global financial markets using our industry and financial expertise , deep partner and network relationships , insight and guidance , and integrity and transparency . our customer-first approach differentiates us from large banking institutions , engenders trust , and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world . 27 our leadership positions span markets such as commodity risk management advisory services ; global payments ; market-making in international equities and other securities ; fixed income ; correspondent securities clearing and independent wealth management ; physical trading and hedging of precious metals and select other commodities ; execution of listed futures and options on futures contracts on all major commodity exchanges and foreign currency trading , among others . these businesses are supported by our global infrastructure of regulated operating subsidiaries , advanced technology platform and team of more than 1,400 employees . we currently serve more than 20,000 predominantly wholesale organizations , located in more than 130 countries . our recent acquisition of the sterne agee correspondent clearing and independent wealth management businesses added approximately 50 correspondent clearing relationships with more than 120,000 accounts of which 65,000 are related to the independent wealth management business acquired . our customers include producers , processors and end-users of nearly all widely traded physical commodities ; commercial counterparties who are end-users of our products and services ; governmental and non-governmental organizations ; and commercial banks , asset managers , introducing broker-dealers , insurance companies , brokers , institutional investors and major investment banks . we believe our customers value us for our focus on their needs , our expertise and flexibility , our global reach , our ability to provide access to hard-to-reach markets and opportunities , and our status as a well-capitalized and regulatory-compliant organization . we believe we are well positioned to capitalize on key trends impacting the financial services sector . among others , these trends include the impact of increased regulation on banking institutions and other financial services providers ; increased consolidation , especially of smaller sub-scale financial services providers and independent securities clearing firms ; the growing importance and complexity of conducting secure cross-border transactions ; and the demand among financial institutions to transact with well-capitalized counterparties . we focus on mitigating exposure to market risk , ensuring adequate liquidity to maintain daily operations and making non-interest expenses variable , to the greatest extent possible . we report our operating segments based on services provided to customers . our business activities are managed as operating segments and organized into reportable segments consisting of commercial hedging , global payments , securities , physical commodities , and clearing and execution services ( “ ces ” ) . see segment information for a listing of our operating segment components . recent events affecting the financial services industry the dodd-frank act created a comprehensive new regulatory regime governing the otc and listed derivatives markets . most of the rules related to this regime have came into effect , however some important rules , such as those setting capital and margin requirements , have not been finalized or fully implemented . effective september 2016 , cftc margin rules came into effect , imposing new requirements to exchange initial and variation margin , depending upon aggregate daily notional transactions outstanding , with an implementation period ending in 2020. cftc capital rules have not been finalized and therefore it is too early to predict with any degree of certainty how we will be affected . we will continue to monitor all applicable developments in the ongoing implementation of the dodd-frank act . the legislation and implementing regulations affect not only us , but also our customers and counterparties . the european markets infrastructure regulation ( “ emir ” ) is the european regulations on otc derivatives , central counterparties and trade repositories . story_separator_special_tag all revenues and expenses , including income tax expense , relating to discontinued operations have been removed from disclosures of total revenues and expenses for the applicable periods , and are reported net in our consolidated income statements in “ loss from discontinued operations , net of tax ” . financial overview the following table shows an overview of our financial results : financial overview ( unaudited ) replace_table_token_5_th the selected data table below reflects key operating metrics used by management in evaluating our product lines , for the periods indicated : replace_table_token_6_th 30 operating revenues year ended september 30 , 2016 compared to year ended september 30 , 2015 operating revenues for fiscal 2016 and fiscal 2015 were $ 671.0 million and $ 624.3 million , respectively . operating revenue growth was driven by strong growth in our securities segment , which added $ 45.4 million over the prior year , while the ces segment added $ 27.7 million in operating revenue , driven by the acquisition of the sterne agee businesses which added an incremental $ 24.1 million . in addition , the physical commodities segment added $ 13.5 million over the prior year . this growth was partially offset by $ 26.3 million and $ 3.9 million declines in operating revenues in our commercial hedging and global payments segments , respectively . operating revenues in our commercial hedging segment decreased 10 % in fiscal 2016 to $ 236.1 million with a $ 2.2 million increase in exchange-traded revenues to $ 131.6 million being more than offset by a $ 28.8 million decline in otc revenues to $ 82.2 million in fiscal 2016 . growth in the domestic grain markets and in our london operations drove a 10 % increase in exchange-traded volumes . lower otc revenues were a result of a 17 % decline in volumes , primarily as a result of lower customer volumes in the domestic and latin american agricultural markets as well as the effect of lower energy prices and volatility . operating revenues in our securities segment increased 35 % in fiscal 2016 to $ 175.2 million , primarily as a result of a $ 42.3 million increase in our debt trading product line , primarily as a result of the acquisition of g.x . clarke which was effective january 1 , 2015 and thus only contributed operating revenues beginning in the second quarter of fiscal 2015. in addition , the business acquired showed strong growth in fiscal 2016 , outperforming the similar period in the prior year . strong performance in our argentine operations also contributed to growth in debt trading operating revenues as well as in asset management . investment banking operating revenues declined $ 5.8 million following management 's decision to exit the domestic investment banking business . operating revenues in our global payments segment declined 5 % in fiscal 2016 to $ 73.2 million compared to the prior year , as a 37 % increase in the number of global payments made was more than offset by a narrowing of spreads as a result of a continuing increase in lower dollar value per payment transaction volume from financial institutions . physical commodity segment operating revenues increased 58 % to $ 36.6 million in fiscal 2016 as a result of a $ 9.7 million increase in precious metals operating revenues , as well as a $ 3.6 million increase in physical ag & energy operating revenues . operating revenues in our ces segment increased 22 % in fiscal 2016 to $ 151.1 million . exchange-traded futures & options operating revenues increased $ 4.2 million to $ 106.1 million , while foreign exchange prime brokerage operating revenues declined $ 0.6 million to $ 20.9 million . the addition of the sterne agee correspondent securities clearing and independent wealth management businesses added $ 24.1 million in incremental operating revenues . interest income increased $ 15.8 million to $ 55.2 million in fiscal 2016 compared to fiscal 2015 , primarily driven by a $ 14.9 million increase in our debt trading business . in addition , average customer equity in the exchange traded futures and options portions of our commercial hedging and ces segments increased 5 % to $ 1.9 billion in fiscal 2016 compared to fiscal 2015 , which combined with an increase in short term interest rates and the continued implementation of our interest rate management program , resulted in an aggregate $ 2.9 million increase in interest income in the exchange traded futures and options portions of these segments . the july 1 , 2015 transfer of securities from available-for-sale investments , at fair value , to the trading category resulted in a $ 5.4 million of pre-tax unrealized gains not previously recognized in earnings being included in operating revenues during the fourth quarter of fiscal 2015. see the discussion of operating revenues for the year ended september 30 , 2015 compared to year ended september 30 , 2014 for details of this transfer . in addition , operating revenues for fiscal 2015 included a $ 1.2 million pre-tax gain on the sale of common stock held in the intercontinental exchange , inc. see segment information below for additional information on activity in each of the segments . year ended september 30 , 2015 compared to year ended september 30 , 2014 operating revenues for fiscal 2015 and fiscal 2014 were $ 624.3 million and $ 490.9 million , respectively . all of our business segments experienced operating revenue growth compared to the prior year , led by our securities and commercial hedging segments which increased $ 49.5 million and $ 38.4 million , respectively . in addition , operating revenues in our global payments segment increased $ 21.6 million , while our ces and physical commodities segments increased $ 9.7 million and $ 2.6 million , respectively .
| total segment results the following table shows summary information concerning all of our business segments combined . replace_table_token_10_th year ended september 30 , 2016 compared to year ended september 30 , 2015 the net contribution of all our business segments increased 8 % to $ 347.0 million in fiscal 2016 compared to $ 320.6 million in fiscal 2015 . segment income increased 10 % to $ 206.0 million in fiscal 2016 compared to $ 188.1 million in fiscal 2015 . year ended september 30 , 2015 compared to year ended september 30 , 2014 the net contribution of all our business segments increased 29 % to $ 320.6 million in fiscal 2015 compared to $ 249.2 million in fiscal 2014. segment income increased 46 % to $ 188.1 million in fiscal 2015 compared to $ 128.8 million in fiscal 2014. commercial hedging we serve our commercial customers through our team of risk management consultants , providing a high-value-added service that we believe differentiates us from our competitors and maximizes the opportunity to retain our customers . our risk management consulting services are designed to quantify and monitor commercial entities ' exposure to commodity and financial risk . upon assessing this exposure , we develop a plan to control and hedge these risks with post-trade reporting against specific customer objectives . our customers are assisted in the execution of their hedging strategies through a wide range of products from listed exchange-traded futures and options , to basic otc instruments that offer greater flexibility , to structured otc products designed for customized solutions . our services span virtually all traded commodity markets , with the largest concentrations in agricultural and energy commodities ( consisting primarily of grains , energy and renewable fuels , coffee , sugar , cotton , and food service ) and base metals products listed on the lme .
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