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101 — interactive data files pursuant to rule 405 of regulation s-t : ( i ) our consolidated statements of income for the years ended december 31 , 2013 , 2012 , and story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto . additional sections in this report which should be helpful to the reading of our discussion and analysis include the following : ( i ) a description of our business strategy found in items 1 and 2 “ business and properties— ( c ) narrative description of business—business strategy ; ” ( ii ) a description of developments during 2013 , found in items 1 and 2 “ business and properties— ( a ) general development of business—recent developments ; ” and ( iii ) a description of risk factors affecting us and our business , found in item 1a “ risk factors. ” we prepared our consolidated financial statements in accordance with gaap . accordingly , as discussed in notes 1 “ general ” , 2 “ summary of significant accounting policies ” , and 3 “ acquisitions and divestitures ” to our consolidated financial statements , our financial statements reflect the reclassifications necessary to reflect the results of kmp 's ftc natural gas pipelines disposal group as discontinued operations . we sold kmp 's ftc natural gas pipelines disposal group to tallgrass effective november 1 , 2012 for approximately $ 1.8 billion in cash ( before selling costs ) , or $ 3.3 billion including kmp 's share of joint venture debt . in 2013 , kmp and tallgrass trued up the final consideration for the sale of kmp 's ftc natural gas pipelines disposal group and based both on this true up and certain incremental selling expenses kmp paid in 2013 , we recognized an additional $ 4 million loss related to our sale of the disposal group . except for this loss amount , we recorded no other financial results from the operations of the disposal group during 2013. furthermore , we have excluded the disposal group 's financial results from the natural gas pipelines business segment disclosures for each of the years ended december 31 , 2012 and 2011. inasmuch as the discussion below and the other sections to which we have referred you pertain to management 's comments on financial resources , capital spending , our business strategy and the outlook for our business , such discussions contain forward-looking statements . these forward-looking statements reflect the expectations , beliefs , plans and objectives of management about future financial performance and assumptions underlying management 's judgment concerning the matters discussed , and accordingly , involve estimates , assumptions , judgments and uncertainties . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to any differences include , but are not limited to , those discussed below and elsewhere in this report , particularly in item 1a “ risk factors ” and at the beginning of this report in “ information regarding forward-looking statements. ” general our business model , through our ownership and operation of energy related assets , is built to support two principal components : helping customers by providing safe and reliable energy , bulk commodity and liquids products transportation , storage and distribution ; and creating long-term value for our shareholders . to achieve these objectives , we focus on providing fee-based services to customers from a business portfolio consisting of energy-related pipelines , natural gas storage , processing and treating facilities , and bulk and liquids terminal facilities . we also produce and sell crude oil . our reportable business segments are based on the way our management organizes our enterprise , and each of our business segments represents a component of our enterprise that engages in a separate business activity and for which discrete financial information is available . our reportable business segments are : natural gas pipelines— ( i ) the ownership and operation of major interstate and intrastate natural gas pipeline and storage systems ; ( ii ) the ownership and or operation of associated natural gas gathering systems and natural gas 57 processing and treating facilities ; and ( iii ) the ownership and or operation of ngl fractionation facilities and transportation systems ; co 2 -kmp— ( i ) the production , transportation and marketing of co 2 , to oil fields that use co 2 to increase production of oil ; ( ii ) ownership interests in and or operation of oil fields and gas processing plants in west texas ; and ( iii ) the ownership and operation of a crude oil pipeline system in west texas ; products pipelines-kmp— the ownership and operation of refined petroleum products and crude oil and condensate pipelines that deliver refined petroleum products ( gasoline , diesel fuel and jet fuel ) , ngl , crude oil , condensate and bio-fuels to various markets , plus the ownership and or operation of associated product terminals and petroleum pipeline transmix facilities ; terminals-kmp—the ownership and or operation of liquids and bulk terminal facilities and rail transloading and materials handling facilities located throughout the u.s. and portions of canada ; kinder morgan canada-kmp—the ownership and operation of the trans mountain pipeline system that transports crude oil and refined petroleum products from edmonton , alberta , canada to marketing terminals and refineries in british columbia , canada and the state of washington , plus the jet fuel aviation turbine fuel pipeline that serves the vancouver ( canada ) international airport ; and other—primarily includes several physical natural gas contracts with power plants associated with ep 's legacy trading activities . story_separator_special_tag transportation volume levels are primarily driven by the demand for the refined petroleum products being shipped or stored . demand for refined petroleum products tends to track in large measure demographic and economic growth , and with the exception of periods of time with very high product prices or recessionary conditions , demand tends to be relatively stable . because of that , we seek to own refined petroleum products pipelines located in , or that transport to , stable or growing markets and population centers . the prices for shipping are generally based on regulated tariffs that are adjusted annually based on changes in the u.s. producer price index . the factors impacting the terminals-kmp business segment generally differ depending on whether the terminal is a liquids or bulk terminal , and in the case of a bulk terminal , the type of product being handled or stored . as with our refined petroleum products pipeline transportation business , the revenues from our bulk terminals business are generally driven by the volumes we handle and or store , as well as the prices we receive for our services , which in turn are driven by the demand for the products being shipped or stored . while we handle and store a large variety of products in our bulk terminals , the primary products are coal , petroleum coke , and steel . for the most part , we have contracts for this business that have minimum volume guarantees and are volume based above the minimums . because these contracts are volume based above the minimums , our profitability from the bulk business can be sensitive to economic conditions . our liquids terminals business generally has longer-term contracts that require the customer to pay regardless of whether they use the capacity . thus , similar to our natural gas pipeline business , our liquids terminals business is less sensitive to short-term changes in supply and demand . therefore , the extent to which changes in these variables affect our terminals business in the near term is a function of the length of the underlying service contracts ( which on average is approximately four years ) , the extent to which revenues under the contracts are a function of the amount of product stored or transported , and the extent to which such contracts expire during any given period of time . to the extent practicable and economically feasible in light of our strategic plans and other factors , we generally attempt to mitigate the risk of reduced volumes and pricing by negotiating contracts with longer terms , with higher per-unit pricing and for a greater percentage of our available capacity . in addition , weather-related factors such as hurricanes , floods and droughts may impact our facilities and access to them and , thus , the profitability of certain terminals for limited periods of time or , in relatively rare cases of severe damage to facilities , for longer periods . in 2013 , kmi completed the drop-down of its remaining 50 % interest in epng and its 50 % interest in the ep midstream assets to kmp . kmi used proceeds from the drop-down transaction to ( i ) pay down $ 947 million of kmi 's senior secured term loan facility ; and ( ii ) reduce borrowings under kmi 's credit facility . in 2014 , kmi expects to drop-down its 50 % interest in ruby pipeline holding company , l.l.c. , its 50 % interest in gulf lng holdings group , llc and its 47.5 % interest in young gas storage company , ltd to epb . kmp and epb have a successful history of making accretive acquisitions and economically advantageous expansions of existing businesses . thus , the amount that we are able to increase dividends to our shareholders will , to some extent , be a function of our and our subsidiaries ' ability to complete successful acquisitions and expansions ( including drop-down transactions ) . we believe we will continue to have opportunities for expansion of our facilities in many markets , and we have budgeted approximately $ 3.9 billion for our 2014 capital expansion program ( including small acquisitions and investment contributions ) . we and our subsidiaries , kmp and epb , regularly consider and enter into discussions regarding potential acquisitions , including those from us or our affiliates , and are currently contemplating potential acquisitions . based on our historical record and because there is continued demand for energy infrastructure in the areas we serve , we expect to continue to have such opportunities in the future , although the level of such opportunities is difficult to predict . while there are currently no unannounced purchase agreements for the acquisition of any material business or assets , such 59 transactions can be effected quickly , may occur at any time and may be significant in size relative to our existing assets or operations . furthermore , our ability to make accretive acquisitions is a function of the availability of suitable acquisition candidates at the right cost , and includes factors over which we have limited or no control . thus , we have no way to determine the number or size of accretive acquisition candidates in the future , or whether we will complete the acquisition of any such candidates . our , or our subsidiaries ' ( including epb and kmp ) , ability to make accretive acquisitions or expand our assets is impacted by our ability to maintain adequate liquidity and to raise the necessary capital needed to fund such acquisitions . as mlps , kmp and epb distribute all of their available cash , and they access capital markets to fund acquisitions and asset expansions .
| results of operations non-gaap measures the non-gaap , financial measures of ( i ) cash available to pay dividends , both in the aggregate and per share , and ( ii ) segment ebda and certain items are presented below under “ —cash available to pay dividends ” and “ —consolidated earnings results. ” certain items are items that are required by gaap to be reflected in net income , but typically either do not have a cash impact , or by their nature are separately identifiable from our normal business operations and , in our view , are likely to occur only sporadically . we believe the gaap measure most directly comparable to cash available to pay dividends is income from continuing operations . a reconciliation of cash available to pay dividends to income from continuing operations is provided below under “ —reconciliation of cash available to pay dividends to income from continuing operation. ” our non-gaap measures below should not be considered as an alternative to gaap net income or any other gaap measure . cash available to pay dividends and segment ebda and certain items are not financial measures in accordance with gaap and have important limitations as analytical tools . you should not consider these non-gaap measures in isolation or as a substitute for an analysis of our results as reported under gaap . our computation of cash available to pay dividends and segment ebda and certain items may differ from similarly titled measures used by others . management compensates for the limitations of these non-gaap measures by reviewing our comparable gaap measures , understanding the differences between the measures and taking this information into account in its analysis and its decision making processes .
| 4,700 |
401 ( k ) plan the company initiated an employees ' savings plan ( the plan story_separator_special_tag the following is management 's discussion and analysis of the financial condition and results of operations of atlantic american corporation ( atlantic american or the parent ) and its subsidiaries ( collectively with the parent , the company ) for the years ended december 31 , 2016 and 2015. this discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein . atlantic american is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries : american southern insurance company and american safety insurance company ( together known as american southern ) in the property and casualty insurance industry , and bankers fidelity life insurance company and bankers fidelity assurance company ( together known as bankers fidelity ) in the life and health insurance industry . each operating company is managed separately , offers different products and is evaluated on its individual performance . critical accounting policies the accounting and reporting policies of the company are in accordance with accounting principles generally accepted in the united states of america ( gaap ) and , in management 's belief , conform to general practices within the insurance industry . the following is an explanation of the company 's accounting policies and the resultant estimates considered most significant by management . these accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management 's estimates determined using these policies . atlantic american does not expect that changes in the estimates determined using these policies will have a material effect on the company 's financial condition or liquidity , although changes could have a material effect on its consolidated results of operations . unpaid loss and loss adjustment expenses comprised 29 % of the company 's total liabilities at december 31 , 2016. this liability includes estimates for : 1 ) unpaid losses on claims reported prior to december 31 , 2016 , 2 ) future development on those reported claims , 3 ) unpaid ultimate losses on claims incurred prior to december 31 , 2016 but not yet reported and 4 ) unpaid loss adjustment expenses for reported and unreported claims incurred prior to december 31 , 2016. quantification of loss estimates for each of these components 16 involves a significant degree of judgment and estimates may vary , materially , from period to period . estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the company . development on reported claims , estimates of unpaid ultimate losses on claims incurred prior to december 31 , 2016 but not yet reported , and estimates of unpaid loss adjustment expenses are developed based on the company 's historical experience , using actuarial methods to assist in the analysis . the company 's actuaries develop ranges of estimated development on reported and unreported claims as well as loss adjustment expenses using various methods , including the paid-loss development method , the reported-loss development method , the paid bornhuetter-ferguson method and the reported bornhuetter-ferguson method . any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the company 's administrative policies . further , external factors , such as legislative changes , medical cost inflation , and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses . the company 's approach is to select an estimate of ultimate losses based on comparing results of a variety of reserving methods , as opposed to total reliance on any single method . unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business , and when current results differ from the original assumptions used to develop such estimates , the amount of the company 's recorded liability for unpaid loss and loss adjustment expenses is adjusted . in the event the company 's actual reported losses in any period are materially in excess of the previously estimated amounts , such losses , to the extent reinsurance coverage does not exist , could have a material adverse effect on the company 's results of operations . future policy benefits comprised 35 % of the company 's total liabilities at december 31 , 2016. these liabilities relate primarily to life insurance products and are based upon assumed future investment yields , mortality rates , and withdrawal rates after giving effect to possible risks of adverse deviation . the assumed mortality and withdrawal rates are based upon the company 's experience . if actual results differ from the initial assumptions , the amount of the company 's recorded liability could require adjustment . deferred acquisition costs comprised 9 % of the company 's total assets at december 31 , 2016. deferred acquisition costs are commissions , premium taxes , and other costs that vary with and are primarily related to the acquisition of new and renewal business and are generally deferred and amortized . the deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner . traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the related liability for policy benefit reserves . deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over the effective period of the related insurance policies . deferred policy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums ( for traditional life and long-duration health insurance ) and from the related unearned premiums and investment income ( for property and casualty and short-duration health insurance ) . assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year 's projected losses related to the unearned premiums . story_separator_special_tag a reconciliation of net income to operating income is as follows : replace_table_token_10_th on a consolidated basis , the company had net income of $ 2.6 million , or $ 0.11 per diluted share , in 2016 , compared to $ 4.4 million , or $ 0.19 per diluted share , in 2015. operating income increased slightly in 2016 as compared to 2015. the increase in operating income was primarily attributable to increased profitability in the property and casualty operations as well as a decrease in legal and consulting fees of $ 1.3 million . offsetting the increase in operating income were higher expenses in the life and health operations associated with the increased level of new business . total revenue was $ 166.1 million in 2016 as compared to $ 165.9 million in 2015. premium revenue increased to $ 153.5 million in 2016 from $ 150.9 million in 2015. the increase in premium revenue was primarily due to an increase in medicare supplement business in the life and health operations . also included in total revenue were net realized investment gains of $ 2.6 million in 2016 compared to net realized investment gains of $ 4.9 million in 2015. the magnitude of realized investment gains and losses in any year is a function of the timing of trades of investments relative to the markets themselves as well as the recognition of any other than temporary impairments on investments . total expenses were $ 162.6 million in 2016 as compared to $ 160.2 million in 2015. as a percentage of premiums , insurance benefits and losses incurred and commissions and underwriting expenses were 96.4 % in 2016 and 95.8 % in 2015. a more detailed analysis of the operating companies and other corporate activities follows . 19 story_separator_special_tag increase in the redundancy resulted in an estimated increase in income from operations before tax of approximately $ 1.3 million in 2016 as compared to 2015. management believes that such differences will continue in future periods but is unable to determine if or when incremental redundancies will increase or decrease , until the underlying losses are ultimately settled . contingent commissions , if contractually applicable , are ultimately payable to participating agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts , and are periodically evaluated and accrued as earned . in 2016 , approximately 52 % of american southern 's earned premium provides for contractual commission arrangements which compensate the company 's agents in relation to the loss ratios of the business they write , compared to 60 % in 2015. by structuring its business in this manner , american southern provides its agents with an economic incentive to place profitable business with american southern . in periods in which loss reserves reflect favorable development from prior years ' reserves , there is generally a highly correlated increase in commission expense also related to the prior year business . accordingly , favorable loss development from prior years , while anticipated to continue in future periods , is not an indicator of significant additional profitability in the current year . 21 bankers fidelity the following summarizes , for the periods indicated , bankers fidelity 's premiums , losses and expenses : replace_table_token_13_th premium revenue at bankers fidelity increased $ 3.3 million , or 3.4 % , during 2016 as compared to 2015. premiums from the medicare supplement line of business increased $ 3.0 million , or 3.7 % , in 2016 as compared to 2015 , due primarily to new business generated from both new and existing producers . other health product premiums increased $ 0.8 million , or 15.6 % , during 2016 as compared to 2015 , primarily as a result of new sales of the company 's group health products . premiums from the life insurance line of business decreased $ 0.5 million , or 4.6 % , in 2016 from 2015 due to the redemption and settlement of existing policy obligations exceeding the level of new sales activity . in both 2016 and 2015 , the company 's five principal states in terms of premium revenue were georgia , indiana , ohio , pennsylvania , and tennessee , which accounted for approximately 42 % and 43 % of total premiums for 2016 and 2015 , respectively . effective january 1 , 2016 , bankers fidelity entered into a reinsurance agreement to moderate statutory capital requirements related to premium growth in the medicare supplement line of business . medicare supplement premiums ceded were approximately $ 5.3 million in the year ended december 31 , 2016. benefits and losses increased $ 2.5 million , or 3.7 % , during 2016 as compared to 2015. as a percentage of premiums , benefits and losses were 69.0 % in 2016 compared to 68.8 % in 2015. the slight increase in the loss ratio was primarily attributable to less favorable loss experience in the medicare supplement line of business . underwriting expenses increased $ 3.0 million , or 9.0 % , during 2016 as compared to 2015. as a percentage of earned premiums , these expenses were 35.9 % in 2016 compared to 34.0 % in 2015. the increase in the expense ratio was primarily due to increases in compensation expenses including higher utilization of temporary staffing , increased printing costs associated with the new business activity as well as an increase in agency related expenses . investment income and realized gains investment income decreased $ 0.2 million , or 2.0 % , in 2016 as compared to 2015. the decrease in investment income was primarily attributable to a decrease in the average yield on the company 's investments in fixed maturities .
| underwriting results american southern the following table summarizes , for the periods indicated , american southern 's premiums , losses , expenses and underwriting ratios : replace_table_token_11_th gross written premiums at american southern decreased $ 4.4 million , or 7.3 % , during 2016 as compared to 2015. the decrease in gross written premiums was primarily attributable to the cancellation of an agency in the fourth quarter of 2015 , a decrease in business from another agency which moved certain business because of geographical coverage limitation imposed by the company and the loss of business due to the inability to obtain adequate pricing relative to the risks . the largest decrease in gross written premiums was in the automobile physical damage line of business . in 2016 , automobile physical damage written premiums decreased $ 4.0 million and property and surety written premiums decreased $ 2.9 million as compared to 2015. partially offsetting the decreases in gross written premiums in these lines of business was an increase of $ 2.6 million in automobile liability business due primarily to premium rate increases on renewal business and a new automobile program . in both 2016 and 2015 , american southern 's five principal states in terms of written premiums were alabama , florida , georgia , south carolina , and tennessee , which accounted for approximately 80 % and 72 % of total written premiums for 2016 and 2015 , respectively . ceded premiums decreased $ 0.3 million , or 6.0 % , during 2016 as compared to 2015. the decrease in ceded premiums was primarily due to the cancellation of a reinsurance agreement specifically reinsuring certain of the company 's automobile liability business in one state insurance contract .
| 4,701 |
in 2018 and 2017 , the board declared a per share cash dividend for all redeemable common shares story_separator_special_tag overview headquartered in cincinnati , ohio , the dental care plus group offers to ohio , kentucky , indiana , michigan and tennessee employer groups of all sizes dental hmo , dental ppo , dental indemnity and vision ppo benefit plans and related services . the company also offers dental ppo plans to individuals and small groups on the ffm exchanges and individual dental hmo and ppo plans in ohio , kentucky and indiana . as of december 31 , 2018 , we had approximately 408,200 members in our dental and vision benefit programs with approximately 3,000 providers participating in our dental care plus dental hmo network , approximately 3,200 providers participating in our dentaselect dental ppo network and approximately 2,300 in our balanced value dental ppo network . the company has a network access agreement with a national dental network management company that has one of the largest ppo networks of providers under contract in the united states . with this network access agreement , our dental ppo members have access to approximately 46,400 additional providers throughout the united states . the company also has a network access arrangement with a national dental administration company for the dental ppo plans that it offered on the ffm exchanges in 2018. with this network access arrangement , ffm exchange members have access to approximately 12,700 providers across the eleven ffm exchange states . we manage our business with four reportable segments : fully-insured dental hmo and indemnity ( “ dental hmo/ind ” ) , fully-insured dental ppo , self-insured dental , and corporate , all other . self-insured dental consists of the self-insured dental hmo , self-insured dental ppo and self-insured dental indemnity products . corporate , all other primarily consists of revenue associated with our dental ppo and vision products underwritten by third-party insurance carriers and certain other corporate activities . we believe that our ability to continue this growth strategy is dependent on our ability to access additional capital to enhance information technology and new market entry . the results of our fully-insured dental hmo/ind , fully-insured dental ppo and self-insured dental segments are measured by gross profit . we do not measure the gross profit of our corporate , all other segment . we do not allocate investment and other income , interest expense , insurance expenses , assets or liabilities to our segments because these measures are not used to analyze the segments . our segments do not share overhead costs or assets . we do , however , measure the contributions of each of our fully-insured and self-insured segments to costs retained in our corporate , all other segment . during 2017 , the board of directors established a special committee to consider strategic alternatives available to the company , including consideration of certain third party proposals made to the company . the significant amount of work by the special committee and advisors to the special committee resulted in increased director compensation expense and professional expense during 2018 and 2017. as discussed on our current report on form 8-k filed with the commission on march 14 , 2019 , the company entered into agreement with dentaquest , llc dated march 12 , 2019 pursuant to which the company will be merged with a subsidiary of dentaquest , llc and our shareholders will receive cash in exchange for their company commons shares ( the “ merger ” ) . the merger is subject to approval of our shareholders , regulatory approval and other customary conditions . profitability strategy our strategy has focused on providing solutions to employers and individuals to manage the rising cost of dental care by leveraging our products . we give employer groups and members options that meet their needs . we strive to provide excellent customer service to our employer groups , members , brokers and providers . additionally , we have increased the diversification of our membership base , not only through our newer products , but also by entering new geographic territories . 17 in our original eight county service area , our non-exclusive dental hmo provider network includes approximately 95 % of the dental providers in the market . this area , which we refer to as our original eight county service area , includes butler , clermont , hamilton and warren counties in ohio , and boone , campbell , kenton and pendleton counties in kentucky . in that market our dental hmo provides the broad provider access of a dental ppo along with effective utilization and cost control features . because of the broad provider network and our professional support services to employers , our fully-insured dental hmo is priced higher than other dental hmos and has premium rates more equivalent to competitor dental ppos . we have experienced steady growth in membership and revenue in our dental products during the last five years . we attribute this growth to our broad provider networks , competitive premium rates for our fully-insured business and aso fees for our self-insured business , and our commitment to providing outstanding customer service to all of our constituencies ( employer groups , members , brokers , and providers ) . historically , healthcare services expense has generally increased for both the fully-insured dental segment and the self-insured dental segment . we continue to review and adjust our provider fee schedules where appropriate . other important factors that have an impact on our profitability are both the competitive pricing environment and market conditions . with respect to pricing , there is a tradeoff between sustaining or increasing underwriting margins versus increasing enrollment . with respect to market conditions , economies of scale have an impact on our administrative overhead . as a result of a decline in preference for more closely managed dental hmo products , dental costs have become increasingly comparable among our larger competitors . story_separator_special_tag the higher consolidated insurance expense in 2018 was primarily due to the reinstatement of the federal premium tax as well as higher professional consulting expense , third party administration expense and various other expenses in 2018. income taxes our effective tax rate for 2018 was 26.3 % compared to the 51.9 % effective tax rate in 2017. the decrease in federal income tax rate is the result of the u.s. government tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) , which reduced the corporate tax rate from 34 % to 21 % . this reduction is offset by the non-deductible federal premium tax in 2018. see note 10 to the consolidated financial statements included in item 8-financial statements and supplementary data for a complete reconciliation of the federal statutory rate to the effective tax rate . comparison of results of operations for 201 7 and 201 6 the following table shows membership totals and revenues and expenses for our four business segments for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_10_th 22 summary net income was approximately $ 1,829,000 and $ 1,989,000 for 2017 and 2016 , respectively . this decrease in net income is primarily the result of higher deferred tax expense as a result of the tax act which accounted for an approximate $ 692,000 increase in taxes , an increase in premium revenue of approximately $ 1,995,000 offset by an increase in healthcare services expense of approximately $ 1,108,000 in 2017. the increase in gross margin of approximately $ 887,000 was offset by an increase in insurance expenses of $ 552,000 in 2017. our ratio of insurance expense to total premium revenue ( “ insurance expense ratio ” ) increased to 21.1 % in 2017 from 21.0 % in 2016. membership our fully-insured dental hmo/ind membership decreased by approximately 7,500 in 2017. this membership decrease is attributable to the reduction of approximately 10,000 fully-insured dental hmo members due to the conversion of one employer group from our fully-insured dental hmo/ind product to our self-insured dental product effective january 1 , 2017. in addition , a decrease of approximately 9,900 members is the result of employer groups that did not renew with the company or reduced employee counts of retained employer groups . these decreases were offset by an increase of 10,100 members from new sales with employer groups and 2,300 members from new sales of individual hmo products in 2017. some of our fully-insured dental hmo/ind membership losses were the result of corporate consolidations and employer groups moving to medical carriers to take advantage of medical/dental packaged savings . our fully-insured dental ppo membership increased by approximately 10,300 members in 2017. this membership increase is due to new sales in the dayton and central ohio markets , the southern kentucky market and the indiana market of approximately 11,600 members during 2017 , offset by the loss of approximately 6,900 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups in these markets . the remaining increase of approximately 5,600 members is due to new sales of individual and on exchange dental ppo products in 2017. our self-insured dental membership increased by approximately 1,500 members in 2017. during 2017 , approximately 10,000 members of an employer group converted from our fully-insured dental hmo/ind product to our self-insured dental product effective january 1 , 2017 , which was offset by a decrease of 8,500 members as a result of employer groups that did not renew with the company . some of our self-insured dental hmo/ind membership losses were the result of corporate consolidation and employer groups moving to other carriers . our corporate , all other membership increased slightly as a result of increased membership in our vision plan . revenue ( amounts in thousands ) 2017 2016 total dollar change member volume change rate change total fully-insured dental hmo/ind premium $ 51,419 $ 53,393 $ ( 1,974 ) $ ( 1,432 ) $ ( 542 ) fully-insured dental hmo/ind premium revenue for 2017 decreased by approximately $ 1,974,000 compared to 2016. new fully-insured dental hmo/ind sales volume resulted in an increase in fully-insured dental hmo/ind premium revenue of approximately $ 1,813,000 that was offset by a decrease in fully-insured dental hmo/ind revenue of approximately $ 3,245,000 due to the conversion of an employer group to the self-insured product line in 2017. fully-insured dental hmo/ind premium decreased by $ 542,000 due to lower overall premium rates on a pmpm basis . the conversion of an employer group from fully-insured to the self-insured product line resulted in $ 213,000 of this decrease . the fully-insured dental hmo/ind segment represented approximately 47.8 % of our total dental business in 2017 . ( amounts in thousands ) 2017 2016 total dollar change member volume change rate change total fully-insured dental ppo premium $ 25,936 $ 22,363 $ 3,573 $ 3,966 $ ( 393 ) fully-insured dental ppo premium revenue for 2017 increased by approximately $ 3,573,000 compared to 2016. fully-insured dental ppo revenue increased by approximately $ 3,966,000 due to an increase in fully-insured ppo group and individual membership in 2017 , offset by a decrease of approximately $ 393,000 due to a decrease in premium rates for the year . the fully-insured dental ppo segment represented approximately 24.1 % of our total dental business in 2017 . 23 replace_table_token_11_th self-insured dental revenue increased by approximately $ 360,000 due to new self-insured sales and an increase in membership for existing employer groups . self-insured revenue increased by approximately $ 326,000 due to an increase in the self-insured claims revenue on a per member per month basis , as well as an increase of approximately $ 34,000 in self-insured administrative fee rates on a per member per month basis .
| summary net income was approximately $ 2,557,000 and $ 1,829,000 for 2018 and 2017 , respectively . the increase in net income was primarily a result in lower income tax expense of approximately $ 1,057,000 , an increase in premium revenue of approximately $ 4,725,000 and an increase in investment income of approximately $ 68,000. these improvements were offset by an increase in healthcare services expense of approximately $ 2,464,000 , an increase in insurance expenses of $ 2,285,000 and an increase in realized losses on investments of approximately $ 374,000. membership our fully-insured dental hmo/ind membership decreased by approximately 800 members , or 0.5 % , in 2018. this membership decrease is a result of approximately 2,700 fully-insured dental hmo/ind members converting to our self-insured dental product in 2018 as well as a loss of approximately 11,200 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups . in addition , some of our fully-insured dental hmo/ind membership losses were the result of corporate consolidations and employer groups moving to medical or other ancillary carriers to take advantage of multi-line packaged savings . these decreases were offset by an increase of 11,100 members from new sales of employer groups and a net increase of 2,000 members from new sales of individual hmo products . our fully-insured dental ppo membership increased by approximately 11,300 members , or 12.6 % in 2018. this membership increase is due to new sales in the dayton and central ohio markets , the southern kentucky market and the indiana market of approximately 10,400 members during 2018 , offset by the loss of approximately 7,700 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups in these markets .
| 4,702 |
this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. see `` forward-looking statements `` and part i , item 1a. `` risk factors . `` overview note : all references to comparable store sales in fiscal 2013 refer to the 52-week comparison to fiscal 2012 without consideration of the 53 rd week in fiscal 2013. all other fiscal 2013 financial information includes the full 53-week period . hibbett sports , inc. operates sporting goods stores in small to mid-sized markets , predominantly in the south , southwest , mid-atlantic and midwest regions of the united states . we believe hibbett sports stores are typically the primary sporting goods retailers in smaller markets due to the extensive selection of premium brand name merchandise , availability of local merchandise , an emphasis on team sports and a high level of customer service . as of february 1 , 2014 , we operated a total of 927 retail stores in 31 states composed of 910 hibbett sports stores and 17 sports additions athletic shoe stores . our primary retail format and growth vehicle is hibbett sports , an approximately 5,000-square-foot store located primarily in strip centers , which are frequently near a wal-mart store . approximately 80 % of our hibbett sports store base is located in strip centers , which includes free-standing stores , while approximately 20 % of our hibbett sports store base is located in enclosed malls . over the last several years , we have concentrated and expect to continue our store base growth in strip centers versus enclosed malls . we do not expect that the average size of our stores opening in fiscal 2015 will vary significantly from the average size of stores opened in fiscal 2014. hibbett operates on a 52- or 53-week fiscal year ending on the saturday nearest to january 31 of each year . the consolidated statements of operations for fiscal 2014 included 52 weeks of operations . the consolidated statements of operations for fiscal 2013 included 53 weeks of operations and fiscal 2012 included 52 weeks of operations . fiscal 2015 will include 52 weeks of operations . we have operated as a public company and have been incorporated under the laws of the state of delaware since october 6 , 1996. fiscal 2014 experienced a total company-wide square footage increase of 6.5 % . our plan for fiscal 2015 is to increase total company-wide square footage by 6 % to 7 % . to supplement new store openings , we continue to expand high performing stores , increasing the square footage in 14 existing stores in fiscal 2014 for an average increase in square footage of 56 % . we expect to expand an additional 10 to 15 stores in fiscal 2015. in fiscal 2013 , we began construction on a new wholesaling and logistics facility to support our expected growth over the next several years with an expected operations date in early fiscal 2015. the expected total cost of the new facility is estimated at approximately $ 40.0 million . we historically have had increases in comparable store net sales in the low to mid-single digit range . in fiscal 2014 , activewear , accessories and footwear experienced mid-single digit comparable store gains . total comparable store sales percentage growth is expected to be in the low to mid-single digits in fiscal 2015. we expect a flat to slightly positive increase in merchandise margin , but a slight decrease in overall gross profit rate in fiscal 2015 due to additional costs related to our new wholesaling and logistics facility . due to our increased net sales , we have historically leveraged our store operating , selling and administrative expenses . based on projected net sales , we expect operating , selling and administrative rates to increase slightly in fiscal 2015 , primarily due to increases in marketing , information technology and health care costs . we also expect to continue to generate sufficient cash to enable us to expand and remodel our store base , to provide capital expenditures for our wholesaling and logistics facility , technology upgrade projects and to repurchase our common stock under our stock repurchase program . 25 due to the 53 rd week in fiscal 2013 , each quarter in fiscal 2014 started one week later than the same quarter in fiscal 2013. the chart below presents comparable store sales for fiscal 2013 as originally reported and as adjusted to represent the same 13-week period as the fiscal 2014 quarters : replace_table_token_8_th comparable store net sales data for the periods presented reflects sales for our traditional format hibbett sports and sports additions stores open throughout the period and the corresponding period of the prior fiscal year . if a store remodel , relocation or expansion results in the store being closed for a significant period of time , its sales are removed from the comparable store base until it has been open a full 12 months . story_separator_special_tag store operating , selling and administrative expenses were $ 181.5 million , or 21.3 % of net sales , for fiscal 2014 , compared with $ 169.9 million , or 20.8 % of net sales , for fiscal 2013. expense trends we experienced included : · total salary and benefit costs increased in dollars and as a percentage to net sales by 32 basis points due to company growth , higher health care costs , annual pay rate increases and as a consequence of weaker sales growth . as our store base grows , we expect an increase in salary and benefit dollars , but believe these costs as a percentage to net sales will remain relatively stable . · new store costs increased 6 basis points as a percentage of net sales resulting from an increase in new store openings . we expect these costs to increase slightly in fiscal 2015 as we continue to increase new store openings . story_separator_special_tag depreciation and amortization as a percentage of net sales was 1.6 % in fiscal 2013 compared to 1.8 % in fiscal 2012. we attributed the decrease in depreciation expense as a percent of net sales to a decrease in the investment in leasehold improvements in recent years as more of the build-out work was being done by landlords offset somewhat by changes in estimates of useful lives of leasehold improvements in underperforming stores . provision for income taxes . the combined federal , state and local effective income tax rate as a percentage of pre-tax income was 37.3 % for fiscal 2013 and 36.7 % for fiscal 2012. the increase in rate resulted primarily from lower federal income tax credits as a result of the expiration of the work opportunity tax credit program and the resolution of an income tax matter with a state taxing authority in fiscal 2012. liquidity and capital resources our capital requirements relate primarily to new store openings , stock repurchases , facilities and systems to support company growth and working capital requirements . our working capital requirements are somewhat seasonal in nature and typically reach their peak near the end of the third and the beginning of the fourth quarters of our fiscal year . historically , we have funded our cash requirements primarily through our cash flow from operations and occasionally from borrowings under our revolving credit facilities . due to the low interest rates currently available , we are using excess cash on deposit to offset bank fees versus investing such funds in an equity market or in interest-bearing deposits . 29 our consolidated statements of cash flows are summarized as follows ( in thousands ) : replace_table_token_11_th operating activities . cash flow from operations is seasonal in our business . typically , we use cash flow from operations to increase inventory in advance of peak selling seasons , such as winter holidays and back-to-school . inventory levels are reduced in connection with higher sales during the peak selling seasons and this inventory reduction , combined with proportionately higher net income , typically produces a positive cash flow . net cash provided by operating activities was $ 53.3 million for fiscal 2014 compared with net cash provided by operating activities of $ 87.1 million and $ 54.9 million in fiscal 2013 and fiscal 2012 , respectively . the decrease in net cash provided by operating activities for fiscal 2014 compared to fiscal 2013 and fiscal 2012 was impacted by the following : · the change in accounts payable used cash of $ 27.5 million , provided cash of $ 28.3 million in fiscal 2013 and used cash of $ 2.3 million during fiscal 2012. the decrease in fiscal 2014 resulted from a later receipt of inventory in advance of the spring season . the increase in fiscal 2013 resulted from an earlier receipt of inventory in advance of the spring season . the fluctuation in cash provided by accounts payable in fiscal 2012 resulted from the anniversary of payment term extensions initiated in fiscal 2011 with the use of corporate purchasing cards . · ending inventory declined 3.6 % and increased 8.2 % on a per store level basis at february 1 , 2014 and february 2 , 2013 , respectively , compared to the prior year . this was primarily due to the later receipt of spring inventory compared to the prior year . the increase in inventory used cash of $ 5.2 million , $ 26.3 million and $ 20.2 million during fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . · net income provided cash of $ 70.9 million , $ 72.6 million and $ 59.1 million during fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . · non-cash charges included depreciation and amortization expense of $ 13.8 million , $ 13.0 million and $ 13.2 million during fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively , and stock-based compensation expense of $ 5.8 million , $ 5.6 million and $ 5.5 million during fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . depreciation expense increased in fiscal 2014 due to investments in facilities and information technology systems and will continue to increase as all facilities and systems are placed into service . fluctuations in stock-based compensation generally result from the achievement of performance-based equity awards at greater or lesser than their granted level and fluctuations in the price of our common stock . investing activities . cash used in investing activities in the fiscal periods ended february 1 , 2014 , february 2 , 2013 and january 28 , 2012 totaled $ 51.0 million , $ 22.3 million and $ 13.4 million , respectively . gross capital expenditures used $ 50.5 million , $ 22.0 million and $ 13.0 million during fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . capital expenditures in fiscal 2014 included our new corporate headquarters , our inventory markdown optimization system and construction costs on our new wholesale and logistics facility . we use cash in investing activities to build new stores and remodel , expand or relocate existing stores . we opened 72 new stores and relocated , expanded and or remodeled 17 existing stores during fiscal 2014. we opened 54 new stores and relocated , expanded and or remodeled 18 existing stores during fiscal 2013. we opened 52 new stores and relocated , expanded and or remodeled 18 existing stores during fiscal 2012 . 30 we estimate the cash outlay for capital expenditures in the fiscal year ending january 31 , 2015 will be approximately $ 25.0 million to $ 30.0 million , which relates to expenditures for our new wholesaling and logistics facility , the opening of 75 to 80 new stores , the remodeling , relocation or expansion of selected existing stores , information system upgrades , and other departmental needs .
| executive summary following is a highlight of our financial results over the last three fiscal years : replace_table_token_9_th during fiscal 2014 , hibbett opened 72 new stores and closed 18 underperforming stores , bringing the store base to 927 in 31 states as of february 1 , 2014. inventory on a per store basis at february 1 , 2014 decreased by 3.6 % resulting from planned later receipts of spring inventory to better coincide with the timing of sales . hibbett ended fiscal 2014 with $ 66.2 million of available cash and cash equivalents on the consolidated balance sheet and full availability under its $ 80.0 million unsecured credit facilities . recent accounting pronouncements see note 2 of item 8 of this annual report on form 10-k for the fiscal year ended february 1 , 2014 , for information regarding recent accounting pronouncements . 26 results of operations the following table sets forth the percentage relationship to net sales of certain items included in our consolidated statements of operations for the periods indicated . replace_table_token_10_th note : columns may not sum due to rounding . fiscal 2014 compared to fiscal 2013 net sales . net sales increased $ 33.3 million , or 4.1 % , to $ 852.0 million for fiscal 2014 from $ 818.7 million for fiscal 2013. furthermore : · we opened 72 hibbett sports stores while closing 18 underperforming hibbett sports stores for net stores opened of 54 stores in fiscal 2014. stores not in the comparable store net sales calculation accounted for $ 19.9 million of the increase in net sales . we expanded , remodeled or relocated 17 high performing stores . store openings and closings are reported net of relocations . · we achieved a 1.8 % increase in comparable store net sales for fiscal 2014 compared to fiscal 2013. comparable store net sales contributed $ 13.4 million to the increase in net sales .
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through our subsidiary servicelink holdings , llc ( `` servicelink '' ) , we provide mortgage transaction services including title-related services and facilitation of production and management of mortgage loans . fnf also provides industry-leading mortgage technology solutions , including msp® , the leading residential mortgage servicing technology platform in the u.s. , through its majority-owned subsidiary , black knight financial services , inc. ( `` black knight '' ) . through our fnfv group , we own majority and minority equity investment stakes in a number of entities , including american blue ribbon holdings , llc ( `` abrh '' ) , ceridian hcm , inc. and fleetcor technologies , inc. ( collectively `` ceridian '' ) and digital insurance , inc. ( `` digital insurance '' ) . as of december 31 , 2015 , we had the following reporting segments : fnf core operations title . this segment consists of the operations of our title insurance underwriters and related businesses . this segment provides core title insurance and escrow and other title-related services including collection and trust activities , trustee sales guarantees , recordings and reconveyances , and home warranty insurance . this segment also includes the transaction services business acquired from lender processing services , inc. ( `` lps '' ) , now combined with our servicelink business . transaction services include other title related services used in the production and management of mortgage loans , including mortgage loans that experience default . black knight . this segment consists of the operations of black knight , which , through leading software systems and information solutions , provides mission critical technology and data and analytics services that facilitate and automate many of the business processes across the life cycle of a mortgage . fnf core corporate and other . this segment consists of the operations of the parent holding company , certain other unallocated corporate overhead expenses , and other smaller real estate and insurance-related operations . fnfv restaurant group . this segment consists of the operations of abrh , in which we have a 55 % ownership interest . abrh and its affiliates are the owners and operators of the o'charley 's , ninety nine restaurants , max & erma 's , village inn , bakers square , and legendary baking concepts . this segment also includes the results of j. alexander 's , inc. ( `` j. alexander 's '' ) through september 28 , 2015 , the date it was distributed to fnfv shareholders . see the recent developments section below for further discussion of the distribution of j. alexander 's . on january 25 , 2016 , substantially all of the assets of the max & erma 's restaurant concept were sold pursuant to an asset purchase agreement . fnfv corporate and other . this segment primarily consists of our share in the operations of certain equity investments , including ceridian , as well as consolidated investments , including digital insurance in which we own 96 % , and other smaller operations which are not title related . recent developments on february 18 , 2016 , our board of directors approved a new fnfv group three-year stock repurchase program , effective march 1 , 2016 , under which we may repurchase up to 15 million shares of fnfv group common stock . purchases may be made from time to time by us in the open market at prevailing market prices or in privately negotiated transactions through february 28 , 2019. on february 11 , 2016 , we announced that we are considering alternatives to the spin-off of abrh to fnfv shareholders previously announced on july 30 , 2015 . 36 on january 20 , 2016 , we entered into two interest rate swap agreements to hedge forecasted monthly interest rate payments on $ 400.0 million of our floating rate debt ( $ 200.0 million notional value each ) ( the “ swap agreements ” ) . the swap agreements have been designated as cash flow hedging instruments . under the terms of the swap agreements , we receive payments based on the 1-month libor rate and pay a weighted average fixed rate of 1.01 % . the effective term for the swap agreements is february 1 , 2016 through january 31 , 2019. beginning in october 2015 through december 31 , 2015 , we purchased approximately 2.2 million shares of del frisco restaurant group ( `` del frisco 's '' , nasdaq : dfrg ) common stock for a total investment of $ 32 million . subsequent to year-end through february 19 , 2016 , we purchased approximately 0.8 million shares of del frisco 's common stock for $ 12 million . we currently own approximately 13 % of the outstanding common stock of del frisco 's . on september 16 , 2015 , j. alexander 's and fnf entered into a separation and distribution agreement , pursuant to which fnf agreed to distribute one hundred percent ( 100 % ) of its shares of j. alexander 's common stock , on a pro rata basis , to the holders of fnfv common stock . holders of fnfv common stock received , as a distribution from fnf , approximately 0.17272 shares of j. alexander 's common stock for every one share of fnfv common stock held at the close of business on september 22 , 2015 , the record date for the distribution ( the “ distribution ” ) . the distribution was made on september 28 , 2015 . as a result of the distribution , j. alexander 's is now an independent public company and its common stock is listed under the symbol “ jax ” on the new york stock exchange . the distribution was generally tax-free to fnfv shareholders for u.s. federal income tax purposes , except to the extent of any cash received in lieu of j. alexander 's fractional shares . story_separator_special_tag on february 12 , 2015 , we closed the purchase of buyers protection group holdings , llc ( `` bpg '' ) , pursuant to a certain membership interest purchase agreement , for $ 46 million . we first consolidated the results of bpg as of march 31 , 2015. bpg is a recognized leader in home warranty , home inspection services and commercial inspections . discontinued operations on december 31 , 2014 , we completed the distribution ( the `` remy spin-off '' ) of all of the outstanding shares of common stock of our previously owned subsidiary remy international , inc. ( `` new remy '' , nasdaq : remy ) , a manufacturer and distributer of auto parts , to fnfv shareholders . we have no continuing involvement in new remy as of december 31 , 2015. as a result of the remy spin-off , the results of new remy are reflected in the consolidated statements of earnings as discontinued operations for the the years ended december 31 , 2014 and 2013. total revenue included in discontinued operations was $ 1,173 million and $ 1,125 million for the years ended december 31 , 2014 , and 2013 , respectively . pre-tax earnings included in discontinued operations were $ 6 million and $ 22 million for the years ended december 31 , 2014 , and 2013 , respectively . the results from a small software company , which we acquired with lps and which was sold during the second quarter of 2014 , are included in the consolidated statements of earnings as discontinued operations for all periods presented . total revenues included in discontinued operations were $ 2 million for the year ending december 31 , 2014. pre-tax earnings included in discontinued operations are $ 1 million for the year ending december 31 , 2014. the results from two closed j. alexander 's locations in the second quarter of 2013 are reflected in the consolidated statements of earnings as discontinued operations for all periods presented . total net revenue included in discontinued operations was $ 3 million for the year ended december 31 , 2013. pre-tax loss included in discontinued operations was $ 3 million for the year ended december 31 , 2013. the results from a settlement services company closed in the second quarter of 2013 are reflected in the consolidated statements of earnings as discontinued operations for all periods presented . total revenues included in discontinued operations were $ 9 million for the year ended december 31 , 2013. pre-tax earnings included in discontinued operations were $ 2 million for the year ended december 31 , 2013. related party transactions our financial statements for the year ended december 31 , 2013 reflect transactions with fidelity national information services ( `` fis '' ) , which was considered a related party until december 31 , 2013. see note a of the notes to consolidated financial statements . business trends and conditions title our title segment revenue is closely related to the level of real estate activity which includes sales , mortgage financing and mortgage refinancing . the levels of real estate activity are primarily affected by the average price of real estate sales , the availability of funds to finance purchases , mortgage interest rates and the strength of the united states economy , including employment levels . declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues . we have found that residential real estate activity is generally dependent on the following : mortgage interest rates ; the mortgage funding supply ; and the strength of the united states economy , including employment levels . from december 2008 through december 2015 , the federal reserve held the federal funds rate at 0.0 % -0.25 % . in december 2015 , the federal reserve raised the target federal funds rate to 0.25 % -0.50 % . mortgage interest rates were at historically low levels through the beginning of 2013. during the last half of 2013 , however , interest rates rose to their highest level since 2011. through 2014 , mortgage interest rates declined moderately . in the fourth quarter of 2014 , interest rates dropped below 4.00 % and have remained between 3.50 % and 4.25 % through the year ended december 31 , 2015 . 38 as of february 18 , 2016 , the mortgage banker 's association ( `` mba '' ) estimated the size of the u.s. mortgage originations market as shown in the following table for 2014 - 2017 in its `` mortgage finance forecast '' ( in trillions ) : replace_table_token_15_th in 2014 the mix of mortgage originations between purchase and refinance transactions returned closer to historical norms . driven by the decrease in refinance activity following an extended period of low interest rates , the ratio of refinances to total originations was approximately 40 % . in 2015 , the ratio of refinances to total originations was closer to 50 % as anticipation of increased mortgage rates resulting from projected increases in the target federal funds rate weighed on the market . the mba predicts the ratio will return to historical norms and decrease through 2018. the mba predicts mortgage originations in 2016 through 2018 to decrease slightly compared to the 2015 period with a slight increase in purchase transactions expected to be offset by a decrease in refinance transactions . we expect the predicted change in mix , if it materializes , to have a positive effect on our earnings because purchase transactions involve the issuance of both a lender 's policy and an owner 's policy , resulting in higher fees , whereas refinance transactions only require a lender 's policy , resulting in lower fees .
| segment results of operations fnf core operations title beginning january 2 , 2014 , the title segment includes the results of the transaction services business acquired with lps . the following table presents certain financial data for the years indicated : replace_table_token_24_th total revenues in 2015 increased $ 784 million or 13.9 % compared to 2014 . total revenues in 2014 decreased $ 250 million or 4.2 % compared to 2013 . the increase in the year ended december 31 , 2015 is primarily attributable to improvements in the overall real estate markets driving increases in closed order volumes as well as current year acquisitions . the decrease in revenue in the year ended december 31 , 2014 was primarily driven by decreased closed order volume . during the year ended december 31 , 2015 the results of title included increased personnel costs , agent commissions , and provision for title claim losses associated with the increased title premium revenue . during the year ended december 31 , 2014 , the results of title contained $ 35 million of transaction expenses related to the lps acquisition and $ 1 million for merger related litigation , which were included in other operating expenses . included within personnel costs in the year ended december 31 , 2014 were $ 20 million in severance expenses related to the lps acquisition and $ 30 million expense to accrue for bonuses under our synergy bonus program . depreciation and amortization for the year ended december 31 , 2014 included $ 88 million related to assets acquired with lps and marked to fair value in purchase accounting . the following table presents the percentages of title insurance premiums generated by our direct and agency operations : replace_table_token_25_th 50 title premiums increased 16.8 % in the year ended december 31 , 2015 as compared to the 2014 period .
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the following assumptions were used in determining the fair value of stock option grants for the years ended september 30 , 2018 , 2017 and 2016 : replace_table_token_11_th a summary of option activity under the 2014 plan and 2018 plan is presented below : replace_table_token_12_th see report of independent accounting firm f- 17 on march 30 , 2016 , the company assumed stock options to purchase 77,252 shares of common stock in connection with the acquisition of lmb . the lmb option holders received stock options to purchase 71,217 shares at an exercise price of $ 0.01 per share and 6,035 shares at an exercise price of $ 13.65 per share . pursuant to the original grants , options to purchase 4,829 shares were immediately vested and options to purchase 72,423 shares vest over three years . these options all had original terms of 10 years . on june 23 , 2016 , the board of directors granted stock options to four directors . each director received an option to purchase 13,333 shares of common stock at an exercise price of $ 12.00 per share in consideration for their services . these options vest in full on june 23 , 2017 and have a term of 10 years . in july 2016 , the board of directors granted stock options to purchase a total of 138,267 shares to three employees at prices ranging from $ 10.50 to $ 13.50 per share . these options vest over terms of 19 to 36 months and have a term of 10 years . on january 1 , 2017 , the board of directors granted stock options to purchase a total of 8,669 shares to four consultants at $ 10.05 per share . these options vest over terms of 12 to 36 months and have a term of 10 years . in september 2017 , the board of directors granted stock options to purchase a total of 225,000 shares to 12 employees and 50,000 options to two consultants at $ 3.45 per share . these options vest over terms of 12 to 36 months and have a term of 10 years . in september 2018 , the board of directors granted stock options to purchase a total of 520,000 shares to six employees , 75,000 options to five directors , and 80,000 options to three consultants at $ 1.62 per share . in addition , the board granted stock options to purchase 70,000 shares to a financial consultant at $ 1.75 per share . these options vest over terms of 12 to 36 months and have a term of 10 years . stock-based compensation expense for the years ended september 30 , 2018 , 2017 and 2016 was $ 779,701 , $ 986,620 and $ 732,151 , respectively . at september 30 , 2018 , unrecognized total compensation cost related to unvested awards of $ 1,425,957 is expected to be recognized over a weighted average period of 2.3 years . see report of independent accounting firm f- 18 warrants the company has reserved 15,193,192 shares of common stock for the exercise of outstanding warrants . the following table summarizes the warrants outstanding at september 30 , 2018 : replace_table_token_13_th on march 30 , 2016 , the company granted warrants to purchase 243,020 shares of common stock in connection with the acquisition of lmb . the warrants have exercise prices between $ 6.15 and $ 20.70 per share . all warrants were vested at march 30 , 2016. the fair value of the warrants was estimated at $ 1,071,172 and has been included in the purchase price of lmb . on august 16 , 2016 , the company granted warrants to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this annual report on form 10-k. management 's discussion and analysis contains forward-looking statements , such as statements of our plans , objectives , expectations and intentions . any statements that are not statements of historical fact are forward-looking statements . when used , the words “ believe , ” “ plan , ” “ intend , ” “ anticipate , ” “ target , ” “ estimate , ” “ expect ” and the like , and or future tense or conditional constructions ( “ will , ” “ may , ” “ could , ” “ should , ” etc . ) , or similar expressions , identify certain of these forward-looking statements . these forward-looking statements are subject to risks and uncertainties including those under “ risk factors ” in item 1a in this form 10-k that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements . our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors . the company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the filing date of this report . historical background citius pharmaceuticals , inc. ( “ citius ” or the “ company ” ) is a specialty pharmaceutical company dedicated to the development and commercialization of critical care products targeting unmet needs with a focus on anti-infectives , cancer care and unique prescription products . on september 12 , 2014 , we acquired citius pharmaceuticals , llc as a wholly-owned subsidiary . on march 30 , 2016 , the company acquired all of the outstanding stock of leonard-meron biosciences , inc. ( “ lmb ” ) by issuing 1,942,456 shares of its common stock . as of march 30 , 2016 , the stockholders of lmb received approximately 41 % of the issued and outstanding common stock of the company . story_separator_special_tag the company reversed an accrual for certain research and development expenses that was recorded in a prior year that will not be paid . in addition , during the year ended september 30 , 2018 , the company recorded as other income a refund receivable in the amount of $ 818,343 from the fda for 2016 product and establishment fees . the fees previously paid by the company exceeded the costs of the fda 's review of the associated suprenza applications . there was no gain on revaluation of derivative warrant liability for the year ended september 30 , 2018 as there were no warrants classified as derivative warrants during the year . gain on revaluation of derivative warrant liability for the year ended september 30 , 2017 was $ 452,147. the fair value of the derivative warrant liability fluctuated with changes in our stock price , volatility , remaining lives of the warrants , and interest rates . interest expense for the year ended september 30 , 2018 was $ 15,838 as borrowings from our chairman were converted to common stock on august 8 , 2017. interest expense on the notes payable acquired in the acquisition of lmb and borrowings from our chairman was $ 850,789 for the year ended september 30 , 2017 , and includes net non-cash interest expense of $ 762,078 due to the beneficial conversion feature on the conversion price of $ 1,595,411 and the amortization of the previously recorded modification premium of $ 833,333. net loss for the year ended september 30 , 2018 , we incurred a net loss of $ 12,536,638 compared to a net loss of $ 10,384,953 for the year ended september 30 , 2017. the $ 2,151,685 increase in the net loss was primarily due to the $ 3,626,673 increase in research and development expenses offset by the $ 1,651,147 increase in net other income ( expense ) . 33 results of operations for year ended september 30 , 2017 compared to year ended september 30 , 2016 replace_table_token_4_th revenues we did not generate any revenues for the years ended september 30 , 2017 and 2016. research and development expenses for the year ended september 30 , 2017 , research and development expenses were $ 2,936,252 as compared to $ 2,933,199 during the year ended september 30 , 2016. the $ 3,053 increase in 2017 was primarily due to an increase of $ 776,192 in costs incurred in the development of mino-lok offset by a decrease of $ 773,139 in costs incurred in the development of our product for the treatment of hemorrhoids and costs related to suprenza , including $ 292,575 received in 2016 from alpex as reimbursement for regulatory filing fees . we are actively seeking to raise additional capital in order to fund our research and development efforts . story_separator_special_tag to common stock on august 8 , 2017. our primary uses of operating cash were for product development and commercialization activities , regulatory expenses , employee compensation , consulting fees , legal and accounting fees , and insurance and travel expenses . financing activities during the year ended september 30 , 2016 , the company sold 290,000 units for a purchase price of $ 8.10 per unit and 17,778 units for a purchase price of $ 9.00 per unit for gross proceeds of $ 2,509,000. each unit consisted of one share of common stock and one five-year warrant to purchase a share of common stock at an exercise price of $ 9.00. on march 22 , 2016 , the company sold 333,333 shares of common stock at $ 9.00 per share to its chairman of the board , leonard mazur , for gross proceeds of $ 3,000,000. the board of directors authorized revolving demand promissory notes with leonard mazur in an aggregate principal amount of up to $ 2,500,000 that accrue interest at the prime rate plus 1 % . on september 7 , 2016 , the company issued a $ 500,000 note . the company issued $ 2,000,000 of additional notes through the period ended may 10 , 2017. on may 10 , 2017 , the notes were converted into a $ 2,500,000 convertible promissory note that is convertible into shares of common stock , at the sole discretion of mr. mazur , at a conversion price equal to 75 % of the price per share paid by investors in the company 's 2017 registered public offering . in connection with the modification of the note , the company recorded a charge of $ 833,333 to additional paid-in capital and increased the carrying value of the notes to $ 3,333,333 which is the fair value of the common stock issuable on conversion . on august 8 , 2017 , leonard mazur converted the $ 2,500,000 principal balance and accrued interest of $ 63,174 into 828,500 shares of common stock . 35 on may 10 , 2017 and june 23 , 2017 , the company executed a $ 1,500,000 future advance convertible promissory note and a $ 1,000,000 future advance convertible promissory note , respectively , with leonard mazur that accrue interest at the prime rate plus 1 % . the notes are convertible into shares of common stock , at the sole discretion of mr. mazur , at a conversion price equal to 75 % of the price per share paid by investors in the company 's 2017 registered public offering . on august 8 , 2017 , leonard mazur converted the outstanding $ 2,210,000 principal balances and accrued interest of $ 13,066 into 718,567 shares of common stock . in february 2017 , the company sold 128,017 units at $ 6.00 per unit for gross proceeds of $ 768,100. each unit consisted of one share of common stock and a five-year warrant to purchase one share of common stock at an exercise price of $ 8.25 per share .
| general and administrative expenses for the year ended september 30 , 2017 , general and administrative expenses were $ 6,063,439 as compared to $ 3,783,941 during the year ended september 30 , 2016. the $ 2,279,498 increase in 2017 was primarily due to the acquisition of lmb on march 30 , 2016 , which resulted in increased compensation costs , increased consulting fees incurred for financing activities and corporate development services , and increased investor relations fees . in addition , the year ended september 30 , 2016 only includes six months of expenses for lmb as the acquisition was completed on march 30 , 2016. stock-based compensation expense for the year ended september 30 , 2017 , stock-based compensation expense was $ 986,620 as compared to $ 732,151 for the year ended september 30 , 2016. the $ 254,469 increase in expense includes the expense for unvested options assumed in the acquisition of lmb , as well as new grants to directors , employees and consultants . other income ( expense ) there was no interest income earned on our cash balances for the year ended september 30 , 2017 and only $ 806 in interest income earned for the year ended september 30 , 2016. gain ( loss ) on revaluation of derivative warrant liability for the year ended september 30 , 2017 was $ 452,147 compared to $ ( 838,219 ) for the year ended september 30 , 2016. the fair value of the derivative warrant liability fluctuates with changes in our stock price , volatility , remaining lives of the warrants , and interest rates . the gain for the year ended september 30 , 2017 was primarily due to a decrease in the fair value of our stock from $ 9.45 per share at september 30 , 2016 to $ 4.125 per share at august 8 , 2017 when the final derivative warrants were reclassified to equity .
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if our analysis indicates that the carrying value of the real estate asset is not recoverable on an undiscounted cash flow basis , we will recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property . assumptions and estimates used in the recoverability analyses for future cash flows , discount rates and capitalization rates are complex and subjective . changes in economic and operating conditions or our intent with respect to our investment that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment of our real estate properties . investment in unconsolidated real estate entities investments in unconsolidated real estate entities in which we have the ability to exercise significant influence ( but not control ) are accounted for under the equity method of investment . under the equity method , we initially story_separator_special_tag you should read the following discussion in conjunction with the sections of this annual report on form 10-k entitled “ risk factors , ” “ forward-looking statements , ” “ business ” and our audited consolidated and combined financial statements and the related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled “ risk factors ” and elsewhere in this annual report on form 10-k. company overview rexford industrial realty , inc. is a self-administered and self-managed full-service reit focused on owning and operating industrial properties in southern california infill markets . we were formed as a maryland corporation on january 18 , 2013 and rexford industrial realty , l.p. ( the “ operating partnership ” ) , of which we are the sole general partner , was formed as a maryland limited partnership on january 18 , 2013. through our controlling interest in our operating partnership and its subsidiaries , we own , manage , lease , acquire and develop industrial real estate primarily located in southern california infill markets . we are organized and conduct our operations to qualify as a reit under the code , and generally are not subject to federal taxes on our income to the extent we distribute 90 % of our taxable income to our shareholders and maintain our qualification as a reit . as of december 31 , 2015 , our consolidated portfolio consisted of 119 properties with approximately 12.0 million rentable square feet . we also hold a 15 % interest in a joint venture ( the “ jv ” ) that indirectly owns one property located in ventura county with approximately 0.5 million square feet , which we manage . in addition , we currently manage an additional 19 properties with approximately 1.2 million rentable square feet . our goal is to generate attractive risk-adjusted returns for our stockholders by providing superior access to industrial property investments in southern california infill markets . our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flow , as well as properties where we can enhance returns through value-add renovations and redevelopment . we believe that southern california infill markets are among the most attractive industrial markets for investment in the united states . scarcity of available space and high barriers limiting new construction all contribute to create superior long-term supply/demand fundamentals . with our vertically integrated platform and extensive value-add investment and management capabilities , we believe we are in a position to take advantage of the opportunities in our markets to achieve our objectives . the infill southern california industrial real estate sector has continued to exhibit strong fundamentals . available industrial supply continues to dwindle , landlord concessions are reducing , and construction deliveries are falling short of demand . even with concerns about global growth and the threat of rising interest rates , we are seeing a number of positive trends in some of our key markets that we expect will continue into the upcoming year . in los angeles county , we continue to see positive net absorption as construction deliveries continue to lag behind absorption . we expect this dynamic will cause further tightness in the market and drive upward pressure on leasing rates and occupancy . in orange county , activity levels showed a dramatic improvement over the previous year . we also saw positive net absorption during 2015. rents have continued their upward trend , and we expect that the low availability of industrial product in this region will also cause leasing rates to improve in the upcoming year . in san diego , 2015 was a historic year , breaking a number of records . the full year net absorption was the highest figure since 2006. strong activity in san diego also led to the lowest ever vacancy recorded in the region , which will position the market strongly for 2016. in ventura county , we have also seen positive net absorption and occupancy , and lease rates have remained steady throughout 2015. lastly , in the inland empire , new industrial product continues to be absorbed well in the market . in the inland empire west , which contains the infill markets in which we operate , vacancy remains low and asking lease rates have increased over the year . we expect the outlook for the inland empire to remain strong over the upcoming year as well . 49 2015 highlights acquisitions during 2015 , we acquired 21 properties , aggregating 2.1 million square feet , for an aggregate cost of $ 248 million , of which 10 properties aggregating 1.2 million square feet were considered value-add acquisitions . repositioning during 2015 , we completed value-add repositioning at three of our properties located at 7110 rosecrans avenue , 605 8th street and 7900 nelson road . story_separator_special_tag we expect general market conditions to remain positive in 2016 , and we believe the opportunity to increase occupancy and rental rates at our properties will be a significant driver of future revenue growth . leasing activity and rental rates . over the past four quarters of 2015 , we have generated positive leasing and re-leasing spreads for both new and renewal leases . we believe that our ability to maintain or increase leasing activity and rental rates in our markets will be a significant driver of increasing rental revenue and cash flows . the following tables set forth our leasing activity for new and renewal leases on a quarterly basis for the year ended december 31 , 2015 : replace_table_token_16_th 51 replace_table_token_17_th ( 1 ) effective rent per square foot is the average base rent calculated in accordance with gaap , over the term of the lease , expressed in dollars per square foot per year . ( 2 ) calculated as the change between cash rents for new or renewal leases and the expiring cash rents on the expiring leases for the same space . ( 3 ) calculated as the change between gaap rents for new or renewal leases and the expiring gaap rents on the expiring leases for the same space . ( 4 ) change in cash and gaap rent spreads for new leases executed during 2015 excludes ( i ) 42 leases aggregating 472,784 rentable square feet for which space was vacant when the property was acquired and ( ii ) 55 leases aggregating 336,909 rentable square feet for which there were either no prior comparable leases due to different lease structures ( for example a change from a gross lease to a modified gross lease or a change in the leased square footage ) , the space was vacant longer than one year or the lease term was shorter than six months . ( 5 ) change in cash and gaap rent spreads for renewal leases executed during 2015 excludes 34 leases aggregating 244,561 rentable square feet for which there were either no prior comparable leases due to different lease structures or the lease term was shorter than six months . our leasing activity is impacted both by our redevelopment and repositioning efforts , as well as by market conditions . while we reposition a property , its space may become unavailable for leasing until completion of our repositioning efforts . at the end of 2015 , we completed repositioning at our property located at 2610 & 2701 s. birch street , which is currently in the lease-up stage . we also have two properties , 9401 de soto avenue and 24105 frampton avenue , with construction completion periods estimated for the first quarter of 2016 , and an additional five properties with construction completion periods ranging from late 2016 to early 2018. we expect these properties to have positive impacts on our leasing activity as we complete our value-add repositioning plan and place these properties in service . scheduled lease expirations our ability to re-lease space subject to expiring leases is affected by economic and competitive conditions in our markets and by the desirability of our individual properties , which may impact our results of operations . as of december 31 , 2015 , in addition to 1.3 million rentable square feet of currently available space in our properties and 0.2 million rentable square feet expiring on december 31 , 2015 , leases representing 24.7 % and 18.3 % of the aggregate rentable square footage of our portfolio are scheduled to expire during the years ending december 31 , 2016 and 2017 , respectively . during the year ended december 31 , 2015 , we renewed 281 leases , or 61.0 % of leases scheduled to expire , which represented 57.1 % of the aggregate rentable square footage under all expiring leases . our retention rate during the year was impacted by our strategy to roll certain tenants at recessionary rents and to replace them with higher quality tenants paying higher rents . new and renewal leases had a weighted average term of 4.4 and 2.4 years , respectively , and we expect future new and renewal leases to have similar terms . the leases scheduled to expire during the years ending december 31 , 2016 and 2017 , represent 26.0 % and 20.4 % , respectively , of the total annualized base rent for our portfolio . we estimate that , on a weighted average basis , in-place rents of leases scheduled to expire in 2016 and 2017 are currently below current market asking rents , although individual units or properties within any particular submarket presently may be leased either above , below , or at the current market asking rates within that submarket . over the last few years , rental rates for comparable product in our submarkets have generally been rising . this positive trend offers a favorable environment for additional increases in lease renewal rates . accordingly , we expect 2016 to be another strong year with positive renewal rates and leasing spreads . we also expect 2017 lease expirations will show positive growth ; however , it is difficult to predict market conditions that far into the future . taxable reit subsidiary 52 as of december 31 , 2015 , our operating partnership indirectly and wholly owns rexford industrial realty and management , inc. , which we refer to as the services company . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or health care facility or provide rights to any brand name under which any lodging facility or health care facility is operated .
| results of operations our consolidated results of operations are often not comparable from period to period due to the effect of property acquisitions and dispositions completed during the comparative reporting periods . our “ total portfolio ” represents all of the 55 properties owned during the reported periods . to eliminate the effect of changes in our total portfolio due to acquisitions and dispositions and to highlight the operating results of our on-going business , we have separately presented the results of our “ same properties portfolio. ” comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 for the comparison of the years ended december 31 , 2015 and 2014 , our same properties portfolio includes all properties in our industrial portfolio that were wholly-owned by us as of january 1 , 2014 and still owned by us as of december 31 , 2015 . results for our same properties portfolio exclude our joint venture properties , any properties that were acquired or sold during 2015 or 2014 , interest income from our note receivable , and corporate general and administrative expenses . for the comparison of the years ended december 31 , 2015 and 2014 , our same properties portfolio consisted of 62 properties aggregating approximately 6.1 million rentable square feet . as of december 31 , 2015 and 2014 , our same properties portfolio occupancy was approximately 94.4 % and 92.8 % , respectively . for the years ended december 30 , 2015 and 2014 , our same properties portfolio weighted average occupancy was approximately 93.2 % and 91.0 % , respectively . 56 replace_table_token_18_th 57 rental revenue our same properties portfolio and total portfolio rental revenue increased by $ 2.1 million , or 4.6 % , and $ 24.5 million , or 43.2 % , respectively , for the year ended december 31 , 2015 , compared to the year ended december 31 , 2014 .
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overview we develop and market low power customizable semiconductor and software algorithm solutions that enable customers to differentiate their products by adding new features , extending battery life , becoming more contextually aware , and improving the visual experience with their mobile , consumer and enterprise products . our targeted mobile market segments include smartphones , wearables , tablets , and mobile enterprise . our solutions typically fall into one of three categories : sensor hubs , display and visual enhancement , and smart connectivity . we are a fabless semiconductor company that designs , markets , and supports primarily customer specific standard products , or cssps , and , secondarily , fpgas , sensor software algorithms , software drivers , associated design software and programming hardware . our cssps are customized semiconductor solutions created from our new solution platforms including arcticlink ® iii , arcticlink 3 s1 , arcticlink 3 s2 , arcticlink ii , arcticlink , polarpro ® 3 , polarpro ii , polarpro , polarpro 3e and eclipse ii ( which together comprise our new product category ) . our mature products include primarily pasic ® 3 , quickram ® and quickpci , as well as royalty revenue , programming hardware and design software . cssps are complete , customer-specific solutions that include a unique combination of our silicon solution platforms , proven system blocks , or psbs , custom logic , sensor software algorithms , software drivers , and in some cases , firmware , and application software . all of our solution platforms are standard silicon products and must be programmed to be effective in a system . our psbs range from intellectual property , or ip , which enables always-on context aware sensor applications , such as our flexible fusion engine , or ffe , and our sensor manager and communications manager technologies ; to ip that improves multimedia content , such as our visual enhancement engine , or vee technology , and display power optimizer technology , or dpo ; to ip which implements commonly used mobile system interfaces , such as low voltage differential signaling , or lvds , mobile industry processor interface , or mipi , secure digital input output , or sdio , and universal serial bus 2.0 on-the-go , or usb 2.0 otg . we provide complete solutions by first architecting the solution jointly with our customer 's or ecosystem partner 's engineering group , selecting the appropriate solution platform and psbs , providing custom logic , integrating the logic , programming the device with the psbs and or firmware , providing software drivers or application software required for the customer 's application , and participating with the customer on-site during integration , verification and testing . in many cases , we may deliver sensor software algorithms that have been optimized for use in a quicklogic silicon platform . we also work with mobile processor manufacturers , sensor manufacturers , and or sensor fusion and context awareness algorithm developers in the development of reference designs , qualified vendor lists ( qvls ) , or “ catalog ” cssps . through reference designs that incorporate our cssps , we believe mobile processor manufacturers , sensor manufacturers , and sensor algorithm companies can expand the served available market for their respective products . furthermore , should a cssp development for a processor manufacturer or sensor and or sensor algorithm company be applicable to a set of common oems or odms , we can amortize our r & d investment over that set of oems/odms . we call this type of solution a catalog cssp and we are placing a greater emphasis on developing and marketing these solutions . during 2014 , we announced a new reference design in collaboration with nordic semiconductor , a leading supplier of bluetooth low energy , or bluetooth smart , processors . in order to grow our revenue from its current level , we depend upon increased revenue from our new products including existing new product platforms and platforms currently in development . we expect our business growth to be driven by cssps and our cssp revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development , sales and marketing of our new solution platforms , psbs and cssps . the gross margin associated with our cssps is generally lower than the gross margin of our fpga products , due primarily to the price sensitive nature of the higher volume mobile consumer opportunities that we are pursuing with cssps . during 2014 , we generated total revenue of $ 27.8 million which represents a 7 % increase over 2013 . our new product revenue was $ 19.3 million which represents a 6 % increase over 2013 while our mature product revenue was $ 8.5 million which represents a 9 % increase over 2013 . we shipped our new products into four of our targeted mobile market segments : smartphones , wearables , mobile enterprise , and tablets . we anticipate that our revenue from tablets and mature products will decline over time . overall , we reported a net loss of $ 13.1 million for 2014 compared to a net loss of $ 12.3 million for 2013 . 25 critical accounting policies and estimates the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . the sec has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make our most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . story_separator_special_tag our expected stock price volatility for both stock options and espp shares is based on the historic volatility of our stock , using the daily average of the opening and closing prices and measured using historical data appropriate for the expected term . the risk-free interest rate assumption approximates the risk-free interest rate of a treasury constant maturity bond with a maturity approximately equal to the expected term of the stock option or espp shares . in addition to the assumptions used in the black-scholes pricing model , the amended authoritative guidance requires that we recognize compensation expense only for awards ultimately expected to vest ; therefore we are required to develop an estimate of the historical pre-vest forfeiture experience and apply this to all stock-based awards . the fair value of restricted stock awards , or rsas , and restricted stock units , or rsus , is based on the closing price of our common stock on the date of grant . rsa and rsu awards which vest with service are expensed over the requisite service period . rsas and rsu awards which are expected to vest based on the achievement of a performance goal are expensed over the estimated vesting period . we regularly review the assumptions used to compute the fair value of our stock-based awards and we revise our assumptions as appropriate . in the event that assumptions used to compute the fair value of our stock-based awards are later determined to be inaccurate or if we change our assumptions significantly in future periods , stock-based compensation expense and our results of operations could be materially impacted . see note 11 of our consolidated financial statements . accounting for income taxes as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different tax and accounting treatment of items , such as deferred revenue , allowance for doubtful accounts , the impact of equity awards , depreciation and amortization , and employee related accruals . these differences result in deferred tax assets and liabilities , which are included on our balance sheets . we must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely , we must establish a valuation allowance . to the extent we establish a valuation allowance or increase this allowance in a period , we must include an expense within the tax provision in the statements of operations . significant management judgment is required in determining our provision for income taxes , deferred tax assets , liabilities and any valuation allowance recorded against our net deferred tax assets . our deferred tax assets , consisting primarily of net operating loss carryforwards , amounted to $ 66.7 million , tax effected as of the end of 2014 . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , we consider all available positive and negative evidence , including schedule reversals of deferred tax liabilities , uncertainty of projecting future taxable income and results of recent operations . as of december 28 , 2014 , we have federal and state income tax net operating loss ( nol ) and credit carryforwards of $ 123.9 million and $ 49.9 million , which will expire at various dates from 2015 through 2035. we believe that it is more likely than not that the deferred tax assets and benefits from these federal and state nol and credit carryforwards will not be realized . in recognition of this risk , we have recorded a valuation allowance of $ 66.6 million , tax effected as of the end of 2014 due to uncertainties related to our ability to utilize our u.s. deferred tax assets before they expire . 27 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > 30 provision for income taxes . the table below sets forth the changes in provision for income taxes for 2014 as compared to 2013 ( in thousands , except percentage data ) : replace_table_token_10_th the income tax expense for 2014 and 2013 is primarily from our foreign operations which are cost-plus entities . included within the provision for income taxes for 2013 is a charge in the amount of $ 273,000 relating to our investment in towerjazz . this expense was previously recorded as a component of other comprehensive income and reclassified to the provision for income taxes upon the sale of our investment in towerjazz . as of the end of 2014 , our ability to utilize our u.s. deferred tax assets in future periods is uncertain and , accordingly , we have recorded a full valuation allowance against the related u.s. tax asset . we will continue to assess the realizability of deferred tax assets in future periods . comparison of fiscal years 2013 and 2012 revenue . the table below sets forth the changes in revenue for fiscal year 2013 as compared to fiscal year 2012 ( in thousands , except percentage data ) : replace_table_token_11_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or small semiconductor processes . mature products include all products produced on semiconductor processes larger than nanometers . the increase in new product revenue was primarily due to shipments to samsung which has designed our arcticlink iii vx product into a new tablet platform . revenue generated from samsung accounted for 80 % of our new product revenue and 56 % of our total revenue in 2013. the decrease in mature product revenue was due primarily to reduced orders from our customers in aerospace , test and instrumentation sectors .
| results of operations the following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated : replace_table_token_5_th 28 comparison of fiscal years 2014 and 2013 revenue . the table below sets forth the changes in revenue for fiscal year 2014 as compared to fiscal year 2013 ( in thousands , except percentage data ) : replace_table_token_6_th _ ( 1 ) for all periods presented : new products include all products manufactured on 180 nanometer or small semiconductor processes . mature products include all products produced on semiconductor processes larger than 180 nanometers . the increase in new product revenue was primarily due to shipments to samsung which designed our arcticlink iii vx product into a new tablet platform . revenue generated from samsung accounted for 75 % of our new product revenue and 52 % of our total revenue in 2014. the increase in mature product revenue is due primarily to increased orders from our customers in the aerospace , test and instrumentation sectors . we anticipate that our revenue from tablets and mature products will decline over time . in order to grow our revenue from its current level , we depend upon increased revenue from our new products , especially revenue from cssps designed using our arcticlink , arcticlink ii , arcticlink iii , arcticlink 3s1 , arcticlink 3s2 , polarpro , polarpro ii , polarpro iii , polarpro 3e and eclipse ii solution platforms and the development of additional new products and cssps . we continue to seek to expand our revenue , including pursuing high-volume sales opportunities in our target market segments , by providing cssps incorporating intellectual property such as our vee/dpo technologies , or industry standard interfaces such as usb 2.0 otg , mipi , lvds , sdio , camera interface , or camif , i2c , spi , pwm and keyboard controllers .
| 4,707 |
none of the warrants issued in june 2015 have been exercised during each of the years ended december 31 , 2015 and december 31 , 2016. stock-based compensation total stock-based compensation recognized was as follows ( in thousands ) : replace_table_token_18_th as of december 31 , 2016 , the company had $ 11.5 million , $ 2.1 million and $ 0.1 million of total unrecognized compensation expense , net of estimated forfeitures , related to stock option grants , restricted stock unit grants and espp , respectively , that will be recognized over an average vesting period of 2.9 years , 3.5 years and 0.2 years , respectively . the estimated grant date fair value of employee stock options was calculated using the black-scholes option-pricing model , based on the following weighted assumptions : replace_table_token_19_th 97 expected term the company has very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants . as such , the expected term was estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section of this report entitled selected financial data and our financial statements and related notes included elsewhere in this report . this discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this report entitled risk factors. overview we are focused on enhancing the way patients with cardiorenal and gastrointestinal , or gi , diseases are treated by using the gut as the gateway to delivering medicines that matter . we have pioneered the development of small molecule therapeutics that act predominantly in the gi tract , thereby avoiding potentially negative side effects on the rest of the body . we are focused on enhancing the way patients with cardiorenal and gastrointestinal , or gi , diseases are treated by using the gut as the gateway to delivering medicines that matter . we have pioneered the development of small molecule therapeutics that act predominantly in the gi tract , thereby avoiding potentially negative side effects on the rest of the body . our strategy is to evolve from r & d-focused to an integrated biotech company , by building cardiorenal and gi businesses in the united states , while exploring a variety of strategic commercial options outside the united states . we are developing several products and programs focused on underserved medical needs including the following : cardiorenal portfolio tenapanor : phase 3 clinical development for treatment of esrd patients on dialysis suffering from elevated phosphate , or hyperphosphatemia rdx7675 : phase 3 clinical development for the treatment of patients with hyperkalemia , common in patients with ckd and or heart failure research programs : we are evaluating small-molecule approaches to treat hyperkalemia in order to significantly reduce pill burden and we are leveraging our knowledge of phosphorus absorption to discover improved approaches . gastrointestinal portfolio tenapanor : phase 3 clinical development for treatment of ibs-c patients rdx8940 : ind filed in late 2016 to begin clinical studies . research programs : we are leveraging our knowledge of the mechanisms of tenapanor in order to discover new agents that modulate transport of ions and other processes in the gut . since commencing operations in october 2007 , substantially all our efforts have been dedicated to our research and development activities , including developing our clinical product candidates , tenapanor , rdx7675 and rdx8940 , and developing our proprietary drug discovery and design platform . we have not generated any revenues from product sales and have no products approved for commercialization . as of december 31 , 2016 , we had an accumulated deficit of $ 213.9 million . we expect that our operating losses will substantially increase for the foreseeable future as we prepare for the commercialization of tenapanor and rdx7675 , incur development and manufacturing costs for tenapanor , rdx7675 , and rdx8940 , including costs associated with completing the on-going phase 3 development programs for tenapanor , completing the onset-of-action and a phase 3 clinical trial for rdx7675 , and 64 commencing clinical development of rdx8940 , and as we continue our research activities . to date , we have funded our operations from the sale and issuance of common stock , convertible preferred stock , and funds from our former collaborations partnership with astrazenecaab , or astrazeneca , and sanofi sa , or sanofi . on june 24 , 2014 , we completed our initial public offering , or ipo , and sold 4,928,900 shares of our common stock . we received cash proceeds of $ 61.2 million , net of underwriting discounts and commissions and expenses paid by us . in june 2015 , we closed a private placement financing in which we raised approximately $ 77.8 million in gross proceeds or $ 74.3 million in net proceeds , after deducting issuance costs . in january 2016 , we completed an underwritten public offering of 8,625,000 shares of common stock at an offering price of $ 10.00 per share for gross proceeds of $ 86.3 million . this offering was completed under our shelf registration statement filed on july 13 , 2015 , and we received net proceeds from the offering of approximately $ 80.8 million , after deducting the underwriters ' discounts and commissions and offering expenses . in july 2016 , we sold and issued an aggregate of 12,600,230 shares of common stock in a private placement transaction at an offering price of $ 8.73 per share for gross proceeds of $ 110.0 million . story_separator_special_tag we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate , as well as an ongoing assessment as to each product candidate 's commercial potential . we will need to raise additional capital and will seek additional collaboration partnerships in the future in order to complete the development and commercialization of our product candidates , including tenapanor , rdx7675 and rdx8940 . 66 general and administrative general and administrative expenses include personnel costs , travel expenses and other expenses for outside professional services , including legal , human resources , audit and accounting services . personnel costs includes salaries , bonuses , benefits , facilities and other allocated expenses and stock-based compensation . we expect general and administrative expense to increase as we expand our operating activities to prepare for a potential commercial launch of tenapanor and to support our operations as a public company , including , among other things , increased expenses related to legal , accounting , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , directors ' and officers ' liability insurance premiums and investor relations related fees . income taxes due to a current period loss , we did not record a provision for income taxes for the year ended december 31 , 2016. we recorded income tax benefit for the year ended december 31 , 2015 primarily due to the provision to return true-up for the year ended december 31 , 2014. for the tax year ended december 31 , 2014 , the company recorded an income tax provision due to the minimum taxes which resulted from upfront and milestone payments received from astrazeneca . our deferred assets continue to be subject to full valuation allowance for the tax years ended december 31 , 2016 and 2015. a valuation allowance is recorded when it is more likely than not that all or some portion of the deferred income tax assets will not be realized . we regularly assess the need for a valuation allowance against our deferred income tax assets by considering both positive and negative evidence related to whether it is more likely than not that our deferred income tax assets will be realized . in evaluating our ability to recover our deferred income tax assets within the jurisdiction from which they arise , we consider all available positive and negative evidence , including scheduled reversals of deferred income tax liabilities , projected future taxable income , tax-planning strategies , and results of recent operations . critical accounting polices and estimates a detailed discussion of our significant accounting policies can be found in note 1 of the notes to financial statements , and the impact and risks associated with our accounting policies are discussed throughout this annual report on form 10-k and in the footnotes to the financial statements . critical accounting policies are those that require significant judgment and or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made . we consider certain accounting policies related to revenue recognition , accrued liabilities , and use of estimates to be critical policies . these estimates form the basis for making judgments about the carrying values of assets and liabilities . we base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates . we believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates , assumptions and judgments about matters that are inherently uncertain . revenue recognition research activities revenue from research activities made under collaboration partnership agreements are recognized as the services are provided and when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed or determinable , and collectability is reasonably assured . revenue generated from research and license agreements typically includes up-front signing or license fees , cost reimbursements , research services , minimum sublicense fees , milestone payments , and royalties on future licensees ' product sales . 67 multiple-element arrangements for revenue agreements with multiple-element arrangements , such as license and development agreements , we allocate revenue to each non-contingent unit of accounting based on the relative selling price of each unit . when applying the relative selling price method , we determine the selling price for each deliverable using vendor-specific objective evidence or third-party evidence . if neither exists , we use the best estimate of selling price for that deliverable . revenue allocated is then recognized when the four basic revenue recognition criteria are met for each unit . our obligations under the agreements may include the transfer of intellectual property rights in the form of licenses , obligations to provide research and development services and obligations to participate on certain development committees with the collaboration partner . we make judgments that affect the period over which we recognize revenue . on a quarterly basis , we review our estimated period of performance for our license revenue based on the progress under the arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis . cost reimbursement we recognize cost reimbursement revenue under collaboration partnership agreements as the related research and development costs for services are rendered . deferred revenue represents the portion of research or license payments received that have not been earned .
| results of operations comparison of the years ended december 31 , 2016 and 2015 revenue year ended december 31 , 2016 2015 ( in thousands ) licensing revenue $ $ 21,611 dollar change from prior year ( 21,611 ) percent change from prior year -100 % licensing revenue for the year ended december 31 , 2016 was zero , a decrease of $ 21.6 million , or 100 % , compared to $ 21.6 million for the year ended december 31 , 2015. licensing revenue for 2015 was related to the recognition of revenue from upfront and milestone payments under the astrazeneca agreement . because the astrazeneca agreement was terminated in june 2015 , there has been no further recognition of revenue related to the upfront and milestone payments under such agreement since that time . year ended december 31 , 2016 2015 ( in thousands ) collaborative development revenue $ $ 2,415 dollar change from prior year ( 2,415 ) percent change from prior year -100 % collaborative development revenue consists of our development expenses that were reimbursable to us by astrazeneca under the astrazeneca agreement . collaborative development revenue for the year ended december 31 , 2016 was zero , a decrease of $ 2.4 million , or 100 % , compared to $ 2.4 million for the year ended december 31 , 2015. the decrease was due the termination of our collaboration with astrazeneca and the related cessation of reimbursement of research and development expenses . research and development year ended december 31 , 2016 2015 ( in thousands ) research and development $ 94,161 $ 39,885 dollar change from prior year 54,276 percent change from prior year 136 % research and development expenses were $ 94.2 million for the year ended december 31 , 2016 , an increase of $ 54.3 million , or 136 % , compared to $ 39.9 million for the year ended december 31 , 2015. the increase consisted of a $ 44.1
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the total consideration transferred for the acquisition was $ 2.3 million and consisted of cash paid at closing of $ 1.1 million and $ 1.4 million of cash was paid in 2014. the total consideration was reduced by the effective settlement of a trade payables and receivables in the amount of $ 0.2 million , which represented the recorded amount and as a result , no gain or loss was recorded upon settlement . the $ 1.4 million of cash paid in 2014 is included in accounts payable on the accompanying consolidated balance sheet as of december 31 , 2013. in allocating the purchase consideration based on fair values , the company recorded approximately $ 0.5 million of acquired intangible assets with a useful life of six years , $ 0.6 million to goodwill and $ 1.2 million to net assets acquired . the goodwill balance is deductible for tax purposes . f-11 5. goodwill and intangible assets intangible assets , excluding goodwill , are comprised of the following ( in thousands ) : replace_table_token_18_th goodwill story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled selected financial data and the consolidated financial statements and related notes thereto included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . you should review the risk factors and special note regarding forward-looking statements sections of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a designer , manufacturer and marketer of high-performance suspension products used primarily on mountain bikes , side-by-side vehicles , or side-by-sides , on-road vehicles with off-road capabilities , off-road vehicles and trucks , all-terrain vehicles , or atvs , snowmobiles , specialty vehicles and applications , and motorcycles . we currently sell to over 150 oems and distribute our products to more than 2,500 retail dealers and distributors worldwide . in each of the years ended december 31 , 2013 , 2012 and 2011 , approximately 81 % , 81 % and 80 % , respectively , of our sales were attributable to sales made to our oem customers . the remaining sales were to our aftermarket customers . virtually all of our revenues were from our product sales ; miscellaneous sources of revenue such as royalty income and service related repair work and the associated sale of components represented less than 1 % of our sales in each of the years ended december 31 , 2013 , 2012 and 2011. we have determined that we operate in one reportable segment , which is the manufacturing , sale and service of ride dynamics products . our products fall into the following two categories : mountain bikes ; and powered vehicles , including side-by-sides , on-road vehicles with off-road capabilities , off-road vehicles and trucks , atvs , snowmobiles , specialty vehicles and applications , and motorcycles . a significant portion of our sales are dependent on the demand for high-end or premium priced mountain bikes and their suspension components . in each of the years ended december 31 , 2013 , 2012 and 2011 , approximately 66 % , 67 % and 69 % , respectively , of our sales were attributable to sales of suspension products for mountain bikes and approximately 34 % , 33 % and 31 % , respectively , of our sales were attributable to sales of suspension products for powered vehicles . our domestic sales totaled $ 96.1 million , $ 84.3 million and $ 65.8 million , or 35 % , 36 % and 33 % of our total sales in 2013 , 2012 and 2011 , respectively . our international sales totaled $ 176.6 million , $ 151.6 million and $ 132.0 million , or 65 % , 64 % and 67 % of our total sales in each of the years ended december 31 , 2013 , 2012 and 2011 , respectively . sales attributable to countries outside the united states are based on shipment location . our international sales , however , do not necessarily reflect the location of the end users of our products as many of our products are incorporated into mountain bikes that are assembled at international locations and then shipped back to the united states . we estimate , based on our internal projections , that approximately one-third of the end users of our products are located outside the united states . opportunities , challenges and risks we intend to focus on generating sales of our high-performance suspension products through oems and in the aftermarket channel . to do this , we intend to continue to develop and introduce new and innovative products in our current end-markets and we intend to selectively develop products for applications and end-markets in which we do not currently participate . currently , virtually all of our sales are dependent on the demand for high-performance suspension products . while we have recently introduced a new non-suspension product ( our adjustable seat post for mountain bikes ) , this product comprised less than 1 % of our sales in 2013. we may not achieve the desired level of sales for this product or for other new products that we introduce in the future . our aftermarket distribution network currently consists of more than 2,500 retail dealers and distributors worldwide . to further penetrate the aftermarket channel , we intend to selectively add additional dealers and distributors in certain geographic markets , expand our internal sales force and strategically increase the number of aftermarket specific products and services which we offer for existing vehicle platforms . in addition , we believe international expansion represents a significant opportunity for us and we intend to selectively increase infrastructure investments and focus on identified geographic regions . story_separator_special_tag operating expenses our operating expenses consist of the following : sales and marketing ; research and development ; general and administrative ; and amortization of purchased intangibles . our sales and marketing expenses include costs related to our sales , customer service and marketing personnel , including their wages , employee benefits and related stock-based compensation , and occupancy related expenses . other significant sales and marketing expenses include race support and sponsorships of events and athletes , advertising and promotions related to trade shows , travel and entertainment , and promotional materials , products and our sales offices costs . our research and development expenses consist primarily of salaries and personnel costs , including wages , employee benefits and related stock-based compensation for our engineering , research and development teams , occupancy related expenses , fees for third party consultants , service fees , and expenses for prototype tooling and materials , travel , and supplies . we expense research and development costs as incurred and such costs are included as research and development expenses on our consolidated statements of income . our general and administrative expenses include costs related to our executive , finance , information technology , human resources and administrative personnel , including wages , employee benefits and related stock-based compensation expenses . we record professional and contract service expenses , occupancy related expenses associated with corporate locations and equipment , and legal expenses in general and administrative expenses . our amortization of intangibles includes amortization over their respective useful lives of our purchased intangible assets , such as customer lists and our core technology . our intangible assets , the substantial majority of which were established as a result of our sponsor 's acquisition of us in 2008 , are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable . no impairments of intangible assets were identified in the years ended december 31 , 2013 , 2012 and 2011 , respectively . in the near term , we anticipate that our general and administrative expenses will increase both in terms of absolute dollars and when expressed as a percentage of sales as we incur additional expenses , including those associated with being a public company . in the long term , we generally anticipate that our sales and marketing , and research and development expenses will increase in terms of absolute dollars , but we anticipate these expenses , excluding stock-based compensation expenses , should remain relatively constant when expressed as a percentage of our sales . we can give no assurance that these expectations will be realized . income from operations we define income from operations as gross profit less our operating expenses . we use income from operations as an indicator of the profitability of our business and our ability to manage costs . 32 other expense , net other expense , net consists of interest expense and other income ( expense ) , net . interest expense consists of interest charged to us under our credit facilities . other income ( expense ) , net consists of gains and losses on the disposal of fixed assets , foreign currency transaction gains and losses , forgiveness of indebtedness under our loan with the redevelopment agency of the city of watsonville , and other miscellaneous items . income taxes we are subject to income taxes in the united states and various other foreign jurisdictions in which we do business . some of these foreign jurisdictions have higher statutory tax rates than those in the united states , and certain of our international earnings are also taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to u.s. income and absorption of foreign tax credits , changes in the valuation of our deferred tax assets and liabilities and changes in tax laws . in addition , we are subject to examination of our income tax returns by the u.s. internal revenue service , or irs , and other tax authorities . we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income tax liabilities and expense . should actual events or results differ from our current expectations , charges or credits to our income tax liabilities and income tax expense may become necessary . any such adjustments could have a significant impact on our results of operations . under u.s. generally accepted accounting principles , or gaap , an uncertain income tax position will not be recognized unless it has a greater than 50 % likelihood ( i.e. , more-likely-than-not ) of being sustained and then , measured only to the largest amount of benefit that is greater than 50 % likely to be realized upon ultimate settlement . we established liabilities for uncertain tax positions and deferred taxes associated with the deductibility of certain amortization and depreciation expenses . the liability for uncertain income tax positions represents the amount of tax we would be required to pay if certain tax deductions previously claimed on tax returns were not allowed upon examination by the taxing authorities . the liability for deferred taxes represents additional taxes that would be payable in future periods because of the potential non-deductibility of future amortization and depreciation expenses . as of december 31 , 2013 , our balance sheet reflected a liability for unrecognized tax benefits of $ 7.8 million .
| results of operations the table below summarizes our results of operations for the fiscal years ended december 31 , 2013 , 2012 and 2011. replace_table_token_4_th the following table sets forth our gross profit as well as our operating and other income and expenses and other information for the periods presented , expressed as a percentage of total revenues . replace_table_token_5_th * represents less than 0.1 % 34 year ended december 31 , 2013 compared to year ended december 31 , 2012 sales sales for 2013 increased approximately $ 36.9 million , or 15.6 % , compared to 2012. sales of mountain bike and powered vehicle products increased 14.4 % and 18.2 % , respectively , for 2013 compared to 2012. sales growth was primarily driven by sales to oems which increased $ 30.0 million to $ 219.9 million for 2013 compared to $ 189.9 million for 2012. the increase in sales to oems was largely driven by increased specification , or spec , positions with our oem customers . the remaining increase in sales totaling $ 6.9 million reflects increased sales to aftermarket customers in 2013 compared to 2012. the increase in sales to aftermarket customers is primarily due to higher end user demand for our products . cost of sales cost of sales for 2013 increased by $ 19.6 million , or 11.3 % compared to the same period in 2012. the increase in cost of sales was primarily due to increased sales in 2013 when compared to 2012. for 2013 our gross margin was 29.4 % compared to 26.6 % for the same period in 2012. we attribute 1.6 % of the improvement in our gross profit margin to our cost initiatives designed to improve our operating efficiencies .
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the company has been active in the repurchase of its common shares and has purchased and committed a net of 358,532 shares to treasury as of september 30 , 2015 , which represents 14.10 % of the 2,542,042 common shares issued in its public offering in october 2008. in addition , the company has 78,590 common shares remaining for repurchase under the stock repurchase program approved by its board of directors on november 16 , 2012. under the program , repurchases are to be conducted through open market purchases or privately negotiated transactions , and are to be made from time to time depending on market conditions and other factors . there is no guarantee as to the exact number of shares to be repurchased by the company . for more information about our stock repurchases , see “ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. ” the company paid a cash dividend of $ 0.11 per common share during the quarter ended december 31 , 2014 and increased the quarterly cash dividend plan to $ 0.12 per common share beginning with the quarter ended march 31 , 2015 , under which it paid $ 0.12 per common share for the quarters ended march 31 , june 30 and september 30 , 2015 , for a total of $ 0.47 per common share paid during the fiscal year ended september 30 , 2015. the company currently intends to maintain a policy of paying regular quarterly cash dividends ; however , the company can not guarantee that it will pay dividends or that if paid , it will not reduce or eliminate dividends in the future . for more information about our dividends , see “ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. ” issuance of preferred stock under the u.s. department of the treasury 's small business lending fund on august 11 , 2011 , first savings financial group entered into and consummated a securities purchase agreement ( the “ purchase agreement ” ) with the secretary of the treasury , pursuant to which first savings financial group issued 17,120 shares of senior non-cumulative perpetual preferred stock , series a ( the “ series a preferred stock ” ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 17.1 million . the purchase agreement was entered into , and the series a preferred stock was issued , pursuant to the small business lending fund program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . see note 25 of the notes to consolidated financial statements beginning of page f-1 of this annual report for additional information regarding the terms of the series a preferred stock . 36 balance sheet analysis cash and cash equivalents . at september 30 , 2015 and 2014 , cash and cash equivalents totaled $ 25.0 million and $ 20.3 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank , which are unavailable for investment but interest-bearing . the average amount of those reserve balances for the year ended september 30 , 2015 was approximately $ 8.4 million . loans . our primary lending activity is the origination of loans secured by real estate . we originate one- to four-family mortgage loans , multifamily loans , commercial real estate loans , commercial business loans and construction loans . to a lesser extent , we originate various consumer loans including home equity lines of credit . residential mortgage loans comprise the largest segment of our loan portfolio . at september 30 , 2015 , these loans totaled $ 181.9 million , or 37.7 % of total loans , compared to $ 182.7 million , or 40.9 % of total loans at september 30 , 2014. total residential mortgage loan balances decreased in 2015 primarily due to repayments and refinancings that were sold in the secondary market . we generally originate loans for investment purposes , although , depending on the interest rate environment , we typically sell 25-year and 30-year fixed-rate residential mortgage loans that we originate into the secondary market in order to limit exposure to interest rate risk and to earn noninterest income . management intends to continue offering short-term adjustable rate residential mortgage loans and generally sell long-term fixed rate mortgage loans in the secondary market with servicing released . commercial real estate loans totaled $ 173.0 million , or 35.9 % of total loans at september 30 , 2015 , compared to $ 153.9 million , or 34.5 % of total loans at september 30 , 2014. the balance of commercial real estate loans has increased primarily due to the previously discussed lending program that is focused on loans secured by low loan-to-value , single-tenant commercial properties that are leased to investment grade national-brand retailers , the borrowers and collateral properties for which are out of our primary market area . management continues to focus on pursuing nonresidential loan opportunities in order to further diversify the loan portfolio . multi-family real estate loans totaled $ 21.6 million , or 4.5 % of total loans at september 30 , 2015 , compared to $ 21.3 million , or 4.8 % of total loans at september 30 , 2014. these loans are primarily secured by apartment buildings and other multi-tenant developments in our primary market area . residential construction loans totaled $ 19.7 million , or 4.1 % of total loans , at september 30 , 2015 of which $ 8.9 million were speculative construction loans . at september 30 , 2014 , residential construction loans totaled $ 14.5 million , or 3.3 % story_separator_special_tag the company has been active in the repurchase of its common shares and has purchased and committed a net of 358,532 shares to treasury as of september 30 , 2015 , which represents 14.10 % of the 2,542,042 common shares issued in its public offering in october 2008. in addition , the company has 78,590 common shares remaining for repurchase under the stock repurchase program approved by its board of directors on november 16 , 2012. under the program , repurchases are to be conducted through open market purchases or privately negotiated transactions , and are to be made from time to time depending on market conditions and other factors . there is no guarantee as to the exact number of shares to be repurchased by the company . for more information about our stock repurchases , see “ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. ” the company paid a cash dividend of $ 0.11 per common share during the quarter ended december 31 , 2014 and increased the quarterly cash dividend plan to $ 0.12 per common share beginning with the quarter ended march 31 , 2015 , under which it paid $ 0.12 per common share for the quarters ended march 31 , june 30 and september 30 , 2015 , for a total of $ 0.47 per common share paid during the fiscal year ended september 30 , 2015. the company currently intends to maintain a policy of paying regular quarterly cash dividends ; however , the company can not guarantee that it will pay dividends or that if paid , it will not reduce or eliminate dividends in the future . for more information about our dividends , see “ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities. ” issuance of preferred stock under the u.s. department of the treasury 's small business lending fund on august 11 , 2011 , first savings financial group entered into and consummated a securities purchase agreement ( the “ purchase agreement ” ) with the secretary of the treasury , pursuant to which first savings financial group issued 17,120 shares of senior non-cumulative perpetual preferred stock , series a ( the “ series a preferred stock ” ) , having a liquidation amount per share equal to $ 1,000 , for a total purchase price of $ 17.1 million . the purchase agreement was entered into , and the series a preferred stock was issued , pursuant to the small business lending fund program , a $ 30 billion fund established under the small business jobs act of 2010 , that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $ 10 billion . see note 25 of the notes to consolidated financial statements beginning of page f-1 of this annual report for additional information regarding the terms of the series a preferred stock . 36 balance sheet analysis cash and cash equivalents . at september 30 , 2015 and 2014 , cash and cash equivalents totaled $ 25.0 million and $ 20.3 million , respectively . the bank is required to maintain reserve balances on hand and with the federal reserve bank , which are unavailable for investment but interest-bearing . the average amount of those reserve balances for the year ended september 30 , 2015 was approximately $ 8.4 million . loans . our primary lending activity is the origination of loans secured by real estate . we originate one- to four-family mortgage loans , multifamily loans , commercial real estate loans , commercial business loans and construction loans . to a lesser extent , we originate various consumer loans including home equity lines of credit . residential mortgage loans comprise the largest segment of our loan portfolio . at september 30 , 2015 , these loans totaled $ 181.9 million , or 37.7 % of total loans , compared to $ 182.7 million , or 40.9 % of total loans at september 30 , 2014. total residential mortgage loan balances decreased in 2015 primarily due to repayments and refinancings that were sold in the secondary market . we generally originate loans for investment purposes , although , depending on the interest rate environment , we typically sell 25-year and 30-year fixed-rate residential mortgage loans that we originate into the secondary market in order to limit exposure to interest rate risk and to earn noninterest income . management intends to continue offering short-term adjustable rate residential mortgage loans and generally sell long-term fixed rate mortgage loans in the secondary market with servicing released . commercial real estate loans totaled $ 173.0 million , or 35.9 % of total loans at september 30 , 2015 , compared to $ 153.9 million , or 34.5 % of total loans at september 30 , 2014. the balance of commercial real estate loans has increased primarily due to the previously discussed lending program that is focused on loans secured by low loan-to-value , single-tenant commercial properties that are leased to investment grade national-brand retailers , the borrowers and collateral properties for which are out of our primary market area . management continues to focus on pursuing nonresidential loan opportunities in order to further diversify the loan portfolio . multi-family real estate loans totaled $ 21.6 million , or 4.5 % of total loans at september 30 , 2015 , compared to $ 21.3 million , or 4.8 % of total loans at september 30 , 2014. these loans are primarily secured by apartment buildings and other multi-tenant developments in our primary market area . residential construction loans totaled $ 19.7 million , or 4.1 % of total loans , at september 30 , 2015 of which $ 8.9 million were speculative construction loans . at september 30 , 2014 , residential construction loans totaled $ 14.5 million , or 3.3 %
| overview . the company reported net income of $ 6.8 million and net income available to common shareholders of $ 6.6 million ( $ 2.93 per common share diluted ; weighted average common shares outstanding of 2,247,966 , as adjusted ) for the year ended september 30 , 2015 , compared to net income of $ 5.4 million and net income available to common shareholders of $ 5.2 million ( $ 2.34 per common share diluted ; weighted average common shares outstanding of 2,229,314 , as adjusted ) for the year ended september 30 , 2014. net income for 2015 included an $ 831,000 gain on life insurance . excluding the impact of this nonrecurring item , the company would have reported net income of $ 6.1 million and net income available to common shareholders of $ 5.9 million , or $ 2.64 per diluted share , for the year ended september 30 , 2015. net interest income . net interest income increased $ 270,000 , or 1.1 % , from $ 23.9 million for the year ended september 30 , 2014 to $ 24.2 million for the year ended september 30 , 2015 , primarily as the result of an increase in the average balance of interest earning assets from 2014 to 2015 , which more than offset a decrease in the interest rate spread from 2014 to 2015. the interest rate spread , the difference between the average tax-equivalent yield on interest-earning assets and the average cost of interest-bearing liabilities , decreased from 3.86 % for 2014 to 3.74 % for 2015 due primarily to a decrease in the average tax-equivalent yield on interest-earning assets from 4.50 % for 2014 to 4.41 % for 2015 and an increase in the average cost of interest-bearing liabilities from 0.64 % for 2014 to 0.67 % for 2015. total interest income increased $ 493,000 , or 1.8 % , from $ 27.5 million for the year ended september 30 ,
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our deferred compensation obligation under the plan was $ 3,266,000 and $ 1,774,000 at december 31 , 2019 and 2018 , respectively . these amounts are reflected in “ other liabilities and deferred credits ” in the accompanying consolidated balance sheets . ( 11 ) commitments and contingencies from time to time and in the ordinary course of business , we may be subject to various claims , charges and litigation . in some cases , the claimants may seek damages , as well as other relief , which , if granted , could require significant expenditures . we accrue the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable , and accrue for legal costs associated with a loss contingency when a loss is probable and such amounts are estimable . otherwise , these costs are expensed as incurred . if the estimate of a probable loss or defense costs is a range and no amount within the range is more likely , we accrue the minimum amount of the range . as of december 31 , 2019 , we had no ongoing litigation or arbitration for such matters . - 51 - atrion corporation notes to consolidated financial statements – ( continued ) we had a dispute which was favorably settled in the third quarter of 2007. this settlement was amended in december 2008. the amended settlement agreement provides that we may receive annual payments from 2009 through 2024. we have not recorded $ 2.5 million in potential future payments under this settlement as of december 31 , 2019 story_separator_special_tag overview we develop and manufacture products primarily for medical applications . we market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians , hospitals , clinics and other treatment centers . our medical products primarily serve the fluid delivery , cardiovascular and ophthalmology markets . our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products . in 2019 , approximately 36 percent of our sales were outside the united states . our products are used in a wide variety of applications by numerous customers . we encounter competition in all of our markets and compete primarily on the basis of product quality , price , engineering , customer service and delivery time . our strategy is to provide a broad selection of products in the areas of our expertise . r & d efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential . proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable . we also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes . we have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness , to fund capital expenditures , to make investments , to repurchase stock and to pay dividends . - 21 - our strategic objective is to further enhance our position in our served markets by : ● focusing on customer needs ; ● expanding existing product lines and developing new products ; ● maintaining a culture of controlling cost ; and ● preserving and fostering a collaborative , entrepreneurial management structure . for the year ended december 31 , 2019 , we reported revenues of $ 155.1 million , operating income of $ 40.5 million and net income of $ 36.8 million . story_separator_special_tag $ 121.1 million , including $ 45.0 million in cash and cash equivalents and $ 23.8 million in short-term investments . the $ 9.0 million increase in working capital during 2019 was primarily related to increases in short term investments and inventories partially offset by decreases in cash and cash equivalents . the net increase in short-term investments was primarily in bonds and commercial paper . the increase in inventories was primarily related to delays in shipments to customers due to the sterilization capacity issue from the shutdown of two of our contract sterilization facilities and the replenishment of inventories to levels required for operational effectiveness . working capital items consisted primarily of cash , accounts receivable , short-term investments , inventories and other current assets minus accounts payable and other current liabilities . - 23 - capital expenditures for property , plant and equipment totaled $ 20.4 million in 2019 , compared with $ 17.5 million in 2018. these expenditures were primarily for machinery and equipment . purchases of investments totaled $ 83.7 million in 2019 , compared to $ 28.5 million in 2018. proceeds from maturities of investments totaled $ 59.3 million in 2019 and $ 40.9 million in 2018. we expect 2020 capital expenditures , primarily machinery and equipment , to be greater than the average amounts expended during each of the past three years . we paid cash dividends totaling $ 10.8 million and $ 9.5 million during 2019 and 2018 , respectively . we expect to fund future dividend payments with cash flows from operations . no treasury stock was purchased in 2019 or 2018. the table below summarizes debt , lease and other contractual obligations outstanding at december 31 , 2019 : replace_table_token_3_th we believe our cash , cash equivalents , short-term investments and long-term investments , cash flows from operations and available borrowings of up to $ 75.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future . we believe our strong financial position would allow us to access equity or debt financing should that be necessary . story_separator_special_tag - 25 - we are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure , including assessing the risks associated with tax audits , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , do not establish a valuation allowance . in the event that actual results differ from these estimates , the provision for income taxes could be materially impacted . we assess the impairment of our long-lived identifiable assets , excluding goodwill which is tested for impairment as explained below , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . this review is based upon projections of anticipated future cash flows . although we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows or changes in our business plan could materially affect our evaluations . no such changes are anticipated at this time . we assess goodwill for impairment pursuant to accounting standards codification , or asc 350 , intangibles—goodwill and other , which requires that goodwill be assessed on an annual basis , or whenever events or changes in circumstances indicate that the carrying value may not be recoverable , by applying a qualitative assessment on goodwill impairment to determine whether it is necessary to perform the two-step goodwill impairment test . we assess the total carrying value for each of our investments on a quarterly basis for changes in circumstances or the occurrence of events that suggest our investment may not be recoverable . if an investment is considered impaired , we must determine whether the impairment is other than temporary . if it is determined to be other than temporary , the impairment must be recognized in our financial statements . inventories are stated at the lower of cost ( first-in , first-out method ) or net realizable value . inventories are carried as standard cost , which approximates actual cost , and includes material , labor and allocated overhead . standard costs are reviewed at least quarterly by management , or more often in the event circumstances indicate a change in cost has occurred . adjustments to the cost basis of our inventory are made for excess and obsolete items based on usage , orders and technological obsolescence . during 2019 , 2018 and 2017 , none of our critical accounting estimates required significant adjustments . we did not note any material events or changes in circumstances indicating that the carrying value of long-lived assets were not recoverable . quantitative and qualitative disclosures about market risks foreign exchange risk we are not exposed to material fluctuations in currency exchange rates that would result in realized gains or losses being reflected in the consolidated statements of income because the payments from our international customers are received primarily in united states dollars . however , fluctuations in exchange rates may affect the prices that our international customers are willing to pay and may put us at a price disadvantage compared to other competitors . increases in the value of the united states dollar relative to foreign currencies could make our products less competitive or less affordable and therefore adversely affect our sales in international markets . market risk and credit risk our cash deposits are held in accounts with financial institutions that we believe are creditworthy . certain of these accounts at times may exceed federally-insured limits . we have not experienced any credit losses in such accounts and do not believe we are exposed to any significant credit risk on these funds . - 26 - we have investments in money market funds , bonds and commercial paper . as a result , we are exposed to potential loss from market risks that may occur as a result of changes in interest rates , changes in credit quality of the issuer and otherwise . these securities have a higher degree of , and a greater exposure to , credit or default risk and may be less liquid in times of economic weakness or market disruptions as compared with cash deposits . we have also invested a portion of our available funds in equity securities and mutual funds . the value of these securities fluctuates due to changes in the equity and credit markets along with other factors . in times of economic weakness , the market value and liquidity of these assets may decline and may negatively impact our financial condition . forward-looking statements statements in this management 's discussion and analysis and elsewhere in this form 10-k that are forward looking are based upon current expectations , and actual results or future events may differ materially . therefore , the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved . such statements include , but are not limited to , our r & d program in 2020 , the completion of sales by the end of the second quarter of 2020 that were delayed due to a shortage in third-party sterilization capacity , our effective tax rate for 2020 , our 2020 capital expenditures , funding future dividend payments with cash flows from operations , availability of equity and debt financing , our ability to meet our cash requirements for the foreseeable future , the impact on our consolidated financial statement of recently issued accounting standards when we adopt those standards , and increases in 2020 in cash , cash equivalents and investments . words such as
| results of operations our net income was $ 36.8 million , or $ 19.82 per basic and $ 19.73 per diluted share , in 2019 compared to $ 34.3 million , or $ 18.49 per basic and $ 18.44 per diluted share in 2018. revenues were $ 155.1 million in 2019 compared with $ 152.5 million in 2018. annual revenues by product lines were as follows ( in thousands ) : replace_table_token_2_th consolidated revenues of $ 155 million in 2019 were 2 percent higher than revenues in 2018. this increase was primarily related to increased volumes in 2019. in the third quarter of 2019 , the united states food and drug administration , or fda , issued a caution concerning a nationwide shortage of medical devices due to issues with contract sterilizers . specifically , two significant contract sterilization facilities utilized by many medical device companies were shut down because of environmental concerns - one permanently and one temporarily . this loss of sterilization capacity caused significant delays at the country 's remaining sterilization facilities . due to this loss of capacity , we experienced delays in some of our sales during the third and fourth quarters of 2019. the sterilization capacity shortage affecting our products was resolved in early 2020 as we were able to validate the use of a new sterilization facility .
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story_separator_special_tag the following discussion and analysis should be read in conjunction with the audited consolidated financial statements and unaudited consolidated interim financial statements , together in each case with the related notes , included elsewhere in this report . this discussion and analysis contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading risk factors and elsewhere in this report . overview we are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications , iot , consumer , industrial and automotive applications . we provide technology platforms for analog , mixed-signal , power , high voltage , non-volatile memory , and rf applications . we have a proven record with over 30 years of operating history , a portfolio of approximately 3,200 registered patents and pending applications and extensive engineering and manufacturing process expertise . our foundry services group provides specialty analog and mixed-signal foundry services mainly for fabless and idm semiconductor companies that primarily serve communications , iot , consumer , industrial and automotive applications . our standard products group includes our display solutions and power solutions business lines . our display solutions products provide flat panel display solutions to major suppliers of large and small rigid and flexible panel displays , and mobile , automotive applications and home appliances . our power solutions products include discrete and integrated circuit solutions for power management in communications , consumer , computing and industrial applications . our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands . our design center and substantial manufacturing operations in korea place us at the core of the global electronics device supply chain . we believe this enables us to quickly and efficiently respond to our customers ' needs and allows us to better serve and capture additional demand from existing and new customers . to maintain and increase our profitability , we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce . we must understand our customers ' needs as well as the likely end market trends and demand in the markets they serve . we must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization . we must also invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet our customers ' demand while maintaining our target margins and cash flow . the semiconductor markets in which we participate are highly competitive . the prices of our products tend to decrease regularly over their useful lives , and such price decreases can be significant as new generations of products are introduced by us or our competitors . we strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products . in addition , we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence . demand for our products and services is driven by overall demand for communications , iot , consumer , industrial and automotive products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers . in order to mitigate the impact of market volatility on our business , we are diversifying our portfolio of products , customers , and target applications . we also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services . while we believe we are well positioned competitively to compete in these markets and against 42 these new competitors as a result of our long operating history , existing manufacturing capacity and our korea-based operations , if we are not effective in competing in these markets our operating results may be adversely affected . within our foundry services group , net sales are driven by customers ' decisions on which manufacturing services provider to use for a particular product . most of our foundry services group customers are fabless , while some are idm customers . a customer will often have more than one supplier of manufacturing services . in any given period , our net sales depend heavily upon the end-market demand for the goods in which the products we manufacture for customers are used , the inventory levels maintained by our customers and in some cases , allocation of demand for manufacturing services among selected qualified suppliers . within our standard products group , net sales are driven by design wins in which we are selected by an electronics original equipment manufacturer ( oem ) or other potential customer to supply its demand for a particular product . a customer will often have more than one supplier designed in to multi-source components for a particular product line . once we have design wins and the products enter into mass production , we often specify the pricing of a particular product for a set period of time , with periodic discussions and renegotiations of pricing with our customers . in any given period , our net sales depend heavily upon the end-market demand for the goods in which our products are used , the inventory levels maintained by our customers and in some cases , allocation of demand for components for a particular product among selected qualified suppliers . story_separator_special_tag in december 2017 , the knts concluded that no criminal charges would be brought against any current officers or directors of msk or msk itself . as a result , we took a charge of $ 4.2 million in the fourth quarter of 2017 related to this additional tax assessment and associated penalties and administrative fine and recorded the $ 0.5 million related to employee withholding amounts as other receivables in our consolidated balance sheets as of december 31 , 2017 , as we expect to seek reimbursement of the applicable amounts from those employees . secondary offering on august 15 , 2017 , certain of our stockholders that are affiliates of avenue capital management ii , l.p. ( the selling stockholders ) closed an underwritten registered public offering of 4,088,978 shares of our common stock at a price per share of $ 11.10. we did not receive any proceeds from the sale of our common stock by the selling stockholders , but paid certain expenses in connection with such secondary offering pursuant to an existing contractual arrangement with the selling stockholders . 44 events associated with the closure of our 6-inch fab and reduction of workforce in december 2014 , we announced that our board of directors had adopted a plan to close our 6-inch fab . during the fourth quarter of 2015 , we received an $ 8.2 million deposit for sale of machinery in conjunction with the planned closure of our 6-inch fab . according to this plan , the 6-inch fab was closed on february 29 , 2016. during the first quarter of 2016 , we completed all procedures necessary to sell all machineries in our closed 6-inch fab and recognized a $ 7.8 million restructuring gain from the related deposit of $ 8.2 million , net of certain direct selling costs . on april 4 , 2016 , we commenced a voluntary resignation program ( the program ) , which was available to certain manufacturing employees , including our 6-inch fab employees , through april 29 , 2016. as of april 29 , 2016 , 169 employees elected to resign under the terms of the program . we paid approximately $ 8 million for severance benefits , which are required by law and had already been fully accrued in our financial statements , in a lump sum during the second quarter of 2016. beginning in may 2016 , we also began to pay a portion of the $ 4.2 million other termination benefits under the program , which were paid in equal monthly installments over twelve months . we recorded the $ 4.2 million charge related to the full amount of these other termination benefits payable under the program during the second quarter of 2016. as of december 21 , 2016 , we entered into a purchase and sale agreement to sell a building located in cheongju , south korea . the building has historically been used to house the 6-inch fab and became vacant upon the closure of the fabrication facility . as of december 31 , 2015 , the building was fully impaired . we received proceeds of $ 18.2 million , including a $ 1.7 million value-added tax , for the sale of the building on december 26 , 2016. we recorded the $ 18.2 million as restricted cash in our consolidated balance sheets as of december 31 , 2016 as we were obligated to perform certain removal construction work that was expected to be completed by the end of march 2017. during the first quarter of 2017 , we completed all removal construction work necessary to transfer the title of the building , and the $ 18.2 million of restricted cash was fully released . as of february 22 , 2017 , our board of directors approved the implementation of a headcount reduction plan ( the headcount reduction plan ) . as of june 30 , 2017 , 352 employees elected to resign from the company during the period in which the headcount reduction plan was offered . the headcount reduction plan is expected to result in estimated annual cost savings of approximately $ 24 million . the total cash cost of approximately $ 31 million has been fully paid . we recorded in our consolidated statement of operations $ 11.1 million and $ 2.3 million termination related charges as early termination charges for the three months ended march 31 , 2017 and june 30 , 2017 , respectively . the remaining total cost relates to statutory severance benefits , which are required by law and had already been fully accrued in our financial statements . issuance of exchangeable senior notes and stock repurchase as of january 17 , 2017 , we closed the offering ( the exchangeable notes offering ) by our luxembourg subsidiary , magnachip semiconductor s.a. , of $ 86.25 million aggregate principal amount of its 5.00 % exchangeable senior notes due 2021 ( the exchangeable notes ) , reflecting the full exercise of the initial purchasers ' option to purchase additional exchangeable notes . we used a portion of the net proceeds from the exchangeable notes offering to repurchase 1,795,444 shares of our common stock under our stock repurchase program , which was authorized by our board of directors on january 10 , 2017 , at an aggregate cost of $ 11.4 million . sale of sensor business in march 2017 , we sold our sensor product business , which was included in and reported as part of the display solutions line of our standard products group , to a third party for proceeds of $ 1.3 million , in an effort to improving our overall profitability . we recorded a $ 0.4 million gain from this sale after deducting the book values of certain assets transferred to the buyer . 45 restatement in january 2014 , our audit committee commenced an independent investigation that resulted in the restatement .
| results by segment replace_table_token_13_th replace_table_token_14_th 62 net sales net sales were $ 688.0 million for the year ended december 31 , 2016 , a $ 54.3 million , or 8.6 % , increase compared to $ 633.7 million for the year ended december 31 , 2015. this increase was primarily attributable to an increase in revenue related to mobile oled display products from our standard products group , which was offset in part by a net decrease in revenue from our foundry services group as described below . foundry services group . net sales from our foundry services group segment were $ 274.0 million for the year ended december 31 , 2016 , a $ 16.8 million , or 5.8 % , decrease compared to net sales of $ 290.8 million for the year ended december 31 , 2015. the decrease was primarily attributable to a net decline in sales due to the closure of our 6-inch fab in february 2016 and a decrease caused by reduced levels of demand of our foundry services from certain customers serving the high-end and mid-range smartphone markets . these decreases were partially offset by an increase in sales of certain products from new global power management ic foundry customers and an increase in sales of certain products from fingerprint ic and micro controller unit customers . standard products group . net sales from our standard products group segment were $ 413.4 million for the year ended december 31 , 2016 , a $ 71.1 million , or 20.8 % , increase compared to $ 342.3 million for the year ended december 31 , 2015. this substantial increase was primarily due to a significant increase in revenue related to our display solutions business line , partially offset by decrease in revenue related to our power solutions business line as described below .
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and children . in addition , we design , source , market and sell name brand and private label fashion handbags and accessories , through our accessories division . we market and sell our products through better department stores , major department stores , mid-tier department stores , specialty stores , luxury retailers , value priced retailers , national chains , mass merchants , online retailers , catalog retailers throughout the united states , canada , mexico , certain european nations , including albania , austria , belgium , bulgaria , cyprus , czech republic , denmark , estonia , finland , france , germany , hungary , ireland , kosovo , latvia , lithuania , luxembourg , the netherlands , norway , poland , romania , russia , slovakia , slovenia , sweden and switzerland , and tunisia . in addition , our products are marketed through our retail stores and our e-commerce websites within the united states , canada , mexico and south africa , and under special distribution arrangements in asia , australia , europe , india , the middle east , south and central america and new zealand . our product line includes a broad range of contemporary styles designed to establish or capitalize on market trends , complemented by core product offerings . we have established a reputation for design creativity and our ability to offer quality products in popular styles at accessible price points , delivered in an efficient manner and time frame . our business is comprised of five distinct segments ( wholesale footwear , wholesale accessories , retail , first cost and licensing ) . our wholesale footwear segment includes the following brands : steve madden women's® , madden girl® , steve madden men's® , madden® , report® , dolce vita® , dv by dolce vita® , mad love® , steven by steve madden® , superga® ( under license ) , betsey johnson® , betseyville® , steve madden kids® , freebird by steven® , stevies® , b brian atwood® , blondo® , madden nyc and includes our international business and certain private label footwear business . our wholesale accessories segment includes big buddha® , madden nyc , betsey johnson® , steve madden® , steven by steve madden® , madden girl® , luv betsey® , b brian atwood® , cejon® accessories brands and includes our international business and certain private label accessories business . steven madden retail , inc. , our wholly-owned retail subsidiary , operates steve madden , steven , superga and international retail stores , as well as steve madden , superga , betsey johnson and dolce vita e-commerce websites . the first cost segment represents activities of a subsidiary that earns commissions for serving as a buying agent for footwear products under private labels for many of the country 's large mass-market merchandisers , shoe chains and other value priced retailers . our licensing segment is engaged in the licensing of the steve madden® , steven by steve madden® and madden girl® trademarks for use in connection with the manufacture , marketing and sale of outerwear , hosiery , activewear , sleepwear , jewelry , watches , hair accessories , umbrellas , bedding , luggage and men 's leather accessories . we license the stevies® trademark for use in connection with the manufacture , marketing and sale of outerwear exclusively to target . in addition , we license our betsey johnson® trademark for use in connection with the manufacture , marketing and sale of women 's and children 's apparel , hosiery , swimwear , outerwear , sleepwear , activewear , jewelry , watches , bedding , luggage , stationary , umbrellas and household goods . we also license our dolce vita® trademark for use in connection with the manufacture , marketing and sale of women 's and children 's apparel . in april 2016 , the company formed a joint venture ( `` sm europe '' ) with spm shoetrade holding b.v. through its subsidiary , steve madden europe b.v. the company is the majority interest holder in sm europe and controls the joint venture . sm europe is the exclusive distributor of the company 's products in albania , austria , belgium , bulgaria , cyprus , czech republic , denmark , estonia , finland , france , germany , hungary , ireland , kosovo , latvia , lithuania , luxembourg , the netherlands , norway , poland , romania , russia , slovakia , slovenia , sweden , switzerland , and tunisia . additionally , the company had strong retail growth during the year with net sales increasing 9 % to $ 262,756 compared to $ 240,312 in the prior year period . this increase reflects a comparable store sales , which represent sales of stores ( including the e-commerce websites ) that were in operation throughout 2016 and 2015 , increase of 4 % driven by better fashion trends and stronger product assortment coupled with a net increase of twenty stores year over year . further , despite a challenging environment , the company is pleased with the growth of the steve madden women 's , dolce vita and blondo brands . subsequent to the end of the 2016 fiscal year , on january 30 , 2017 , the company entered into an equity purchase agreement ( the “ purchase agreement ” ) with schwartz & benjamin , inc. , a new york corporation ( “ s & a ” ) , b.d.s. , inc. , a delaware corporation ( “ b.d.s ” ) , quinby ridge enterprises llc , a delaware limited liability company ( “ qre ” ) , danielbarbara enterprises llc , a new york limited liability company ( “ dbe ” and , collectively with s & a , b.d.s . story_separator_special_tag income from operations for the wholesale accessories segment decreased to $ 39,032 in 2016 compared to $ 39,678 in 2015 . 26 retail segment : net sales generated by the retail segment accounted for $ 262,756 , or 18.8 % , and $ 240,312 , or 17.1 % , of total company net sales for the years ended december 31 , 2016 and 2015 , respectively , which represents a $ 22,444 or 9.3 % increase , year over year . this growth is primarily due to the net addition of twenty stores from the prior year coupled with an increase in comparable store sales of 4.0 % driven by strong fashion footwear trends and stronger product assortment . during 2016 , we added nine full price stores and twelve outlets and closed one full price location . as a result , we had 189 retail stores as of december 31 , 2016 , compared to 169 stores as of december 31 , 2015 . the 189 stores currently in operation include 129 steve madden full price stores , 52 steve madden outlet stores , two steven store , one superga store , one multi-branded shoo store and four e-commerce websites . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2016 and 2015 ) for the year ended december 31 , 2016 increased 4.0 % when compared to the prior year . the company excludes new locations from the comparable store base for the first year of operations . stores that are closed for renovations are removed from the comparable store base . during the year ended december 31 , 2016 , gross margin decreased to 60.0 % from 60.9 % in 2015 primarily due to the impact of foreign currency fluctuations on our international operations . in 2016 , operating expenses increased to $ 140,680 from $ 126,607 in 2015 primarily due to the incremental cost associated with new store openings and increases in employee-related and rent expenses in existing locations . operating expenses in 2015 included a benefit of $ 3,048 related to income arising from the early termination of our lease for our 5th avenue , new york store , which was closed during the first quarter of 2015. excluding this benefit , operating expenses in 2015 were $ 129,655 . excluding the lease benefit in 2015 , operating expenses as a percentage of sales decreased to 53.5 % in 2016 from 54.0 % in the prior year . for the year ended december 31 , 2016 , income from operations for the retail segment decreased to $ 17,046 compared to $ 19,702 in the prior year . excluding the benefit of $ 3,048 in 2015 , income from operations for the retail segment in 2015 was $ 16,654 . first cost segment : income for the first cost segment , which includes net commission income and fees , decreased to $ 3,824 for the year ended december 31 , 2016 , compared to $ 6,795 in 2015 due to a reduction in business with certain private label footwear customers . licensing segment : during the year ended december 31 , 2016 , income for the licensing segment decreased to $ 8,060 as compared to the prior year income of $ 9,852 primarily driven by the discontinuation of the steve madden eyewear licenses . year ended december 31 , 2015 vs. year ended december 31 , 2014 consolidated : net sales for the year ended december 31 , 2015 increased by 5.3 % to $ 1,405,239 from $ 1,334,951 for fiscal year 2014 . for the year ended december 31 , 2015 , gross margin as a percentage of net sales increased to 35.6 % compared to 35.1 % in the prior year . operating expenses increased in 2015 to $ 342,446 from $ 315,081 in 2014 . operating expenses , in 2015 , included a benefit of $ 3,048 related to income arising from the early termination of our lease for our 5th avenue , new york store , which was closed during the first quarter of 2015. excluding this benefit , operating expenses were $ 345,494 . excluding the aforementioned benefit , the increase in operating expenses is primarily due to the increase in retail store locations and the impact of recent acquisitions , partially offset by the reversal of contingent liabilities . operating expenses , excluding the aforementioned lease termination income , as a percentage of sales increased to 24.6 % in the year ended december 31 , 2015 compared to 23.6 % in the previous year due to operating expense deleverage on lower organic sales . commission and licensing fee income increased to $ 16,647 in 2015 compared to $ 13,723 in 2014 . during the year ended december 31 , 2015 , income from operations increased to $ 171,648 and net income attributable to steven madden , ltd. increased to $ 112,938 compared to income from operations of $ 167,642 and net income attributable to steven madden , ltd. of $ 111,880 in 2014 . net income attributable to steven madden , ltd. included the $ 3,048 pre-tax benefit related to the closure of our 5th avenue , new york store location . net income attributable to steven madden , ltd. also included a pre-tax charge of $ 3,045 related to the partial impairment of our wild pair trademark , which was triggered by a decrease in expected sales stream from a significant customer . wholesale footwear segment : net sales generated by the wholesale footwear segment was $ 898,364 , or 63.9 % , and $ 881,041 , or 66.0 % , of our total net sales for the years ended december 31 , 2015 and 2014 , respectively . excluding net sales attributable to the acquisitions of 27 dolce vita , sm mexico and blondo in each year , organic net sales decreased 6.4 % to $ 791,468 in fiscal year 2015 compared to $ 845,827 in the prior year .
| executive summary net sales for 2016 slightly decreased by 0.4 % to $ 1,399,551 from $ 1,405,239 in 2015 . the net sales decrease is due to a decline in both the wholesale footwear segment and the wholesale accessories segment partially offset by an increase in our retail segment . net income increased 7.1 % to $ 120,911 in 2016 compared to $ 112,938 in 2015 . the company 's effective tax rate for 2016 decreased to 29.1 % compared to 34.1 % recorded in 2015 due primarily to the tax benefit received in connection with the early adoption of accounting standard update no . 2016-09 ( `` asu 2016-09 '' ) , improvements to employee share-based payment accounting , which changes the accounting for certain aspects of share-based payments to employees ( refer to note q in the consolidated financial statements ) coupled with the planned reinvestment of foreign earnings in foreign locations . diluted earnings per share in 2016 increased to $ 2.03 per share on 59,556,000 diluted weighted average shares outstanding compared to $ 1.85 per share on 61,142,000 diluted weighted average shares outstanding in the prior year . in our retail segment , same store sales ( sales attributable to those stores , including the e-commerce websites , that were in operation throughout 2016 and 2015 ) increased 4 % , and sales per square foot increased to $ 752 in 2016 compared to sales per square foot of $ 723 in 2015 . as of december 31 , 2016 , we had 189 stores in operation , compared to 169 stores as of december 31 , 2015 . our store increase was primarily related to the addition of nine full price stores and twelve outlet store locations partially offset by one full price store closing . our total inventory turnover was 8.2 times compared to 8.7 times in the comparable period of last year .
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such agreement provides for bonuses , as determined by our board of directors , and employee benefits , including health and disability insurance , in accordance with our policies and automatically renews for consecutive one-year terms , unless terminated by either party 90 days prior to the end of the then current term . equity incentive plans on january 30 , 2018 , the company 's board of directors approved the establishment of our 2018 long-term stock incentive plan ( the “ ltip ” ) . the ltip is intended to enable the company to continue to attract able directors , employees , and consultants and to provide a means whereby those individuals upon whom the responsibilities rest for successful administration and management of the company , and whose present and potential contributions are of importance , can acquire and maintain common stock ownership , thereby strengthening their concern for the company 's welfare . the aggregate maximum number of shares of common stock ( including shares underlying options ) that may be issued under the ltip pursuant to awards of restricted shares or options will be limited to 15 % of the outstanding shares of common stock , which calculation shall be made on the first business day of each new fiscal year ; provided that , in any year no more than 8 % of the common stock or derivative securitization with common stock underlying 8 % of the common stock may be issued in any fiscal year . for fiscal year 2018 , up to 300,000 shares of common stock were initially available for participants under the ltip , which shares were granted outside the ltip 's first year share availability pool . for fiscal year 2019 , up to 2,304,909 shares of common stock are available for participants under the ltip . the number of shares of common stock that are the subject of awards under the ltip which are forfeited or terminated , are settled in cash in lieu of shares of common stock or in a manner such that all or some of the shares covered by an award are not issued to a participant or are exchanged for awards that do not involve shares will again immediately become available to be issued pursuant to awards granted under the ltip . if shares of common stock are withheld from payment of an award to satisfy tax obligations with respect to the award , those shares of common stock will be treated as shares that have been issued under the ltip and will not again be available for issuance under the ltip . in connection with the termination of the carve-out plan ( defined below ) and the approval of the ltip on january 31 , 2018 , the company issued 1,437,596 shares of restricted common stock to certain of its employees and directors , whose proceeds under the carve-out plan were vested as of that date . see also “ executive compensation – non-equity incentive plans ” . such shares were issued to such persons on january 31 , 2018 , and were to be released in three equal tranches on september 1 , 2018 , march 1 , 2019 and september 1 , 2019. as of december 31 , 2018 , 473,091 shares of restricted common stock were released and 929,264 shares of restricted common stock were to be released on each of march 1 , 2019 and september 1 , 2019 , with an additional 35,241 shares to be released to a terminated employee in five equal tranches over the next 26 months pursuant to the terms of such employee 's restricted stock agreement . 26 non-equity incentive plans on january 30 , 2018 , the company terminated the company 's carve-out plan ( the “ carve-out plan ” ) ( described in note 9 of the notes to the consolidated financial statements ) . prior to its cancellation , our employees and directors of the company were entitled to participate in the carve-out plan at story_separator_special_tag the following discussion of our financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this report . this discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . these forward-looking statements speak only as of the date of this report . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , or achievements . except as required by applicable law , including the securities laws of the united states , we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results . overview we were formed as summit semiconductor , llc , a delaware limited liability company , on july 23 , 2010. we converted to a delaware corporation , effective december 31 , 2017 , at which time we changed our name to summit semiconductor , inc. effective as of september 11 , 2018 , we changed our name to summit wireless technologies , inc. we run our operations through summit wireless technologies , inc. , as well as through our wholly-owned subsidiaries , summit semiconductor k.k. , a japanese corporation and wisa , llc , a delaware limited liability company . the address of our corporate headquarters is 6840 via del oro , ste . story_separator_special_tag 12 critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , our observance of trends in the industry and information available from other outside sources , as appropriate . please see note 2 of the notes to the consolidated financial statements for a more complete description of our significant accounting policies . we utilize the extended transition period provided in securities act section 7 ( a ) ( 2 ) ( b ) as allowed by section 107 ( b ) ( 1 ) of the jobs act for the adoption of new or revised accounting standards as applicable to emerging growth companies . as part of the election , we will not be required to comply with any new or revised financial accounting standard until such time that a company that does not qualify as an “ issuer ” ( as defined under section 2 ( a ) of the sarbanes-oxley act of 2002 ) is required to comply with such new or revised accounting standards . as an emerging growth company within the meaning of the rules under the securities act , and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . for example , we will not have to provide an auditor 's attestation report on our internal control in future annual reports on form 10-k as otherwise required by section 404 ( b ) of the sarbanes-oxley act . in addition , section 107 of the jobs act provides that an emerging growth company can utilize the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . thus , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to utilize this extended transition period . our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies . comparison of the year ended december 31 , 2018 and 2017 revenue revenue for the year ended december 31 , 2018 was $ 1,374,000 , an increase of $ 261,000 or 23 % , compared to the same period of 2017. the increase in revenue was attributable to higher module sales . cost of revenue and operating expenses cost of revenue cost of revenue for the year ended december 31 , 2018 was $ 1,612,000 , an increase of $ 340,000 compared to the same period of 2017. cost of revenue increased $ 275,000 due to product mix , increased stock-based compensation charges of approximately $ 24,000 , increased facility allocation charges of $ 69,000 , partially offset by reduced inventory obsolescence charges of approximately $ 67,000. research and development research and development expenses for the year ended december 31 , 2018 were $ 4,873,000 , an increase of $ 1,208,000 compared to the same period of 2017. the increase in research and development expenses is primarily related to increased stock-based compensation charges of approximately $ 662,000 , increased consulting expense of $ 130,000 and increased salary , incentive compensation and benefit expense of $ 353,000 as we hired an average of an additional 12 temporary and part-time interns which was offset by a decrease of three full time employees between comparison periods . sales and marketing sales and marketing expenses for the year ended december 31 , 2018 were $ 2,803,000 , an increase of $ 1,214,000 compared to the same period of 2017. the increase in sales and marketing expenses is primarily related to increased stock-based compensation charges of approximately $ 555,000 , increased consulting fees of approximately $ 717,000 which includes $ 286,000 of warrant compensation , as we engaged a senior strategy consultant and a branding firm , and increased public relations fees of approximately $ 76,000 partially offset by reduced salary , incentive compensation and benefit expense of $ 169,000 , as we reduced our average headcount by two employees . 13 story_separator_special_tag these factors raise substantial doubt about the company 's ability to continue as a going concern . the accompanying consolidated financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . off-balance sheet arrangements we have no off-balance sheet arrangements . internal control over financial reporting prior to the ipo we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and procedures . in connection with the audits of our consolidated financial statements as of and for the years ended december 31 , 2018 and 2017 , we identified material weaknesses in our internal control over financial reporting , as defined in the standards established by the public company accounting oversight board ( united states ) . a material weakness is a deficiency , or a combination of deficiencies , in internal control over financial reporting such that there is
| general and administrative general and administrative expenses for the year ended december 31 , 2018 were $ 3,657,000 , an increase of $ 2,228,000 compared to the same period of 2017. the increase in general and administrative expenses is primarily related to increased stock-based compensation charges of approximately $ 902,000 , increased accounting expenses of $ 129,000 as we prepared for an initial public offering and those costs associated with being a publicly traded company , increased investor relations expenses of $ 1,130,000 , which includes $ 633,000 of stock-based compensation and increased travel , meals and entertainment expenses of $ 74,000 in connection with the ipo roadshow and post ipo investor conferences . interest expense interest expense for the year ended december 31 , 2018 was $ 33,502,000 , an increase of $ 18,806,000 compared to the same period of 2017. interest expense increased primarily due to the series d convertible notes accruing 10 % interest on the first of every month beginning march 1 , 2018 until their conversion on july 25 , 2018 , the effective date of the ipo , increased amortization of debt discount charges of $ 16,024,000 as well as an increase in total debt between the comparison periods . change in fair value of warrant liability change in fair value of warrant liability for the year ended december 31 , 2018 was a loss of $ 8,051,000 , compared to a gain of $ 4,309,000 during the same period of 2017. the change is primarily due to the increase in the stock price as we prepared for an initial public offering , which led to an increase in the fair value of the warrants .
| 4,714 |
matching contributions totaled approximately $ 0.7 million , $ 0.5 million and $ 0.2 million for each story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated and combined financial statements and related notes presented in this annual report on form 10-k. the following discussion and analysis contains forward-looking statements , including , without limitation , statements related to our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this report , particularly in “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements. ” in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we do not undertake any obligation to update any forward-looking statements except as otherwise required by applicable law . in this section , references to “ jagged peak , ” “ the company , ” “ we , ” “ us ” and “ our ” refer to jagged peak energy inc. and its subsidiaries , after the initial public offering of jagged peak ( the “ ipo ” ) and , prior to the ipo , to jagged peak energy llc ( “ jpe llc ” ) . jagged peak energy inc. and our predecessor jagged peak was formed in september 2016 and , prior to the consummation of the ipo , did not have historical financial operating results . for purposes of this annual report , our accounting predecessor reflects the results of jpe llc , which was formed in 2013 to engage in the acquisition , development , exploration and exploitation of oil and natural gas reserves . in connection with the ipo , a corporate reorganization took place whereby jpe llc became a wholly owned subsidiary of jagged peak . overview we are an independent oil and natural gas company focused on the acquisition and development of unconventional oil and associated liquids-rich natural gas reserves . our operations are entirely located in the united states , within the permian basin of west texas . our primary area of focus is the southern delaware basin ; the delaware basin is a sub-basin of the permian basin . our acreage is located on large , contiguous blocks in the adjacent texas counties of winkler , ward , reeves and pecos , with significant original oil-in-place within multiple stacked hydrocarbon-bearing formations . we have assembled a portfolio of contiguous acreage in the core oil window of the southern delaware basin . this acreage is characterized by a multi-year , oil-weighted inventory of horizontal drilling locations that provide attractive growth and return opportunities . at december 31 , 2018 , our acreage position was approximately 79,500 net acres . we divide our current areas of operation into three distinct project areas : cochise , with approximately 12,900 net acres , whiskey river , with approximately 36,400 net acres , and big tex , with approximately 30,200 net acres . during 2018 , we recognized unproved oil and natural gas impairment expense of $ 28.2 million on certain big tex acreage that largely resulted from our ongoing evaluation of our undeveloped big tex acreage and our current plan to not drill on certain of these leases before they expire . the big tex acreage discussed above , and throughout this annual report , includes the impaired big tex acreage , as it has not yet expired . as of december 31 , 2018 , our estimated proved reserves were approximately 118.9 mmboe , consisting of 77 % oil . we seek to maintain operational control of our properties in order to better execute on our strategy of enhancing returns through operational improvements and cost efficiencies . as the operator of approximately 97 % of our acreage , we have the flexibility to manage our development program , which allows us to optimize our field-level returns and profitability . market conditions our revenue , profitability and future growth are highly dependent on the prices we receive for our oil , natural gas and ngl production . compared to 2017 , our realized oil price for 2018 increased 16 % to $ 56.12 per barrel , our realized natural gas price declined 55 % to $ 1.14 per mcf , and our realized price for ngls declined by 18 % to $ 20.83 per barrel between these same periods . the decrease in natural gas and ngl realized prices was partially due to the adoption of asc 606 on january 1 , 2018 , and the transition from ethane rejection to ethane recovery during 2018 by our primary gas purchaser . see “ sources of our revenues ” below for further information regarding our realized commodity prices . as the u.s. oil and gas industry continues to confront volatile commodity prices , we may experience adverse effects on our business , financial condition , results of operations , operating cash flows , liquidity and ability to finance planned capital expenditures . lower prices may also reduce the amount of oil , natural gas and ngls that we can produce economically and therefore , potentially lower our oil , natural gas and ngl reserves . decreasing reserves may also reduce the borrowing base under our credit agreement , which is determined at the discretion of the lenders and is based on the collateral value of our proved reserves . our ability to access capital markets may be restricted , which could have an impact on our flexibility to react to 43 index to financial statements changing economic and business conditions . story_separator_special_tag these direct , incremental general and administrative expenses are not included in our historical results of operations for the year ended december 31 , 2016. summary of operating and financial results successfully began production on 59 gross ( 48.0 net ) wells , of which we operate 45 gross ( 42.4 net ) , all within the southern delaware basin ; increased total proved reserves by 44 % to 118.9 mmboe at december 31 , 2018 , and replaced 393 % of 2018 production ; added 35.7 mmboe of proved reserves from infill reserves in an existing proved field ; increased average daily production by 102 % to 34,207 boe/d , comprised of 77 % oil ; grew oil production 93 % to 26,355 barrels per day , natural gas production by 122 % to 21.9 mmcf/d and ngl production rose 149 % to 4,203 barrels per day ; production revenues increased 118 % to $ 580.9 million ; improved cash flow from operating activities to $ 427.7 million from $ 178.9 million in the previous year ; incurred equity-based compensation expense of $ 83.3 million , which included $ 71.3 million related to a modification of service requirements for incentive unit awards ; experienced a noncash derivative gain of $ 153.5 million ; realized net income of $ 165.5 million ; increased our elected commitment under our credit facility from $ 425.0 million to $ 540.0 million ; successfully completed the offering of $ 500.0 million aggregate principal amount of the 5.875 % senior notes ; and repaid our outstanding borrowings on our amended and restated credit facility with a portion of the proceeds from the issuance of the 5.875 % senior notes . sources of our revenues our revenues are derived from the sale of our oil and natural gas production , including the sale of ngls that are extracted from our natural gas during processing . in 2018 , our production revenues were derived 93 % from oil sales , 1 % from natural gas sales and 6 % from ngl sales . our oil , natural gas and ngl revenues do not include the effects of derivatives . increases or decreases in our revenue , profitability and future production are highly dependent on the commodity prices we receive . oil , natural gas and ngl prices are market driven and have been historically volatile . we expect that future prices will continue to fluctuate due to supply and demand factors , seasonality and geopolitical and economic factors . the following table presents our average realized commodity prices , the effects of derivative settlements on our realized prices and certain major u.s. index prices . replace_table_token_12_th ( 1 ) on january 1 , 2018 , we adopted asc 606. as a result of adoption , natural gas and ngl realized prices for the year ended december 31 , 2018 include gathering and processing costs which reduced our realized natural gas and ngl prices by $ 0.44 per mcf and $ 7.33 per barrel , respectively . for additional information regarding the new revenue recognition standard , see note 2 , significant accounting policies and related matters , included elsewhere in this report . ( 2 ) during 2018 , our primary gas purchaser transitioned from ethane rejection to ethane recovery , which resulted in decreased realized natural gas price per mcf and ngl price per barrel , while increasing ngl volumes . 45 index to financial statements while quoted nymex oil and natural gas prices are generally used as a basis for comparison within our industry , the prices we receive are affected by quality , energy content , location , gathering and processing and transportation differentials for these products . see “ results of operations ” below for an analysis of the impact changes in realized prices had on our revenues . in addition to sales of oil , natural gas , and ngls , we derive a minimal portion of our revenues from sales of fresh water and produced water disposal services to third parties . these revenues are reflected as other operating revenues on the consolidated and combined statements of operations . production volumes directly impact our results of operations as reservoir pressures decline , production from a given well or formation decreases . growth in our cash flow , future production and reserves will depend on our ability to continue to add production and proved reserves in excess of our production . accordingly , we plan to maintain our focus on adding reserves through drilling , as well as acquisitions . our ability to add reserves through successful drilling results and acquisitions is dependent on many factors , including our ability to increase our levels of cash flow from operations , borrow or raise capital , obtain regulatory approvals , procure materials , services and personnel and successfully identify and consummate acquisitions . operating costs and expenses costs associated with producing oil , natural gas and ngls are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production and others are a function of the number of wells we own . lease operating expenses . lease operating expenses ( “ loe ” ) are the costs incurred in the operation and maintenance of producing properties . expenses for utilities , direct labor , water transportation , injection and disposal , repairs , materials and supplies comprise the most significant portion of our loe . certain items , such as direct labor and materials and supplies , generally remain consistent across broad production volume ranges , but can fluctuate depending on activities performed during a specific period . certain operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases . workover costs are variable and can fluctuate based on the timing of workover activities .
| results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues oil and natural gas revenues . the following table provides the components of our production revenues for the years ended december 31 , 2018 and 2017 , as well as each period 's respective average realized prices and production volumes : replace_table_token_13_th ( 1 ) average prices shown in the table do include settlements of commodity derivative transactions . ( 2 ) during 2018 , our primary gas purchaser transitioned from ethane rejection to ethane recovery , which resulted in decreased realized natural gas price per mcf and ngl price per barrel , while increasing ngl volumes . ( 3 ) on january 1 , 2018 , we adopted asc 606. as a result of adoption , we changed the presentation of our natural gas and ngl sales revenues , with a corresponding change to our gathering and processing expense . for additional information regarding the new revenue recognition standard , see note 2 , significant accounting policies and related matters , included elsewhere in this report . see the table below for a breakout of the impact on our revenues and expense of adopting asc 606 : replace_table_token_14_th as reflected in the table above , our total production revenue for the year ended december 31 , 2018 was 118 % , or $ 314.5 million , higher than that of the same period from 2017 . the increase is primarily due to higher sales volumes , along with higher average realized oil prices during 2018 . our aggregate production volumes in 2018 were 12,486 mboe , comprised of 77 % oil , 48 index to financial statements 11 % natural gas and 12 % ngls . this represents an increase of 102 % over aggregate production volumes of 6,196 mboe during 2017 .
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these statements are only predictions and are subject to a number of assumptions , risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements . the following important factors , in addition to those discussed in our other filings with the securities and exchange commission ( the “ commission ” ) from time to time , and other unforeseen events or circumstances , could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements : general economic conditions ; competition ; weather ; our ability to raise capital ; our ability to control costs ; changes within our industries ; new and upgraded products and services by us or our competitors ; employee retention ; sovereign risk ; legal and regulatory issues ; changes in accounting policies or practices ; currency translation and exchange risks ; and the market price of oil . all forward-looking statements are based on information available to us on the date of this filing , and we assume no obligation to update such statements , although we will continue to comply with our obligations under the securities laws . the following discussion should be read in conjunction with our other filings with the commission and the consolidated financial statements and related notes included in this annual report . story_separator_special_tag font-family : times new roman '' > results of operations for the year ended march 31 , 2009 compared to the year ended march 31 , 2008 we had net income of $ 215,085 , or $ 0.00 per share , for the year ended march 31 , 2008 ( “ fiscal 2008 ” ) compared to a net loss of $ 11,030,906 , or $ 0.05 per share , for the year ended march 31 , 2008 ( “ fiscal 2008 ” ) . our total operating expenses for fiscal 2008 were $ 243,111 as compared to operating expenses for fiscal 2009 of $ 11,244,502. interest expense in fiscal 2008 was $ 110,464 compared to fiscal 2009 interest expense of $ 0. income from settlements of outstanding payables was $ 568,562 in fiscal 2008 compared to $ 0 in fiscal 2009. tot energy , inc. was not an operating company until the acquisition of tot-sibbns in july 2008. the fiscal 2008 expenses of tot energy , inc. reflect non-operating winding down activities , principally creditor settlements and expenses incurred to remain current in our sec filing obligations . our activity in fiscal 2008 was focused on settling outstanding payables and other liabilities . our operating expenses declined significantly during fiscal 2008 as we terminated product development activities and our remaining workforce . there were no operating expenses related to tot-sibbns in fiscal 2008. for fiscal 2009 , our operating expenses consisted of $ 10,391,575 for tot-energy , inc. and $ 852,927 relating to operating expenses at tot-sibbns . the operating expenses of tot energy , inc. of $ 10,391,575 in fiscal 2009 related primarily to compensation expense ( $ 8,931,801 ) in connection with issuances of stock and warrants pursuant to the subscription agreement . payroll expenses were $ 656,702 , professional fees for legal , accounting , consulting and tax preparation were $ 316,857 and other general and administrative expenses were $ 486,215 consisting primarily of travel , rent and investor relations expenses . for fiscal 2008 , operating expenses of $ 243,111 consisted of $ 47,020 in professional fees , $ 37,587 in payroll expenses , $ 21,140 in transfer agent fees and $ 137,364 in other general and administrative expenses . outstanding payables were settled at a discount in late fiscal 2008 and the company recognized income of $ 568,562 and $ 0 from settlements in fiscal 2008 and fiscal 2009 , respectively . the non-controlling interest in loss of consolidated subsidiary was $ 0 in fiscal 2008 and $ 213,378 in fiscal 2009 as tot-sibbns was purchased on july 16 , 2008 and the fiscal 2009 amount relates to the 25 % non-controlling interest in tot-sibbns retained by our joint venture partner . liquidity and capital resources at march 31 , 2009 , we had negative working capital of $ 765,507 and cash of $ 99,971. short term financing is provided by tgr energy , llc ( “ tgr ” ) as we require additional working capital , pursuant to a subscription agreement dated august 7 , 2008 ( the “ subscription agreement ” ) . tgr has agreed to provide up to $ 2,000,000 ( the “ investment amount ” ) in exchange for up to 100,000,000 shares of common stock and warrants to purchase up to 50,000,000 shares of common stock at an exercise price of $ 0.05 per share . pursuant to the subscription agreement , tgr will fund the investment amount as required in our operational budget . tgr 's obligation to fund the investment amount will be reduced by any future third party funding or investment on terms no less favorable than those contained in the subscription agreement . for the quarter ended march 31 , 2009 , tgr was issued 10,697,250 shares of common stock of the company and fully vested warrants to purchase 5,348,625 shares of common stock of the company for $ 0.05 per share in exchange for funding of $ 213,945 provided during the quarter under the terms of the subscription agreement . a compensation charge of $ 1,390,643 was recorded for the quarter ended march 31 , 2009 as an officer of the company is also a principal of tgr and the securities issued were below market value . story_separator_special_tag this amount is calculated as the difference between the market price of our common stock at the end of each quarter in which shares were issued and the subscription price of the common shares ( $ 0.02 ) multiplied by the number of shares issued , plus the black-scholes valuation of the warrants issued as calculated at the end of each quarter . 12 for the fiscal year ended march 31 , 2009 , tgr was issued an aggregate of 82,725,335 shares of common stock of the company and fully vested warrants to purchase 41,362,168 shares of common stock of the company at an exercise price of $ 0.05 per share pursuant to the terms of the subscription agreement . these issuances were in exchange for financings under the subscription agreement in the aggregate amount of $ 1,654,507 of which $ 1,017,097 was cash and $ 637,410 related to refinancing of previously outstanding notes payable . a compensation charge of $ 8,827,218 was recorded for the fiscal year ended march 31 , 2009. this amount is calculated as the difference between the market price of our common stock at the end of each quarter in which shares were issued and the subscription price of the common shares ( $ 0.02 ) multiplied by the number of shares issued , plus the black-scholes valuation of the warrants issued as calculated at the end of each quarter . critical accounting policies and estimates our significant accounting policies are described more fully in note 1 to our consolidated financial statements . management is required to make certain estimates and assumptions during the preparation of our financial statements in accordance with generally accepted accounting principles . these estimates and assumptions impact the reported amount of assets and liabilities as well as disclosures regarding any contingencies . actual results could differ from estimates and this could impact reported net income or the value of our assets and liabilities . in applying estimates , management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical experience , terms of existing contracts , our observance of trends in the industry , information provided by outside sources , trade journals and other sources , as appropriate . deferred taxes . estimates of deferred income taxes and items giving rise to deferred tax assets and liabilities reflect management 's assessment of actual future taxes to be paid on items reflected in the financial statements , giving consideration to both timing and the probability of the realization . actual income taxes could vary from these estimates for a variety of reasons including changes in tax law , operating results that vary from budget or the review of our tax returns by the irs . valuation of stock based compensation . stock based compensation has been provided by the company in order to preserve the cash flow necessary to grow our business . in addition , we entered into the subscription agreement described above to strengthen our available sources of capital . we believe the estimate of stock based compensation is a “ critical accounting estimate ” that significantly affects our results of operations . management of the company has discussed the development and selection of this critical accounting estimate with our board of directors and the board of directors has reviewed the company 's disclosure relating to it in this report . off-balance sheet arrangements at march 31 , 2009 , we did not have any off-balance sheet arrangements , as defined in item 303 ( a ) ( 4 ) of regulation s-k promulgated under the securities exchange act of 1934 , as amended . recently issued accounting pronouncements in may 2008 , the fasb issued statement of financial accounting standards no 165 ( sfas no . 165 ) , subsequent events , which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued . the company does not expect that this statement will result in a change in current practice . in april 2009 , the fasb issued three related fasb staff positions ( “ fsp ” ) : ( i ) fsp fas no . 115-2 and fas no . 124-2 , “ recognition of presentation of other-than-temporary impairments ” ( “ fsp fas 115-2 and fas 124-2 ” ) , ( ii ) fsp fas no . 107-1 and accounting principles board opinion ( “ apb ” ) no . 28-1 , “ interim disclosures about fair value of financial instruments ” ( “ fsp fas 107-1 and apb 28-1 ” ) , and ( iii ) fsp fas no . 157-4 , “ determining the fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly ” ( “ fsp fas 157-4 ) , which are effective for interim and annual reporting periods ending after june 15 , 2009 and will be effective for us beginning in the first quarter of fiscal 2010. fsp fas 115-2 and fas 124-2 amend the other-than-temporary impairment guidance in u.s. gaap for debt securities to modify the requirement for recognizing other-than-temporary impairments , change the existing impairment model , and modify the presentation and frequency of related disclosures . fsp fas 107-1 and apb 28-1 require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements . fsp fas 157-4 provides additional guidance for estimating fair value in accordance with sfas no . 157 , “ fair value measurements ” ( “ sfas 157 ” ) . we are currently evaluating the impact of adopting these staff positions , but we do not expect the adoption to have a material impact on our consolidated financial position , results of operations or cash flows .
| general we are working to build a diversified portfolio of energy assets . to this end , from time to time , we may be engaged in various discussions to acquire businesses or formulate joint venture or other arrangements with energy companies located around the world . our policy is not to disclose discussions or potential transactions until definitive agreements have been executed . where appropriate , acquisitions will be financed with equity shares and this may result in substantial dilution to existing stockholders . on july 16 , 2008 , we entered into a joint venture agreement ( the “ jv agreement ” ) with evgeny bogorad ( “ bogorad ” ) , owner of sibburnefteservis , ltd. of novosibirsk , russia , an oil services company ( “ sibbns ” ) . pursuant to the jv agreement , bogorad has contributed certain of sibbns assets and personnel to a joint venture company named tot-sibbns , ltd. , a russian corporation ( “ tot-sibbns ” ) . an independent appraisal company has appraised the contributed assets at us $ 6,221,881. at the closing on july 16 , 2008 , we issued to bogorad 3,000,000 shares of our common stock in exchange for a 75 % interest in tot-sibbns . we are obligated to issue to bogorad 2,000,000 additional shares of common stock upon tot-sibbns obtaining us $ 10,000,000 in gross revenue during the three-year period following the closing .
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for example , there can be no assurance that our revenues or expenses will meet any expectations or follow any trend ( s ) , that we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions . we can not assure you that we will receive expected avinza , promacta , captisol and other product revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development , gain marketing approval or achieve success in the market . in addition , ongoing or future arbitration , or litigation or disputes with third parties may have a material adverse effect on us . such risks and uncertainties , and others , could cause actual results to differ materially from any future performance suggested . we undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this annual report . this caution is made under the safe harbor provisions of section 21e of the securities exchange act of 1934 , as amended . our trademarks , trade names and service marks referenced herein include ligand . each other trademark , trade name or service mark appearing in this annual report belongs to its owner . references to ligand pharmaceuticals incorporated , ligand , the company , we or our include our wholly owned subsidiariesligand jvr , allergan ligand retinoid therapeutics , seragen , inc. , or seragen ; pharmacopeia , llc ; neurogen corporation , cydex pharmaceuticals , inc. , metabasis therapeutics , and nexus equity vi llc , or nexus . overview we are a biotechnology company that operates with a business model focused on developing or acquiring revenue generating assets and coupling them to a lean corporate cost structure . our goal is to create a sustainably profitable business and generate meaningful value for our stockholders . since a portion of our business model is based on the goal of partnering with other pharmaceutical companies to commercialize and market our assets , a significant amount of our revenue is based largely on payments made to us by partners for royalties , milestones and license fees . we recognized the important role of the drug reformulation segment in the pharmaceutical industry and in 2011 added captisol ® to our technology portfolio . captisol is a powerful formulation technology that has enabled five fda approved products , including pfizer 's vfend ® iv and baxter international 's nexterone ® and is currently being used in a number of clinical-stage partner programs . in comparison to our peers , we believe we have assembled one of the largest and most diversified asset portfolios in the industry with the potential to generate significant revenue in the future . in addition , therapies in development address the unmet medical needs of patients for a broad spectrum of diseases including hepatitis , muscle wasting , alzheimer 's disease , dyslipidemia , diabetes , anemia , asthma , rheumatoid arthritis and osteoporosis . we have established multiple alliances with the world 's leading pharmaceutical companies including glaxosmithkline , merck , pfizer , baxter international , bristol-myers squibb , celgene , onyx pharmaceuticals , lundbeck inc. , eli lilly & co. , and the medicines company . in january 2011 , we completed the acquisition of cydex pharmaceuticals , inc. , or cydex . as a result , we gained revenue from four currently marketed products , a large portfolio of partnered drug development programs , an internal pipeline of proprietary drugs , and the captisol drug formulation platform technology . cydex is now a wholly owned subsidiary of ligand . in july 2011 , we executed a patent license agreement for the exclusive license to make , have made , import , use , sell or offer for sale the compound associated with fablyn . fablyn is a selective estrogen receptor modulator product candidate that resulted from a collaboration between pfizer and us formed to develop therapies for 31 osteoporosis . in february 2009 , pfizer received approval from the european commission for fablyn tablets . in october 2011 , we entered into a license agreement with chiva pharmaceuticals , inc. for fablyn . under the license agreement , we granted chiva an exclusive worldwide license , with sub-license rights , to our intellectual property rights related to fablyn . chiva is obligated to pay us a non-refundable license issuance fee of $ 4.0 million on or before june 1 , 2012 , of which $ 2.5 million was received in 2011. we are also eligible to receive , under the license agreement , both milestones and royalty payments on worldwide net sales of fablyn . in october 2011 , we entered into a license agreement with privately-held sage therapeutics , inc. granting sage an exclusive right to use captisol ® in sage 's development and commercialization of therapeutic drugs formulating certain allosteric receptor modulators with captisol against identified central nervous system disorders . under the license agreement , we will receive upfront and research support payments , and potentially can receive additional payments if sage exercises certain product commercialization options . upon commercialization , we could potentially receive milestone payments for captisol-enabled programs , plus tiered royalties on net sales for products that use the captisol technology . we are also eligible to receive commercial revenue from the shipment of captisol to sage for clinical and commercial activities . in december 2011 , we entered into a license and supply agreement with eli lilly ( lilly ) and company . under the license agreement , we granted to lilly an exclusive , nontransferable license to such intellectual property rights that will enable lilly to develop and potentially commercialize captisol-enabled ® intravenous oncology therapeutics . additionally , lilly paid us a non-refundable license issuance fee of $ 1 million . we are also eligible to receive royalty payments on worldwide net sales of any products that are successfully commercialized . story_separator_special_tag lease exit and termination costs in september 2010 , we ceased use of our facility located in cranbury , new jersey . as a result , we recorded lease exit costs of $ 9.7 million for costs related to the difference between the remaining lease obligations of the abandoned operating leases , which run through august 2016 , and management 's estimate of potential future sublease income , discounted to present value . actual future sublease income may differ materially from our estimate , which would result in us recording additional expense or reductions in expense . in addition , we wrote-off approximately $ 5.4 million of property and equipment related to the facility closure . we also recorded approximately $ 1.8 million of severance related costs . in august 2009 , we entered into a lease termination agreement for our corporate facility in san diego . under the terms of the agreement , we paid a termination fee of $ 14.3 million as follows : $ 4.5 million was paid upon signing , $ 4.5 million was paid in july 2010 and $ 5.3 million was paid in april 2011. as a result , during the year ended december 31 , 2009 , we recorded lease termination costs of $ 15.2 million , which includes the net present value of the lease termination payments of $ 14.3 million and $ 0.9 million of other costs associated with the lease termination . write-off of in-process research and development in 2011 , we recorded a non-cash impairment charge of $ 1.1 million for the write-off of intellectual property and interests in future milestones and royalties for medi-528 , an il-9 antibody program by astrazeneca 's subsidiary , medimmune . the asset was impaired upon receipt of notice from medimmune that it was exercising its right to terminate the collaboration and license agreement . additionally , in 2011 , we recorded a non-cash impairment charge of $ 1.2 million for the write-off of interests in future milestones for trpv1 , a collaborative research and licensing program between us and merck , related to the physiology , pharmacology , chemistry and potential therapeutic applications and potential clinical utilities related to vanilloid receptors , subtype 1. the asset was impaired upon receipt of notice from merck in october 2011 that it was exercising its right to terminate the collaboration and license agreement . in november 2010 , roche notified us that they were exercising their right to terminate the collaboration and license agreement with our subsidiary , metabasis . as a result , we reviewed the carrying amount of the intangible asset related to this agreement . based on our analysis of available information , we determined that the asset 35 would not generate any future cash flow . therefore , we wrote-off the $ 2.8 million of acquired in-process research and development associated with the agreement during the year ended december 31 , 2010. as a result of adjustments to our purchase price allocation related to our acquisition of pharmacopeia in december 2008 , we wrote-off an additional $ 0.4 million of acquired in-process research and development during the year ended december 31 , 2009. accretion of deferred gain on sale leaseback in october 2006 , we entered into an agreement for the sale of our real property located in san diego , california for a purchase price of $ 47.6 million . this property , with a net book value of $ 14.5 million , included one building totaling approximately 82,500 square feet , the land on which the building is situated , and two adjacent vacant lots . as part of the sale transaction , we agreed to lease back the building for a period of 15 years . we recognized an immediate pre-tax gain on the sale transaction of $ 3.1 million in 2006 and deferred a gain of $ 29.5 million on the sale of the building . the deferred gain was being recognized as an offset to operating expense on a straight-line basis over the 15 year term of the lease at a rate of approximately $ 2.0 million per year . in august 2009 , we entered into a lease termination agreement for this building . as a result , we recognized an additional $ 20.4 million of accretion of deferred gain during the quarter ended september 30 , 2009 , and recognized the remaining balance of the deferred gain of $ 3.1 million through the term of our new building lease , which expired in december 2011. the amount of the deferred gain recognized for the years ended december 31 , 2011 , 2010 and 2009 was $ 1.7 million , $ 1.7 million and $ 21.9 million , respectively . interest income interest income was $ 42,000 for 2011 , compared to $ 0.4 million for 2010 and $ 0.6 million for 2009. the decreases from 2011 to 2010 and from 2010 to 2009 are due to lower invested balances and lower interest rates . change in liability for contingent value rights we recorded an increase in the liability for cvrs of $ 0.4 million for 2011 , compared to a decrease of $ 9.1 million for 2010. the change relates to our liability for amounts potentially due to holders of cvrs associated with our metabasis and cydex acquisitions . the metabasis cvr liability is marked-to-market at each reporting period based upon the quoted market prices of the underlying cvr . the cydex cvr liability is marked-to-market at each reporting period based upon a discounted cash flow analysis . the change in fair value is recorded in our consolidated statements of operations . the carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the cvr agreements may be materially different than the carrying amount of the liability .
| results of operations total revenues for 2011 were $ 30.0 million , compared to $ 23.5 million in 2010 and $ 38.9 million in 2009. our income from continuing operations for 2011 was $ 10.2 million , or $ 0.52 per share , compared to losses from continuing operations of $ 12.8 million , or $ 0.65 per share in 2010 and $ 8.3 million , or $ 0.44 per share , in 2009. royalty revenue royalty revenues were $ 9.2 million in 2011 compared to $ 7.3 million in 2010 and $ 8.3 million in 2009. the increase in royalty revenue of $ 1.9 million for the year ended december 31 , 2011 is primarily due to an increase in promacta sales . the decrease in royalty revenue of $ 1.0 million for the year ended december 31 , 2010 is primarily due to lower avinza sales , partially offset by an increase in promacta sales . collaborative research and development and other revenue collaborative research and development and other revenues for 2011 were $ 8.7 million compared to $ 16.3 million in 2010 and $ 30.6 million in 2009. collaborative research and development and other revenues include reimbursement for ongoing research activities , earned milestones , and recognition of prior years ' up-front fees previously deferred . a comparison of collaborative research and development and other revenues is as follows ( in thousands ) : replace_table_token_5_th collaborative research and development . the decrease of $ 7.1 million for the year ended december 31 , 2011 is due to the termination of research collaboration agreements . the decrease of $ 15.6 million for the year ended december 31 , 2010 is primarily due to the termination of our research collaboration agreements throughout the year . 33 license fees .
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directors of chimera investment corporation opinion on the financial statements we have audited the accompanying consolidated statements of financial condition of chimera investment corporation ( the company ) as of december 31 , 2020 and 2019 , the related consolidated statements of operations , comprehensive income , changes in stockholders ' equity and cash flows for each of the three years in the period ended december 31 , 2020 , and the related notes ( collectively referred to as the “ consolidated financial statements ” ) . in our opinion , the consolidated financial statements present fairly , in all material respects , the financial position of the story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in item 15 of this 2020 form 10-k. the discussion may contain certain forward-looking statements that involve risks and uncertainties . forward-looking statements are those that are not historical in nature . as a result of many factors , such as those set forth under “ risk factors ” in this 2020 form 10-k , our actual results may differ materially from those anticipated in such forward-looking statements . this section of this 2020 form 10-k generally discusses 2020 and 2019 items and year-to year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this 2020 form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019. executive summary we are a publicly traded reit that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets , including residential mortgage loans , agency rmbs , non-agency rmbs , agency cmbs , and other real estate-related securities . we use leverage to increase returns while managing the difference or spread between longer duration assets and shorter duration financing . our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals . we selectively invest in residential mortgage assets with a focus on credit analysis , projected prepayment rates , interest rate sensitivity and expected return . we currently focus our investment activities primarily on acquiring residential mortgage loans and non-agency and agency residential and commercial mortgage-backed securities , or mbs . at december 31 , 2020 , based on the amortized cost balance of our interest earning assets , approximately 79 % of our investment portfolio was residential mortgage loans , 10 % of our investment portfolio was agency cmbs , 10 % of our investment portfolio was non-agency rmbs and 1 % of our investment portfolio was agency ios . at december 31 , 2019 , based on the amortized cost balance of our interest earning assets , approximately 55 % of our investment portfolio was residential mortgage loans , 26 % of our investment portfolio was agency rmbs , 11 % of our investment portfolio was agency cmbs , and 8 % of our investment portfolio was non-agency rmbs . the significant change in the composition of our portfolio at december 31 , 2020 as compared to december 31 , 2019 was driven by the sale of our agency rmbs portfolio during the first quarter of 2020 , as discussed below , as we sought to raise liquidity during the severe market conditions created by the covid-19 pandemic . we use leverage to increase returns and to finance the acquisition of our assets . we expect to finance our investments using a variety of financing sources including , when available , securitizations , warehouse facilities , repurchase agreements , structured asset financing and offerings of our securities . we may manage our debt and interest rate risk by utilizing interest rate hedges , such as interest rate swaps , caps , options , swaptions and futures to reduce the effect of interest rate fluctuations related to our financing sources . as of december 31 , 2020 , we did not own any interest rate hedges . our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment . we expect to adjust our strategy to changing market conditions by shifting our asset allocations across these various asset classes as interest rate and credit cycles change over time . we expect to take a long-term view of assets and liabilities . market conditions and our strategy conditions related to covid-19 pandemic 2020 was a very volatile year driven by the global covid-19 pandemic and its effects on the broader economy . through march and april as businesses closed and more people worked from home , normal daily patterns of work , school and daily life changed dramatically . as a result , unemployment skyrocketed , equity markets experienced large declines and interest rates fell . liquidity and lending from banks to businesses was significantly reduced . these conditions put significant pressure on the mortgage reit industry due to its reliance on financing operations and repurchase lending from banks . the federal reserve assisted with asset purchase programs , government stimulus and monetary policy in the form of low interest rates , and signaled its intent to keep interest rates low . these measures were intended to promote price stability and the smooth functioning of markets . in the residential loan sector servicers have worked with borrowers to provide different options to keep borrowers in their homes , including modification , deferral and forbearance programs . the residential housing market has shown resilience this year as housing saw strong home price appreciation supported by low mortgage rates and increasing demand as some 45 individuals left cities to buy homes in the suburbs . in addition , as the year progressed , the number of homeowners relying on forbearance programs trended down . story_separator_special_tag this strategy helped us to participate in the recovery of asset prices from the depressed levels experienced in march to much improved prices and valuations during the second half of 2020. we also have taken advantage of selling certain acmbs bonds at attractive prices as the market has rallied given recent market stability , federal reserve buying programs and stronger financing terms . these actions have led an improvement in book value during the second half of 2020. our book value per common share was $ 12.36 as of december 31 , 2020 , down from $ 16.15 as of december 31 , 2019 , but up from $ 11.91 as of september 30 , 2020. our book value is based on december 31 , 2020 issued and outstanding common shares and excludes the warrant shares discussed above . common stock buyback on march 13 , 2020 , we announced a reauthorization of $ 150 million common stock buyback program . as of december 31 , 2020 , we had repurchased approximately $ 22 million of common stock under the program . 2020 common stock dividends during the year ended december 31 , 2020 , we declared dividends to common shareholders of $ 301 million , or $ 1.40 , per share . we will continue to monitor market conditions and the potential impact the ongoing volatility and uncertainty may have on our business . our board of directors will continue to evaluate the payment of dividends as market conditions evolve , and no definitive determination has been made at this time . while the terms and timing of the approval and declaration of cash dividends , if any , on shares of our capital stock is at the sole discretion of our board of directors and we can not predict how market conditions may evolve , we intend to distribute to our stockholders an amount equal to at least 90 % of our reit taxable income determined before applying the deduction for dividends paid and by excluding net capital gains consistent with our intention to maintain our qualification as a reit under the code . business operations story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > gains or losses on our interest rate swaps are the periodic net settlement payments made or received . for the purpose of computing economic net interest income and ratios relating to cost of funds measures throughout this section , interest expense includes net payments on our interest rate swaps , which is presented as a part of net realized gains ( losses ) on derivatives in our consolidated statements of operations . interest rate swaps are used to manage the increase in interest paid on secured financing agreements in a rising rate environment . presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing liabilities reflects our total contractual interest payments . we believe this presentation is useful to investors because it depicts the economic value of our investment strategy by showing all components of interest expense and net interest income . however , economic net interest income should not be viewed in isolation and is not a substitute for net interest income computed in accordance with gaap . where indicated , interest expense , including interest payments on interest rate swaps , is referred to as economic interest expense . where indicated , net interest income reflecting interest payments on interest rate swaps , is referred to as economic net interest income . the following table reconciles the economic net interest income to gaap net interest income for the periods presented . replace_table_token_7_th ( 1 ) primarily interest expense on long term debt and interest income on cash and cash equivalents . net interest rate spread the following table shows our average earning assets held , interest earned on assets , yield on average interest earning assets , average debt balance , economic interest expense , economic average cost of funds , economic net interest income and net interest rate spread for the periods presented . 50 replace_table_token_8_th 51 replace_table_token_9_th economic net interest income and the average earning assets our economic net interest income ( which is a non-gaap measure , see “ economic net interest income ” discussion earlier for details ) decreased by $ 84 million to $ 513 million for the year ended december 31 , 2020 from $ 597 million for the same period of 2019. our net interest rate spread , which equals the yield on our average interest-earning assets less the economic average cost of funds , increased by 30 basis points for the year ended december 31 , 2020 , as compared to the same period of 2019. the net interest margin , which equals the economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities , increased by 40 basis points for the year ended december 31 , 2020 , as compared to the same period of 2019. our average net interest-earning assets increased by $ 139 million to $ 2.5 billion for the year ended december 31 , 2020 , compared to $ 2.4 billion for the same period of 2019. the increase in our net interest rate spread and net interest margin is primarily due to the change in our portfolio composition . we sold lower yielding agency assets and retained higher yielding non-agency rmbs and loans . following the sale of our agency rmbs portfolio in the first quarter of 2020 , we expect that our total economic net interest income will decline over the near term as our interest earnings asset balances will be lower and financing expenses are expected to be higher . economic interest expense and the cost of funds the borrowing rate at which we are able to finance our assets using secured financing agreements and securitized debt is typically correlated to libor and the term of the financing .
| net income summary the table below presents our net income on a gaap basis for the years ended december 31 , 2020 , 2019 and 2018 . 47 replace_table_token_6_th ( 1 ) includes interest income of consolidated vies of $ 683,456 , $ 780,746 and $ 904,830 for the years ended december 31 , 2020 , 2019 and 2018 , respectively . see note 9 to consolidated financial statements for further discussion . ( 2 ) includes interest expense of consolidated vies of $ 285,142 , $ 337,387 and $ 395,255 for the years ended december 31 , 2020 , 2019 and 2018 , respectively . see note 9 to consolidated financial statements for further discussion . 48 results of operations for the years ended december 31 , 2020 , 2019 and 2018. beginning in march 2020 , the global covid-19 pandemic began to impact the u.s. and global economies including the mortgage reit industry and impacted our business and our results of operations . because of the size and breadth of the covid-19 pandemic , all of the direct and indirect consequences of covid-19 are not yet known and may not emerge for some time . as discussed above , the significant dislocation in the financial markets due to the covid-19 pandemic has caused a sharp decrease in interest rates , credit spread widening and an unprecedented illiquidity in secured financing agreements and mbs markets which in turn has negatively affected asset pricing on our portfolio . we have taken steps to respond to current market conditions , enhance our liquidity and strengthen our cash position by , among other things , selling our agency rmbs portfolio and using the proceeds to pay off debt and terminate hedging , closing eight securitizations and reducing short term repurchase agreement financing risk and establishing longer term financing .
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as of december 31 , 2016 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the 27 credit facility , excluding undrawn letters of credit totaling $ 230,000 . nnn anticipates its long-term capital needs will be funded by the credit facility , cash provided from operations , the issuance of long-term debt or the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . however , there can be no assurance that additional financing or capital will be available , or that the terms will be acceptable or advantageous to nnn . cash and cash equivalents . nnn 's cash and cash equivalents includes the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the consolidated balance sheets . the table below summarizes nnn 's cash flows for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_17_th cash provided by operating activities represents cash received primarily from rental income and interest income less cash used for general and administrative expenses . nnn 's cash flow from operating activities has been sufficient to pay the distributions for each period presented . the change in cash provided by operations for the years ended december 31 , 2016 , 2015 and 2014 , is primarily the result of changes in revenues and expenses as discussed in “ results of operations. ” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses proceeds from its credit facility to fund the acquisition of its properties . nnn 's financing activities for the year ended december 31 , 2016 , included the following significant transactions : $ 334,103,000 in net proceeds from the issuance of 13,800,000 depositary shares representing interests in nnn 's 5.200 % cumulative redeemable preferred stock ( the `` series f preferred stock '' ) in october , $ 342,765,000 in net proceeds from the issuance of the 3.600 % notes payable in december , $ 8,340,000 in net proceeds from the issuance of 187,626 shares of common stock in connection with the dividend reinvestment and stock purchase plan ( “ drip ” ) , $ 265,696,000 in net proceeds from the issuance of 5,716,222 shares of common stock in connection with the at-the-market ( `` atm '' ) equity program , $ 19,047,000 in dividends paid to holders of the depositary shares of nnn 's series d preferred stock , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's series e preferred stock , $ 3,189,000 in dividends paid to holders of the depositary shares of nnn 's series f preferred stock , and $ 257,007,000 in dividends paid to common stockholders . financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2016 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the credit facility , excluding undrawn letters of credit totaling $ 230,000 . as of december 31 , 2016 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 30 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 22 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . 28 contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2016 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2016 . replace_table_token_18_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums , note discounts and note costs . ( 2 ) interest calculation based on stated rate of the principal amount . in addition to the contractual obligations outlined above , nnn has committed to fund construction commitments on 21 properties . the improvements are estimated to be completed within 12 months . these construction commitments , at december 31 , 2016 , are outlined in the table below ( dollars in thousands ) : total commitment ( 1 ) $ 114,206 amount funded $ 54,782 remaining commitment $ 59,424 ( 1 ) includes land , construction costs , tenant improvements and lease costs . as of december 31 , 2016 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand , story_separator_special_tag as of december 31 , 2016 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the 27 credit facility , excluding undrawn letters of credit totaling $ 230,000 . nnn anticipates its long-term capital needs will be funded by the credit facility , cash provided from operations , the issuance of long-term debt or the issuance of common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . however , there can be no assurance that additional financing or capital will be available , or that the terms will be acceptable or advantageous to nnn . cash and cash equivalents . nnn 's cash and cash equivalents includes the aggregate of cash and cash equivalents and restricted cash and cash held in escrow from the consolidated balance sheets . the table below summarizes nnn 's cash flows for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_17_th cash provided by operating activities represents cash received primarily from rental income and interest income less cash used for general and administrative expenses . nnn 's cash flow from operating activities has been sufficient to pay the distributions for each period presented . the change in cash provided by operations for the years ended december 31 , 2016 , 2015 and 2014 , is primarily the result of changes in revenues and expenses as discussed in “ results of operations. ” cash generated from operations is expected to fluctuate in the future . changes in cash for investing activities are primarily attributable to acquisitions and dispositions of properties . nnn typically uses proceeds from its credit facility to fund the acquisition of its properties . nnn 's financing activities for the year ended december 31 , 2016 , included the following significant transactions : $ 334,103,000 in net proceeds from the issuance of 13,800,000 depositary shares representing interests in nnn 's 5.200 % cumulative redeemable preferred stock ( the `` series f preferred stock '' ) in october , $ 342,765,000 in net proceeds from the issuance of the 3.600 % notes payable in december , $ 8,340,000 in net proceeds from the issuance of 187,626 shares of common stock in connection with the dividend reinvestment and stock purchase plan ( “ drip ” ) , $ 265,696,000 in net proceeds from the issuance of 5,716,222 shares of common stock in connection with the at-the-market ( `` atm '' ) equity program , $ 19,047,000 in dividends paid to holders of the depositary shares of nnn 's series d preferred stock , $ 16,387,000 in dividends paid to holders of the depositary shares of nnn 's series e preferred stock , $ 3,189,000 in dividends paid to holders of the depositary shares of nnn 's series f preferred stock , and $ 257,007,000 in dividends paid to common stockholders . financing strategy . nnn 's financing objective is to manage its capital structure effectively in order to provide sufficient capital to execute its operating strategy while servicing its debt requirements , maintaining its investment grade credit rating , staggering debt maturities and providing value to nnn 's stockholders . nnn generally utilizes debt and equity security offerings , bank borrowings , proceeds from the disposition of certain properties , and to a lesser extent , internally generated funds to meet its capital needs . nnn typically funds its short-term liquidity requirements , including investments in additional properties , with cash from its credit facility . as of december 31 , 2016 , there was no outstanding balance and $ 650,000,000 was available for future borrowings under the credit facility , excluding undrawn letters of credit totaling $ 230,000 . as of december 31 , 2016 , nnn 's ratio of total debt to total gross assets ( before accumulated depreciation and amortization ) was approximately 30 percent and the ratio of secured indebtedness to total gross assets was less than one percent . the ratio of total debt to total market capitalization was approximately 22 percent . certain financial agreements to which nnn is a party contain covenants that limit nnn 's ability to incur additional debt under certain circumstances . the organizational documents of nnn do not limit the absolute amount or percentage of indebtedness that nnn may incur . additionally , nnn may change its financing strategy . 28 contractual obligations and commercial commitments . the information in the following table summarizes nnn 's contractual obligations and commercial commitments outstanding as of december 31 , 2016 . the table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of december 31 , 2016 . replace_table_token_18_th ( 1 ) includes only principal amounts outstanding under mortgages payable and notes payable and excludes unamortized mortgage premiums , note discounts and note costs . ( 2 ) interest calculation based on stated rate of the principal amount . in addition to the contractual obligations outlined above , nnn has committed to fund construction commitments on 21 properties . the improvements are estimated to be completed within 12 months . these construction commitments , at december 31 , 2016 , are outlined in the table below ( dollars in thousands ) : total commitment ( 1 ) $ 114,206 amount funded $ 54,782 remaining commitment $ 59,424 ( 1 ) includes land , construction costs , tenant improvements and lease costs . as of december 31 , 2016 , nnn did not have any other material contractual cash obligations , such as purchase obligations , financing lease obligations or other long-term liabilities other than those reflected in the table . in addition to items reflected in the table , nnn has issued preferred stock with cumulative preferential cash distributions , as described below under “ dividends. ” management anticipates satisfying these obligations with a combination of nnn 's cash provided from operations , current capital resources on hand ,
| results of operations property analysis general . the following table summarizes the property portfolio as of december 31 : replace_table_token_8_th the following table summarizes the lease expirations , assuming none of the tenants exercise renewal options , of the property portfolio for each of the next 10 years and then thereafter in the aggregate as of december 31 , 2016 : replace_table_token_9_th ( 1 ) based on the annualized base rent for all leases in place as of december 31 , 2016 . ( 2 ) approximate square feet . the following table summarizes the diversification of the property portfolio based on the top 10 lines of trade : replace_table_token_10_th ( 1 ) based on annualized base rent for all leases in place as of december 31 of the respective year . 22 the following table summarizes the diversification of the property portfolio by state as of december 31 , 2016 : replace_table_token_11_th ( 1 ) based on annualized base rent for all leases in place as of december 31 , 2016 . property acquisitions . the following table summarizes the property acquisitions for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) includes dollars invested in projects under construction or tenant improvements for each respective year . nnn typically funds property acquisitions either through borrowings under nnn 's unsecured revolving credit facility ( the `` credit facility '' ) or by issuing its debt or equity securities in the capital markets . property dispositions . the following table summarizes the properties sold by nnn for each of the years ended december 31 ( dollars in thousands ) : replace_table_token_13_th ( 1 ) amounts include deferred gains on previously sold properties . nnn typically uses the proceeds from a property disposition to either pay down the credit facility or reinvest in real estate . 23 analysis of revenue from continuing operations general .
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these transactions are in the normal course of business and are measured at the amount of consideration established and agreed to by the related parties . during year ended december 31 , 2018 , the company recorded $ 279 thousand ( 2017 – $ 240 thousand ) in research and development expenses related to the agreement . 11. collaborative agreements : the company enters into research , development and license agreements in the ordinary course of business where the company receives research services and rights to proprietary technologies . milestone and royalty payments that may become due under various agreements are dependent on , among other factors , clinical trials , regulatory approvals and ultimately the successful development of a new drug , the outcome and timing of which is uncertain . under the story_separator_special_tag this discussion contains forward-looking statements that involve risks and uncertainties . when reviewing the discussion below , you should keep in mind the substantial risks and uncertainties that impact our business . in particular , we encourage you to review the risks and uncertainties described in “ risk factors ” in part i , item 1a in this annual report on form 10-k. these risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report . these forward-looking statements are made as of the date of this management 's discussion and analysis , and we do not intend , and do not assume any obligation , to update these forward-looking statements , except as required by law . all amounts are expressed in united states dollars unless otherwise stated . overview aptose biosciences is a science-driven biotechnology company advancing first-in-class agents to treat life-threatening cancers , such as acute myeloid leukemia ( aml ) , high-risk myelodysplastic syndromes ( mds ) , chronic lymphocytic leukemia ( cll ) and other hematologic malignancies . based on insights into the genetic and epigenetic profiles of certain cancers and patient populations , aptose is building a pipeline of novel oncology therapies directed at dysregulated processes and signaling pathways . aptose is developing targeted medicines for precision treatment of these diseases , based on a patient 's specific gene expression signature . in the treatment of cancer , this strategy is intended to optimize efficacy and quality of life by minimizing the cytotoxic side effects associated with conventional therapies . we currently have in development two molecules : cg-806 and apto-253 which are described below . cg026806 ( cg-806 ) is an oral , highly potent first-in-class pan-flt3/pan-btk inhibitor . development of cg-806 is intended for the treatment of patients having b-cell malignancies including chronic lymphocytic leukemia ( cll ) , small lymphocytic lymphoma ( sll ) and certain non-hodgkin 's lymphomas that are resistant/refractory/intolerant to other therapies , as well as for patients with relapsed/refractory acute myeloid leukemia ( r/r aml ) , including the emerging populations resistant to flt3 inhibitors . cg-806 is a highly potent , reversible , non-covalent inhibitor of the wild type and mutant forms of the btk enzymes . overexpression of btk drives certain b cell malignancies , and treatment of such b cell malignancies with covalent btk inhibitors that target the cysteine residue in the active site of btk can lead to drug resistance via mutation of the cysteine amino acid residue to a serine residue ( btk-c481s mutant ) . cg-806 targets the atp-binding pocket of btk through a reversible , non-covalent mechanism , thereby allowing cg-806 to retain low nm potency against the btk-c481s mutant enzyme . thus , cg-806 may serve as a novel therapeutic agent to treat b cell malignancy patients that are refractory , resistant or intolerant to covalent btk inhibitors and other non-covalent btk inhibitors currently in development . in addition to potent inhibition of wild type and mutant forms of the btk enzyme , cg-806 exhibits a picomolar ic50 toward the fms-like tyrosine kinase 3 with the internal tandem duplication ( flt3-itd ) and significant potency against all other mutant forms of flt3 . because of the potency of cg-806 against the flt3 enzyme , it may become an effective therapy for aml patients , including the subset of patients having the flt3-itd , which occurs in approximately 30 % of patients with aml and is associated with poor prognosis . importantly , cg-806 targets other oncogenic kinases which may also be operative in aml , thereby potentially allowing the agent to become an important therapeutic option for a difficult-to-treat patient population . 35 apto-253 , the company 's ind-stage program , is a small molecule therapeutic agent that inhibits expression of the myc oncogene without causing general myelosuppression of the bone marrow . the myc oncogene is overexpressed in hematologic cancers , including aml and cll . myc is a transcription factor that regulates cell growth , proliferation , differentiation and apoptosis , and overexpression amplifies new sets of genes to promote oncogenesis . apto-253 downregulates expression of the myc oncogene in aml cells and depletes those cells of the myc oncoprotein , leading to apoptotic cell death in aml cells . thus apto-253 may serve as a safe and effective myc inhibitor for aml that combines well with other agents and does not impact the normal bone marrow . program updates cg-806 on february 22 , 2019 , we announced that we had submitted an investigational new drug ( ind ) application for cg-806 to the u.s. food and drug administration ( fda ) requesting approval to initiate its phase 1 clinical trial program . pending regulatory allowance , aptose plans to conduct a phase 1 trial with orally administered cg-806 in patients with relapsed or refractory b cell malignancies , including cll/sll and non-hodgkin lymphomas ( nhl ) who failed or are intolerant to standard therapies . pending the collection of predictive pharmacokinetic data in humans , aptose would seek allowance from the fda to move into the aml/mds patient population in a separate phase i trial . story_separator_special_tag the dual flt3 mutant form of aml represents a very difficult to treat population , and the pdx model suggest that cg-806 may be useful in treating such patients . secondly , aptose presented high level data from preclinical glp toxicology studies that demonstrate orally administered cg806 is a well-tolerated targeted molecule . finally , in collaboration with the ohsu knight cancer center , studies of cg-806 on 124 samples of freshly isolated bone marrow from cll patients demonstrated both broader and greater cell killing potency for cg-806 than ibrutinib . separately , in studies of cg-806 on aml patient bone marrow samples , we identified a previously undiscovered sensitivity in a subpopulation of patients with a particular mutation . · on february 27 , 2019 , we announced that new preclinical data will be presented in a poster presentation at the upcoming american associate for cancer research ( aacr ) being held on march 29-april 3 , 2019. aptose , along with our collaborators at ohsu knight cancer institute will present data highlighting cg-806 was more potent than other flt3 inhibitors including midostaurin , sorafenib , sunitinib , dovitinib , quizartinib , crenolanib and gilteritinib . cg-806 was equally potent against cells from patients in the adverse , intermediate and favorable risk groups ( 2017 eln risk stratification ) , and cells from patients with relapsed or transformed aml ( who classification ) were as sensitive as those from patients with de novo aml . the data demonstrated potency in primary aml patient samples across all aml subgroups including relapsed/refractory/transformed aml and those with genetic abnormalities related to poor prognosis . while patient samples with flt3-itd mutations were expected to have greater sensitivity to cg-806 , the most surprising correlation was the sensitivity of patient samples with idh1 r132 mutations . the enhanced sensitivity of idh-1 mutant aml to cg-806 warrants investigation in the clinical setting . cg-806 is being developed with the intent to deliver the agent as an oral therapeutic and to develop it for relapsed and refractory ( r/r ) aml/high-risk myelodysplastic syndromes ( “ mds ” ) and for appropriate b cell malignancies ( including cll ) . in collaboration with the fda , we are finalizing our strategy to perform the clinical studies in patients with aml and b cell malignancies . as clinical trials are lengthy , complex , costly , and uncertain processes , an estimate of the future costs is not reasonable at this time . on december 26 , 2017 , we announced that the fda granted orphan drug designation to cg-806 for the treatment of patients with aml . orphan drug designation is granted by the fda to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the united states . orphan drug status provides research and development tax credits , an opportunity to obtain grant funding , exemption from fda application fees and other benefits . if cg-806 is approved to treat aml , the orphan drug designation provides us with seven years of marketing exclusivity . apto-253 phase ib trial apto-253 , a small molecule myc inhibitor , was being evaluated by aptose in a phase ib clinical trial in patients with relapsed / refractory ( r/r ) hematologic malignancies , particularly r/r-aml and high-risk mds before being placed on clinical hold by the fda in november 2015. the phase ib trial of apto-253 was placed on clinical hold as a consequence of an event that occurred at a clinical site with the infusion procedure . ultimately , a root cause investigation determined that the event resulted from chemistry and manufacturing based issues , all of which were incorporated into a chemistry , manufacturing and control ( cmc ) amendment to the investigational new drug ( ind ) application . effective june 29 , 2018 , the clinical hold was lifted and the apto-253 clinical trial was re-initiated . 37 the phase ib , multicenter , open-label , dose-escalation clinical trial of apto-253 is designed to assess the safety , tolerability , pharmacokinetics and pharmacodynamic responses and efficacy of apto-253 as a single agent and determine the recommended phase ii dose . apto-253 will be administered once weekly , over a 28-day cycle . the dose escalation stage of the study could potentially enroll up to 20 patients with r/r-aml or high-risk mds . the study is designed to then transition , as appropriate , to single-agent expansion cohorts in r/r-aml and or high-risk mds . current status as previously disclosed , the phase ib trial was placed on clinical hold in order to solve a chemistry-based formulation issue , and the chemistry of the api and the formulation had undergone minor modifications to deliver a stable and soluble drug product for return to the clinical setting . in december 2016 , we had successfully manufactured multiple non-gmp batches of a new drug product formulation for apto-253 ; however , a batch that was the intended clinical supply encountered an unanticipated mishap during the filling process that compromised the stability of that batch of drug product . we conducted formal root cause analyses studies , identified the reason for the drug product stability failure , and established a corrective and prevention action plan for the manufacture of future batches of drug product . during the first quarter of 2018 , we manufactured a new gmp clinical supply of drug product and performed studies required to demonstrate the fitness of the drug product for clinical usage . the release specifications for the new clinical supply were met , and we presented the findings to the fda in the second quarter of 2018. on june 28 , 2018 , the fda notified us that it had lifted the clinical hold on apto-253 . we then completed all tasks required to return apto-253 to the phase ib clinical trial . we initiated our first site in september 2018 and in november 2018 , we began dosing the first patient .
| results of operations a summary of the results of operations for the years ended december 31 , 2018 and 2017 is presented below : replace_table_token_3_th net loss of $ 28.9 million for the year ended december 31 , 2018 increased by $ 17.2 million compared with $ 11.6 million for the prior year , primarily as a result of $ 5.0 million in license fees paid to cg for development and commercial rights of cg-806 , higher research and development expenses related to our cg-806 and apto- 253 programs , higher professional fees related to regulatory filings in support of financing activities , and from $ 4.3 million in non-cash expenses related to stock-based compensation . excluding the $ 5.0 million one-time upfront license fees payments , the net loss for the year ended december 31 , 2018 would have been $ 23.9 million ( $ 0.71 per share ) . research and development the research and development expenses for the years ended december 31 , 2018 and 2017 are as follows : replace_table_token_4_th 41 research and development expenses of $ 18.7 million for the year ended december 31 , 2018 increased by $ 12.4 million compared with $ 6.3 million for the prior year , primarily as a result of the following events : · license fees paid in the year ended december 31 , 2018 to cg of $ 2.0 million for development and commercial rights of cg-806 in all territories outside of korea and china , and a further $ 3.0 million paid for development and commercial rights of cg-806 in china . cg is eligible for development , regulatory and commercial-based milestones as well as royalties on future product sales . · an increase in research and development activities related to our cg-806 development program .
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the magnitude of our general and administrative expenses ; and ● any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates . until we can generate significant recurring revenues , we expect to satisfy our future cash needs through capital raising or by out-licensing applications of one or more of our product candidates . we can not be certain that additional funding will be available to us on acceptable terms , if at all . if funds are not available , we may be required to delay , reduce the scope of or eliminate research or development plans for , or commercialization efforts with respect to , one or more of our product candidates and make necessary change to our operations to reduce the level of our expenditures in line with available resources . contractual obligations our significant contractual obligations as of december 31 , 2018 included the following : total less than 1 year 1 – 3 years 3 – 5 years more than 5 years operating lease obligations in thousands of $ ( payments due by june 30 , 2021 ) $ 1,825 $ 772 $ 1,053 — — ( 1 ) operating lease obligations consist of lease of our facilities and lease of vehicles . off-balance sheet arrangements we have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . trend information we are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts . as such , it is not possible for us to predict with any degree of accuracy any significant trends , uncertainties , demands , commitments or events that are reasonably likely to have a material effect on our net loss , liquidity or capital resources , or that would cause financial information to not necessarily be indicative of future operating results or financial condition . however , to the extent possible , certain trends , uncertainties , demands , commitments and events are in this “ item 7. management 's discussion and analysis of financial condition and results of operations. ” critical accounting policies this 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 u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates that affect the reported amounts of our assets , liabilities and expenses . significant accounting policies employed by us , including the use of estimates , are presented in the notes to the consolidated financial statements included elsewhere in this annual report . we periodically evaluate our estimates , which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require our subjective or complex judgments , resulting in the need to make estimates about the effect of matters that are inherently uncertain . if actual performance should differ from historical experience or if the underlying assumptions were to change , our financial condition and results of operations may be materially impacted . share-based payments the fair value of equity-based payment transactions is recognized as an expense over the requisite service period and computed using the black-scholes model . we recognize compensation costs for awards conditioned only on continued service and which have a graded vesting schedule using the straight-line method based on the multiple-option award approach . performance based awards are expensed over the vesting period when the achievement of performance criteria is probable . when options are granted as consideration for services provided by consultants and other non-employees , the grant is accounted for based on the fair value of the consideration received or the fair value of the options issued , whichever is more reliably measurable . the fair value of the options granted is measured on a final basis at the end of the related service period and is recognized over the related service period using the straight-line method . 66 jumpstart our business startups act of 2012 we are an emerging growth company within the meaning of the rules under the securities act , and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . such exemptions include , but are not limited to , ( i ) not being required to comply with the auditor attestation requirements of section 404 , ( ii ) being exempt from adoption of new or revised financial accounting standards until they would apply to private companies , ( iii ) being exempt from compliance with any new requirements adopted by the pcaob requiring mandatory audit firm rotation or a supplement to the auditor 's report in which the auditor would be required to provide additional information about our audit and our consolidated financial statements and ( iv ) reduced disclosure obligations regarding executive compensation . we could remain an “ emerging growth company ” for up to five years from the date of our first sale of common equity securities pursuant to an effective registration statement under the securities act , or until the earliest of ( a ) the last day of the first fiscal year in which our annual gross revenue exceeds $ 1.07 billion ( as such amount is indexed for inflation every five years by the sec to reflect the change in the consumer price index for all urban consumers published by the bureau of labor statistics ) or more , story_separator_special_tag the magnitude of our general and administrative expenses ; and ● any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates . until we can generate significant recurring revenues , we expect to satisfy our future cash needs through capital raising or by out-licensing applications of one or more of our product candidates . we can not be certain that additional funding will be available to us on acceptable terms , if at all . if funds are not available , we may be required to delay , reduce the scope of or eliminate research or development plans for , or commercialization efforts with respect to , one or more of our product candidates and make necessary change to our operations to reduce the level of our expenditures in line with available resources . contractual obligations our significant contractual obligations as of december 31 , 2018 included the following : total less than 1 year 1 – 3 years 3 – 5 years more than 5 years operating lease obligations in thousands of $ ( payments due by june 30 , 2021 ) $ 1,825 $ 772 $ 1,053 — — ( 1 ) operating lease obligations consist of lease of our facilities and lease of vehicles . off-balance sheet arrangements we have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . trend information we are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts . as such , it is not possible for us to predict with any degree of accuracy any significant trends , uncertainties , demands , commitments or events that are reasonably likely to have a material effect on our net loss , liquidity or capital resources , or that would cause financial information to not necessarily be indicative of future operating results or financial condition . however , to the extent possible , certain trends , uncertainties , demands , commitments and events are in this “ item 7. management 's discussion and analysis of financial condition and results of operations. ” critical accounting policies this 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 u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates that affect the reported amounts of our assets , liabilities and expenses . significant accounting policies employed by us , including the use of estimates , are presented in the notes to the consolidated financial statements included elsewhere in this annual report . we periodically evaluate our estimates , which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require our subjective or complex judgments , resulting in the need to make estimates about the effect of matters that are inherently uncertain . if actual performance should differ from historical experience or if the underlying assumptions were to change , our financial condition and results of operations may be materially impacted . share-based payments the fair value of equity-based payment transactions is recognized as an expense over the requisite service period and computed using the black-scholes model . we recognize compensation costs for awards conditioned only on continued service and which have a graded vesting schedule using the straight-line method based on the multiple-option award approach . performance based awards are expensed over the vesting period when the achievement of performance criteria is probable . when options are granted as consideration for services provided by consultants and other non-employees , the grant is accounted for based on the fair value of the consideration received or the fair value of the options issued , whichever is more reliably measurable . the fair value of the options granted is measured on a final basis at the end of the related service period and is recognized over the related service period using the straight-line method . 66 jumpstart our business startups act of 2012 we are an emerging growth company within the meaning of the rules under the securities act , and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies . such exemptions include , but are not limited to , ( i ) not being required to comply with the auditor attestation requirements of section 404 , ( ii ) being exempt from adoption of new or revised financial accounting standards until they would apply to private companies , ( iii ) being exempt from compliance with any new requirements adopted by the pcaob requiring mandatory audit firm rotation or a supplement to the auditor 's report in which the auditor would be required to provide additional information about our audit and our consolidated financial statements and ( iv ) reduced disclosure obligations regarding executive compensation . we could remain an “ emerging growth company ” for up to five years from the date of our first sale of common equity securities pursuant to an effective registration statement under the securities act , or until the earliest of ( a ) the last day of the first fiscal year in which our annual gross revenue exceeds $ 1.07 billion ( as such amount is indexed for inflation every five years by the sec to reflect the change in the consumer price index for all urban consumers published by the bureau of labor statistics ) or more ,
| results of operations the table below provides our results of operations for the periods indicated . replace_table_token_2_th 63 year ended december 31 , 2018 compared to year ended december 31 , 2017 research and development expenses , net our research and development expenses , net , for the year ended december 31 , 2018 amounted to approximately $ 35.4 million , an increase of $ 11.1 million , or approximately 46 % , compared to approximately $ 24.3 million for the year ended december 31 , 2017. the increase was primarily due to an increase in expenses related to the progression of our accordance study and ole study , expenses related to the establishment of the commercial scale production capabilities for ap-cd/ld at lts , share based compensation and payroll and related expenses , mostly due to an increase in headcount . this increase was offset by a decrease in expenses related to the repayment to the iia , which were recorded in 2017. general and administrative expenses our general and administrative expenses for the year ended december 31 , 2018 amounted to approximately $ 7.9 million , an increase of $ 2.8 million , or approximately 55 % , compared to approximately $ 5.1 million for the year ended december 31 , 2017. the increase was primarily related to the increase in share-based compensation and payroll and related expenses primarily related to the hiring of executives in the united states since the fourth quarter of 2017 , professional services and expenses related to investor relations activities . operating loss because of the foregoing , for the year ended december 31 , 2018 our operating loss was approximately $ 43.3 million , an increase of $ 13.9 million , or approximately 47 % , compared to our operating loss for the year ended december 31 , 2017 of approximately $ 29.4 million .
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changes in the carrying value of these assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation story_separator_special_tag overview the following management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is intended to help the reader understand the coca-cola company , our operations and our present business environment . md & a is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes thereto contained in `` item 8. financial statements and supplementary data '' of this report . this overview summarizes the md & a , which includes the following sections : our business — a general description of our business and the nonalcoholic beverage segment of the commercial beverage industry ; our objective ; our strategic priorities ; our core capabilities ; and challenges and risks of our business . critical accounting policies and estimates — a discussion of accounting policies that require critical judgments and estimates . story_separator_special_tag style= '' line-height:120 % ; font-size:9pt ; '' > includes concentrates sold by the company to authorized bottling partners for the manufacture of fountain syrups . the bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers . 2 includes fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . 30 the following table sets forth the percentage of total worldwide unit case volume related to concentrate operations and finished product operations : replace_table_token_8_th 1 includes unit case volume related to concentrates sold by the company to authorized bottling partners for the manufacture of fountain syrups . the bottlers then typically sell the fountain syrups to wholesalers or directly to fountain retailers . 2 includes unit case volume related to fountain syrups manufactured by the company , including consolidated bottling operations , and sold to fountain retailers or to authorized fountain wholesalers or bottling partners who resell the fountain syrups to fountain retailers . the nonalcoholic beverage segment of the commercial beverage industry we operate in the highly competitive nonalcoholic beverage segment of the commercial beverage industry . we face strong competition from numerous other general and specialty beverage companies . we , along with other beverage companies , are affected by a number of factors , including , but not limited to , cost to manufacture and distribute products , consumer spending , economic conditions , availability and quality of water , consumer preferences , inflation , political climate , local and national laws and regulations , foreign currency fluctuations , fuel prices and weather patterns . our objective our objective is to use our formidable assets — our brands , financial strength , unrivaled distribution system , global reach , and the talent and strong commitment of our management and associates — to achieve long-term sustainable growth . our vision for sustainable growth includes the following : people : being a great place to work where people are inspired to be the best they can be . portfolio : bringing to the world a portfolio of beverage brands that anticipates and satisfies people 's desires and needs . partners : nurturing a winning network of partners and building mutual loyalty . planet : being a responsible global citizen that makes a difference . profit : maximizing return to shareowners while being mindful of our overall responsibilities . productivity : managing our people , time and money for greatest effectiveness . strategic priorities we have five strategic priorities designed to help us achieve our objective . these strategic priorities are accelerating growth of a consumer-centric brand portfolio ; driving revenue growth , led by sparkling beverages ; strengthening the coca-cola system ; digitizing the enterprise ; and unlocking the power of our people . in order to execute on these strategic priorities , we must further enhance our core capabilities of consumer marketing , commercial leadership and franchise leadership . core capabilities consumer marketing marketing investments are designed to enhance consumer awareness of , and increase consumer preference for , our brands . successful marketing investments produce long-term growth in unit case volume , per capita consumption and our share of worldwide nonalcoholic beverage sales . through our relationships with our bottling partners and those who sell our products in the marketplace , we create and implement integrated marketing programs , both globally and locally , that are designed to heighten consumer awareness of and product appeal for our brands . in developing a strategy for a company brand , we conduct product and packaging research , establish brand positioning , develop precise consumer communications and solicit consumer feedback . our integrated marketing activities include , but are not limited to , advertising , point-of-sale merchandising and sales promotions . we are focusing on marketing strategies to drive volume growth in emerging markets , increase our brand value in developing markets and grow net revenues and profit in our developed markets . in emerging markets , we are investing in infrastructure programs that drive volume through increased access to consumers . in developing markets , where consumer access has largely been established , our focus is on differentiating our brands . in our developed markets , we continue to invest in brands and infrastructure programs but generally at a slower rate than gross profit growth . 31 commercial leadership the coca-cola system has millions of customers around the world who sell or serve our products directly to consumers . we focus on enhancing value for our customers and providing solutions to grow their beverage businesses . our approach includes understanding each customer 's business and needs — whether that customer is a sophisticated retailer in a developed market or a kiosk owner in an emerging market . story_separator_special_tag we are committed to meeting their needs and to generating new growth through our portfolio of more than 500 brands and nearly 3,900 beverage products , including nearly 1,200 low- and no-calorie products , new product offerings , innovative packaging and ingredient education efforts . we are also committed to continuing to expand the variety of choices we provide to consumers to meet their ever-changing needs , desires and lifestyles . increased competition and capabilities in the marketplace our company is facing strong competition from some well-established global companies and many local participants . we must continue to strengthen our capabilities in marketing and innovation in order to maintain our brand loyalty and market share while we strategically expand into other profitable categories of the nonalcoholic beverage segment of the commercial beverage industry . product safety and quality as the world 's largest beverage company , we strive to meet the highest of standards in both product safety and product quality . we are aware that some consumers have concerns and negative viewpoints regarding certain ingredients used in our products . the coca-cola system works every day to share safe and refreshing beverages with the world . we have rigorous product and ingredient safety and quality standards designed to ensure safety and quality in each of our products , and we drive innovation that provides new beverage options to meet consumers ' evolving needs and preferences . across the coca-cola system , we take great care in an effort to ensure that every one of our beverages meets the highest standards for safety and quality . we work to ensure consistent safety and quality through strong governance and compliance with applicable regulations and standards . we stay current with new regulations , industry best practices and marketplace conditions and engage with standard-setting and industry organizations . additionally , we manufacture and distribute our products according to strict policies , requirements and specifications set forth in an integrated quality management program that continually measures all operations within the coca-cola system against the same stringent standards . our quality management system also identifies and mitigates risks and drives improvement . in our quality laboratories , we stringently measure the quality attributes of ingredients as well as samples of finished products collected from the marketplace . we perform due diligence to ensure that product and ingredient safety and quality standards are maintained in the more than 200 countries where our products are sold . we consistently reassess the relevance of our requirements and standards and continually work to improve and refine them across our entire supply chain . 33 food security increased demand for commodities and decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit the availability or increase the cost of key agricultural commodities , such as sugarcane , corn , sugar beets , citrus , coffee and tea , which are important sources of ingredients for our products and could impact the food security of communities around the world . we are dedicated to implementing our sustainable sourcing commitment , which is founded on principles that protect the environment , uphold workplace rights and help build more sustainable communities . to support this commitment , our programs focus on economic opportunity , with an emphasis on female farmers , and environmental sustainability designed to help address these agricultural challenges . through joint efforts with farmers , communities , bottlers , suppliers and key partners , as well as our increased and continued investment in sustainable agriculture , we can together help make a positive strategic impact on food security . all of these challenges and risks — obesity ; water quality and quantity ; evolving consumer preferences ; increased competition and capabilities in the marketplace ; product safety and quality ; and food security — have the potential to have a material adverse effect on the nonalcoholic beverage segment of the commercial beverage industry and on our company ; however , we believe our company is well positioned to appropriately address these challenges and risks . see also `` item 1a . risk factors '' in part i of this report for additional information about risks and uncertainties facing our company . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require management to make estimates , judgments and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . we believe our most critical accounting policies and estimates relate to the following : principles of consolidation recoverability of current and noncurrent assets pension plan valuations revenue recognition income taxes management has discussed the development , selection and disclosure of critical accounting policies and estimates with the audit committee of the company 's board of directors . while our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future , actual results may ultimately differ from these estimates and assumptions . for a discussion of the company 's significant accounting policies , refer to note 1 of notes to consolidated financial statements . principles of consolidation our company consolidates all entities that we control by ownership of a majority voting interest . additionally , there are situations in which consolidation is required even though the usual condition of consolidation ( ownership of a majority voting interest ) does not apply . generally , this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting interests , which results in a disproportionate relationship between such entity 's voting interests in , and its exposure to the economic risks and potential rewards of , the other business enterprise . this disproportionate relationship results in what is known as a variable interest , and the entity in which we have the variable interest is referred to as a `` vie . ''
| operations review — an analysis of our company 's consolidated results of operations for the three years presented in our consolidated financial statements . except to the extent that differences among our operating segments are material to an understanding of our business as a whole , we present the discussion on a consolidated basis . liquidity , capital resources and financial position — an analysis of cash flows ; off-balance sheet arrangements and aggregate contractual obligations ; foreign exchange ; the impact of inflation and changing prices ; and an overview of financial position . our business general the coca-cola company is the world 's largest beverage company . we own or license and market more than 500 nonalcoholic beverage brands including sparkling beverages and a variety of still beverages such as waters , flavored waters and enhanced waters , juices and juice drinks , ready-to-drink teas and coffees , sports drinks , dairy , and energy drinks . we own and market four of the world 's top five nonalcoholic sparkling beverage brands : coca-cola , diet coke , fanta and sprite . finished beverage products bearing our trademarks , sold in the united states since 1886 , are now sold in more than 200 countries . 29 we make our branded beverage products available to consumers throughout the world through our network of company-owned or -controlled bottling and distribution operations , bottling partners , distributors , wholesalers and retailers — the world 's largest beverage distribution system . beverages bearing trademarks owned by or licensed to us account for more than 1.9 billion of the approximately 59 billion servings of all beverages consumed worldwide every day . we believe our success depends on our ability to connect with consumers by providing them with a wide variety of beverage choices to meet their desires , needs and lifestyle choices . our success further depends on the ability of our people to execute effectively , every day .
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during fiscal 2013 , the company made a non-recourse loan to the company 's sole joint venture ( which resides in latin america ) , for approximately $ 6.0 million , which accrues at a 5 % annual rate . the purpose of the loan was to provide working capital for the joint venture 's operations . the $ 6.0 million loan is repayable at the time of the expiration of the joint venture agreement , along with accrued interest payable at the expiration date . the loan , along with accrued interest , are recorded in other assets in the company 's consolidated balance sheets . share-based compensation the company grants share-based awards to certain employees and directors of the company . awards are story_separator_special_tag the following management 's discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this annual report on form 10-k. this discussion contains forward-looking statements that are based upon current expectations . we sometimes identify forward-looking statements with such words as may , expect , anticipate , estimate , seek , intend , believe or similar words concerning future events . the forward-looking statements contained herein , include , without limitation , statements concerning future revenue sources and concentration , gross profit margins , selling and marketing expenses , capital expenditures , general and administrative expenses , capital resources , new stores , additional financings or borrowings and additional losses and are subject to risks and uncertainties including , but not limited to , those discussed in this report that could cause actual results to differ materially from the results contemplated by these forward-looking statements . we also urge you to carefully review the risk factors set forth in item 1arisk factors. overview our business we are a rapidly growing global luxury lifestyle brand led by a world-class management team and a renowned , award-winning designer . since launching his namesake brand over 30 years ago , michael kors has featured distinctive designs , materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude . mr. kors ' vision has taken the company from its beginnings as an american luxury sportswear house to a global accessories , footwear and apparel company with a presence over 85 countries . as a highly recognized luxury lifestyle brand in north america , with accelerating awareness in targeted international markets , we have experienced exceptional sales momentum and intend to continue along this course as we grow our business . we operate our business in three segmentsretail , wholesale and licensingand we have a strategically controlled global distribution network focused on company-operated retail stores , leading department stores , specialty stores and select licensing partners . as of march 29 , 2014 , our retail segment included 288 north american retail stores , including concessions , and 117 international retail stores , including concessions , in europe and japan . as of march 29 , 2014 , our wholesale segment included wholesale sales through approximately 2,496 department store and specialty store doors in north america and wholesale sales through approximately 1,232 department store and specialty store doors internationally . our remaining revenue is generated through our licensing segment , through which we license to third parties certain production , sales and or distribution rights . during fiscal 2014 , our licensing segment accounted for approximately 4.2 % of our total revenue and consisted of royalties earned on licensed products and our geographic licenses . we offer two primary collections : the michael kors luxury collection and the michael michael kors accessible luxury collection . the michael kors collection establishes the aesthetic authority of our entire brand and is carried in many of our retail stores as well as in the finest luxury department stores in the world . in 2004 , we introduced the michael michael kors collection , which has a strong focus on accessories , in addition to offering footwear and apparel , and addresses the significant demand opportunity in accessible luxury goods . taken together , our two collections target a broad customer base while retaining a premium luxury image . trends and uncertainties disruptions in shipping and distribution . our operations are subject to the impact of shipping disruptions as a result of changes , or damage , to our distribution infrastructure . during the quarter ended september 28 , 2013 , we experienced disruptions to the shipping of our products within the u.s. as a result of implementing new material handling equipment and systems for purposes of automating our california distribution facility . the disruption related to this implementation impacted our ability to ship at full capacity during the quarter ended september 28 , 2013 through the end of the quarter ended december 28 , 2013. in addition , incremental expenses related to this implementation were incurred throughout this time period , however , we do not expect to incur additional expenses related to this issue beyond this fiscal year . accordingly , these disruptions to our shipping have had an impact on our earnings for this fiscal year , with regards to the effects on both our net sales and operating expenses , and any future disruptions of this nature may have a similar impact in the periods affected . establishing brand identity and enhancing global presence . we intend to continue to increase our international presence and global brand recognition through the formation of various joint ventures with international partners , and continuing with our international licensing arrangements . we feel this is an efficient method for continued penetration into the global luxury goods market , especially for markets we have yet to establish a substantial presence . costs of manufacturing . our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products . story_separator_special_tag these estimates of cash flow require significant management judgment and certain assumptions about future volume , sales and expense growth rates , devaluation and inflation . as such , these estimates may differ from actual cash flows . for fiscal 2014 , fiscal 2013 , and fiscal 2012 , we recorded charges for impairments on fixed assets and intangible assets related to our retail segment of $ 1.3 million , $ 0.7 million and $ 3.3 million , respectively . 25 goodwill on an annual basis , or whenever impairment indicators exist , we perform an impairment assessment of goodwill . in the absence of any impairment indicators , goodwill is assessed during the fourth quarter of each fiscal year . these assessments are made with regards to reporting units within our wholesale and licensing segments , which are based on our current operating projections . judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business . future events could cause us to conclude that impairment indicators exist and therefore that goodwill is impaired . prior to fiscal 2012 , we performed our impairment testing for goodwill using the fair value approach , employing both the discounted cash flow method and market multiples method to determine the fair value of our reporting units ( step one ) . these methods utilized both our historical results and projected future results . during fiscal 2012 , we adopted a new accounting pronouncement related to goodwill impairment analysis , which allows entities to initially perform a qualitative analysis ( step zero ) of the fair value of its reporting units to determine whether it is necessary to undertake a quantitative ( two step ) goodwill analysis . in the fourth quarter of fiscal 2014 , we used this new guidance in our annual impairment analysis for goodwill , and concluded that the carrying amounts of all reporting units did not exceed their respective fair values . we will continue to perform this initial qualitative analysis in future years . should the results of this assessment result in either ambiguous or unfavorable conclusion we will perform additional quantitative testing consistent with the fair value approach mentioned above . the valuation methods used in the fair value approach , discounted cash flow and market multiples methods , require our management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units . if the carrying amount of a reporting unit exceeds its fair value , we would compare the implied fair value of the reporting unit goodwill with its carrying value . to compute the implied fair value , we would assign the fair value of the reporting unit to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . if the carrying value of the reporting unit goodwill exceeded the implied fair value of the reporting unit goodwill , we would record an impairment loss to write down such goodwill to its implied fair value . the valuation of goodwill is affected by , among other things , our business plan for the future and estimated results of future operations . we have assessed our goodwill for impairment in our fourth quarter for the periods presented . there are no impairment charges related to goodwill for any of the fiscal periods presented . share-based compensation we grant share-based awards to certain of our employees and directors . awards are measured at the grant date based on the fair value as calculated using the black-scholes option pricing model , for share options , or the closing market price at the grant date for restricted shares and units . these values are recognized as expense over the requisite service period , and in the instance of performance based grants , the attainment of certain vesting requirements in addition to the passage of time . determining the fair value of share option awards at the grant date requires considerable judgment , including estimating expected volatility , expected term and risk-free rate . our expected volatility is based on the average volatility rates of similar actively traded companies over the past 4.5-9.5 years , which is our range of estimated expected holding periods . the expected holding period for a performance based option is based on the period to expiration which is generally 9-10 years . this approach was chosen as it directly correlates to our service period . the expected holding period for time-based vesting options is based on the simplified method using the vesting term of generally 4 years and the contractual term of 7 years , resulting in a holding periods ranging from 4.5-4.75 years . the simplified method was chosen as a means to determine the company 's holding period as prior to december 2011 there was no historical option exercise experience due to the company being privately held . the risk-free rate is derived from the zero-coupon u.s. treasury strips yield curve , the period of which relates to the grant 's holding period . if factors change and we employ different assumptions , the fair value of future awards and resulting share-based compensation expense may differ significantly from what we have estimated in the past . expense related to equity compensation during fiscal 2014 , 2013 and 2012 was approximately $ 29.1 million , $ 20.9 million and $ 27.0 million , respectively . the weighted average grant date fair value of share options granted during fiscal 2014 , fiscal 2013 , and fiscal 2012 was $ 24.95 , $ 20.66 , and $ 8.01 , respectively . derivative financial instruments we use forward currency exchange contracts to manage exposure to fluctuations in foreign currency for certain of our transactions .
| results of operations comparison of fiscal 2014 with fiscal 2013 the following table details the results of our operations for fiscal 2014 and fiscal 2013 and expresses the relationship of certain line items to total revenue as a percentage ( dollars in thousands ) : replace_table_token_9_th total revenue total revenue increased $ 1,129.1 million , or 51.8 % , to $ 3,310.8 million for the fiscal year ended march 29 , 2014 , compared to $ 2,181.7 million for the fiscal year ended march 30 , 2013. the increase was the result of an increase in our comparable and non-comparable retail store sales and wholesale sales , as well as increases in our licensing revenue . 31 the following table details revenues for our three business segments ( dollars in thousands ) : replace_table_token_10_th retail net sales from our retail stores increased $ 530.4 million , or 49.9 % , to $ 1,593.0 million for fiscal 2014 , compared to $ 1,062.6 million for fiscal 2013. we operated 405 retail stores , including concessions , as of march 29 , 2014 , compared to 304 retail stores , including concessions , as of march 30 , 2013. during fiscal 2014 , our comparable store sales growth increased $ 275.1 million , or 26.2 % , from fiscal 2013. the growth in our comparable store sales was primarily due to an increase in sales of our accessories line and watches during fiscal 2014. in addition , the change to our non-comparable store sales were $ 255.3 million during fiscal 2014 , which was primarily the result of opening 101 new stores since march 30 , 2013. wholesale net sales to our wholesale customers increased $ 545.4 million , or 52.8 % , to $ 1,577.5 million for fiscal 2014 , compared to $ 1,032.1 million for fiscal 2013. the increase in our wholesale net sales occurred primarily as a result of increased sales of our accessories line during fiscal 2014 , as we continue to enhance
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these services are performed by our personnel and by third-party providers . we operate through four sales segments , which serve primarily : ( a ) small- to medium-sized businesses , or smbs , through our pc connection sales subsidiary , ( b ) large enterprise customers , in large account , through our moredirect and valcom technology ( valcom ) subsidiaries , ( c ) federal , state , and local government and educational institutions , in public sector , through our govconnection subsidiary , and ( d ) consumers and small office/home office ( consumer/soho ) customers through our pc connection express division . we generate sales primarily through outbound telemarketing and field sales contacts by account managers focused on the business , education , and government markets , our websites , and inbound calls from customers responding to our catalogs and other advertising media . we seek to recruit , retain , and increase the productivity of our sales personnel through training , mentoring , financial incentives based on performance , and updating and streamlining our information systems to make our operations more efficient . as a value added reseller in the it supply chain , we do not manufacture it hardware or software . we are dependent on our suppliersmanufacturers and distributors that historically have sold only to resellers rather than directly to end users . however , certain manufacturers have on multiple occasions attempted to sell directly to our customers , and in some cases , have restricted our ability to sell their products directly to certain customers , thereby attempting to eliminate our role . we believe that the success of these direct sales efforts by suppliers will depend on their ability to meet our customers ' ongoing demands and provide objective , unbiased solutions to meet their needs . we believe more of our customers are seeking total it solutions , rather than simply the acquisition of specific it products . our advantage is our ability to be product-neutral and provide a broader combination of products , services , and advice tailored to customer needs . by providing customers with customized solutions from a variety of manufacturers , we believe we can mitigate the negative impact of continued direct sales initiatives from individual manufacturers . through the formation of our proconnection services group , and more recently , our acquisition of valcom , we are able to provide customers complete it solutions , from identifying their needs , to designing , developing , and managing the integration of products and services to implement their it projects . such service offerings carry higher margins than traditional product sales . additionally , the technical certifications of our service engineers permit us to offer higher-end , more complex products that generally carry higher gross margins . we expect these service offerings and technical certifications to continue to play a role in sales generation and improve gross margins in this competitive environment . market conditions and technology advances significantly affect the demand for our products and services . virtual delivery of software products and advanced internet technology providing customers enhanced functionality have substantially increased customer expectations , requiring us to invest more heavily in our own it development to meet these new demands . this investment includes significant planned expenditures to update our websites . as buying trends change and electronic commerce continues to grow , customers have become more sophisticated due to the amount and quality of information available and the increased number of readily 23 available choices . customers are also better able to make price comparisons through the internet , thereby necessitating more aggressive pricing strategies to remain competitive . while it is not possible for us to estimate with any degree of accuracy the level of sales we may have lost or may lose in the future as a result of such increased buyer sophistication , our consolidated internet sales increased in 2011 to 35 % of total sales from 30 % in each of 2010 and 2009 and represent a significant portion of our business . the primary challenges we continue to face in effectively managing our business are ( 1 ) increasing our revenues while at the same time maintaining or improving our gross margin in all four segments , ( 2 ) recruiting , retaining , and improving the productivity of our sales personnel , and ( 3 ) effectively controlling our sg & a expenses while making major investments in our it systems and solution selling personnel . to support future growth , we are expanding our it solution business , which requires the addition of highly-skilled service engineers . we are still in the early stages of this multi-year initiative , and , although we expect to realize the ultimate benefit of higher-margin service revenues , we believe that our sg & a expenses will increase significantly as we add service engineers . if our service revenues do not grow enough to offset the cost of these headcount additions , our operating results may decline . to operate more efficiently , we have undertaken a comprehensive review and assessment of our entire business software needs . that review and assessment includes the review of commercially available software that meets , or can be configured to meet , those needs better than our existing software . as of december 31 , 2011 , we have capitalized $ 8.3 million of software and integration costs for the initial phase of this software project . while we have not yet finalized our decisions regarding to what extent additional software will be acquired and implemented beyond the mdm software we have acquired to date , we expect to increase our capital investments in our it infrastructure in the next three years , which will also likely increase sg & a expenses . acquisition on march 17 , 2011 , we acquired valcom , a provider of it infrastructure and onsite managed services to medium-to-large corporations . valcom had approximately 200 employees as of the acquisition date and is headquartered in the greater chicago area . story_separator_special_tag our effective tax rate was 39.3 % for the year ended december 31 , 2011 , compared to 40.2 % for the year ended december 31 , 2010. our tax rate will continue to vary based on variations in state tax levels for certain subsidiaries , valuation reserves , and accounting for uncertain tax positions . however , we do not expect these variations to be significant in 2012. net income increased by $ 5.8 million to $ 28.8 million in 2011 , compared to $ 23.0 million in 2010 , principally due to the increase in operating income . year ended december 31 , 2010 compared to year ended december 31 , 2009 net sales increased by 25.8 % to $ 1,974.2 million in 2010 from $ 1,569.7 million in 2009 due to increases in our three primary business segments . changes in net sales and gross profit by business segment are shown in the following table ( dollars in millions ) : replace_table_token_15_th net sales for the smb segment increased due to the increase in it demand associated with the rebound in corporate customer profits and the fulfillment of delayed it replacement needs . our smb sales 29 representatives increased 2010 sales by acquiring a greater share of existing customers ' it purchases , which we attribute to our increased focus on selling it solutions . sales representatives for our smb segment totaled 369 at december 31 , 2010 , compared to 337 at december 31 , 2009. net sales for the large account segment increased due to the release of pent-up it demand and increased investments made by large enterprises . large enterprises continued in 2010 to upgrade their it systems to improve workforce productivity . new customer acquisitions also contributed to the year-over-year increase in net sales . sales representatives for our large account segment totaled 87 at december 31 , 2010 , compared to 92 at december 31 , 2009. net sales for the public sector segment increased due to the growth in contract sales entered into with both the federal government and higher educational institutions . federal government sales in 2010 increased by 23 % , while sales to state and local government and educational institutions increased by 16 % . sales representatives for our public sector segment totaled 139 at december 31 , 2010 , compared to 140 at december 31 , 2009. net sales for the consumer/soho segment decreased as profitability and initiatives designed to increase traffic on its site were this segment 's primary focus in 2010 , its first full year of operations . gross profit for 2010 increased in dollars but decreased as a percentage of net sales , as explained below : gross profit for the smb segment increased due to higher net sales . gross margin decreased in 2010 compared to the prior year as increased invoice selling margins and lower inventory costs were more than offset by lower vendor funding as a percentage of net sales . gross profit increased for the large account segment due to an increase in net sales . gross margin was largely unchanged as an increase in high-margin agency revenues was offset by a decrease in invoice selling margins . gross profit for the public sector segment increased due to an increase in net sales . however , gross margin was unchanged as an increase in vendor consideration as a percentage of net sales was offset by lower invoice selling margins . gross profit and gross margin for the consumer/soho segment both decreased in 2010. gross margin decreased due to increased promotional pricing initiatives , free customer shipping , and other marketing programs designed to attract customers to this segment 's new website . selling , general and administrative expenses increased in dollars but decreased as a percentage of net sales . the decrease in expense as a percentage of net sales resulted from improved expense management and the leverage gained with our year-over-year increase in sales . sg & a expenses attributable to our operating segments , including headquarters/other group expenses allocated to segments , and remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_16_th 30 sg & a expenses for the smb segment increased in dollars but decreased as a percentage of net sales . personnel expense increased due to incremental variable compensation associated with higher gross profits and the addition of sales representatives in the second half of 2010. increased usage of centralized headquarters services and higher credit card fees associated with the sales increase also contributed to the dollar increase . sg & a expenses as a percentage of net sales decreased due to the leverage gained by the increase in net sales . sg & a expenses for the large account segment increased in dollars but decreased as a percentage of net sales . personnel expense increased due to incremental variable compensation associated with the improvement in gross profits and the addition of sales support personnel . increased usage of centralized headquarters services also contributed to the dollar increase . sg & a expenses as a percentage of net sales decreased due to the leverage gained by the increase in net sales and cost containment initiatives . sg & a expenses for the public sector segment increased in dollars but decreased as a percentage of net sales . sg & a expenses increased in dollars due to incremental variable compensation and higher levels of professional fees and usage of centralized headquarters services . sg & a expenses as a percentage of net sales decreased due to the leverage gained by the increase in net sales and cost containment initiatives . sg & a expenses for the consumer/soho group decreased in dollars but increased as a percentage of net sales due to a reduction in catalog circulation from the prior year . lower usage of centralized headquarters services resulting from lower sales also contributed to the dollar decrease .
| results of operations the following table sets forth information derived from our consolidated statements of operations expressed as a percentage of net sales for the periods indicated . replace_table_token_8_th net sales increased in 2011 by $ 129.1 million , or 6.5 % , compared to 2010 , as sales for smb , large account , and public sector segments increased and offset a decline in consumer/soho sales . gross margin 24 ( gross profit expressed as a percentage of net sales ) increased in all four operating segments primarily as a result of our focus on margin improvement . sg & a expenses as a percentage of net sales in 2011 increased due to investments in solution sales support and the acquisition of valcom in the first quarter of 2011. operating income in 2011 increased by $ 8.9 million year over year due to the increase in net sales and gross margin . sales distribution the following table sets forth our percentage of net sales by business segment and product mix : replace_table_token_9_th gross profit margins the following table summarizes our overall gross profit margins , as a percentage of net sales , for the last three years : replace_table_token_10_th on a consolidated basis , gross margin in 2011 increased year over year due to improved invoice selling margins ( 74 basis points ) and increased vendor consideration ( 19 basis points ) . invoice selling margins increased due to our focus on margin improvement and higher-margin solution services and products . 25 cost of sales and certain other costs cost of sales includes the invoice cost of the product , direct employee and third party cost of services , direct costs of packaging , inbound and outbound freight , and provisions for inventory obsolescence , adjusted for discounts , rebates , and other vendor allowances .
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our actual results may differ materially from those we currently anticipate as a result of the factors we describe under “ risk factors ” and elsewhere in this annual report on form 10-k. a discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2020 compared to fiscal year 2019 can be found under item 7 in our annual report on form 10-k for the fiscal year ended february 29 , 2020 , which is available on the sec 's website at www.sec.gov and our investor relations website at www.azz.com/investor-relations . overview we are a global provider of galvanizing and a variety of metal coating solutions , welding solutions , specialty electrical equipment and highly engineered services to the power generation , transmission , distribution , refining and industrial markets . we operate two distinct business segments , the metal coatings segment and the infrastructure solutions segment . our discussion and analysis of financial condition and results of operations is divided by each of our segments , along with corporate costs and other costs not specifically identifiable to a segment . for a reconciliation of segment operating income to consolidated operating income , see note 12 to the consolidated financial statements . references herein to fiscal years are to the twelve-month periods that end in february of the relevant calendar year . for example , the twelve-month period ended february 28 , 2021 is referred to as “ fiscal 2021 ” or “ fiscal year 2021. ” coronavirus ( covid-19 ) in march 2020 , the world health organization declared the viral strain of coronavirus ( `` covid-19 '' ) a global pandemic and recommended containment and mitigation measures worldwide . the spread of covid-19 has resulted in most governments issuing restrictive orders , including “ shelter in place ” orders around the globe to assist in mitigating the spread of the virus . subsequently , in march 2020 , the department of homeland security 's cybersecurity and infrastructure security agency ( cisa ) department issued guidance clarifying that critical infrastructure industries have a responsibility to maintain operations while these restrictive measures are in place . the company , based on input from the government as well as our customers , has continued most operations under the cisa guidelines in an effort to support critical infrastructure in the areas where we are either required to do so , or where we are able . while we continue to support our customers , there remains uncertainties regarding the duration and , to what extent , if any , that the covid-19 pandemic , or newly identified variants , will ultimately have on the demand for our products and services or with our supply chain . we continue to closely monitor the situation as information becomes readily available and continue to take actions to provide for the safety of our personnel , and to support the requirements under cisa . our operations remain open globally and the impact to our personnel and operations has been limited by the effects of covid-19 . the most significant impact to us has been our ability to serve customers at their business locations . we have experienced limited customer order deferrals , but there have been few outright customer order cancellations . while governments have taken actions , including the approval of vaccines to limit the impacts of covid-19 , we can not reasonably estimate the length or severity of this pandemic , or the extent to which the disruption may materially impact our consolidated balance sheet , statements of income or statements of cash flows for fiscal year 2022. in addition , in march 2020 , the u.s. government enacted the coronavirus aid , relief , and economic security act ( the “ cares act ” ) , which among other things , provides employer payroll tax credits for wages paid to employees who are unable to work during the covid-19 pandemic and options to defer payroll tax payments . based on an evaluation of the cares act , we qualified for the deferral of payroll and other tax payments and we continue to evaluate certain employer payroll tax credits . 26 story_separator_special_tag restructuring and impairment charges during fiscal 2021 , the board of directors approved a plan to divest certain non-core businesses within the company . we closed on the sale of two businesses , one in each of our metal coatings and infrastructure solutions segments . we also sold one non-operating location in our metal coatings segment , and have one operating and one non-operating location classified as held for sale . the assets and liabilities of the businesses expected to be disposed of within the next twelve months are included in `` assets held for sale '' in the accompanying consolidated balance sheet . in addition , we closed a small number of metal coatings locations that were in underperforming and lower growth geographies . 28 during fiscal 2021 , we recorded certain charges related to these restructuring activities , which are summarized in the table below : replace_table_token_8_th in february 2020 , we completed the sale of our nuclear logistics business in our infrastructure solutions segment , and recognized a loss on disposal of $ 18.6 million . the strategic decision to divest of the business reflects our long-term strategy to focus on core businesses and markets . interest expense interest expense for fiscal 2021 decreased $ 3.8 million , or 28.3 % , to $ 9.6 million , as compared to $ 13.5 million in fiscal 2020. this decrease is primarily attributable to lower average outstanding debt balances and favorable interest rates on our variable-rate revolving credit facility . story_separator_special_tag forth in the 2017 credit agreement . the balance due on the $ 75.0 million term facility under the previous credit agreement was paid in full as a result of the execution of the 2017 credit agreement . the financial covenants , as defined in the 2017 credit agreement , require the company to maintain on a consolidated basis a leverage ratio not to exceed 3.25:1.0 and an interest coverage ratio of at least 3.00:1.0. the line of credit will be used to finance working capital needs , capital improvements , dividends , future acquisitions , letter of credit needs and share repurchases . 30 interest rates for borrowings under the 2017 credit agreement are based on either a eurodollar rate or a base rate plus a margin ranging from 0.875 % to 1.875 % depending on our leverage ratio ( as defined in the 2017 credit agreement ) . the eurodollar rate is defined as libor for a term equivalent to the borrowing term ( or other similar interbank rates if libor is unavailable ) . the base rate is defined as the highest of the applicable fed funds rate plus 0.50 % , the prime rate , or the eurodollar rate plus 1.0 % at the time of borrowing . the 2017 credit agreement also carries a commitment fee for the unfunded portion ranging from 0.175 % to 0.30 % per annum , depending on our leverage ratio . the effective interest rate was 2.75 % as of february 28 , 2021. as of february 28 , 2021 , we had $ 29.0 million of outstanding debt against the 2017 credit agreement and letters of credit outstanding under the 2017 credit agreement in the amount of $ 9.6 million , which left approximately $ 411.4 million of additional credit available . 2011 senior notes on january 21 , 2011 , the company entered into a note purchase agreement , pursuant to which the company issued $ 125.0 million aggregate principal amount of its 5.42 % unsecured senior notes ( the “ 2011 senior notes ” ) , through a private placement . amounts under the agreement were due in a balloon payment on the january 2021 maturity date . the company repaid the 2011 senior notes upon maturity in january 2021 with the proceeds from the 2020 senior notes , which are described below . 2020 senior notes on october 9 , 2020 , the company completed a private placement transaction and entered into a note purchase agreement , whereby the company agreed to borrow $ 150.0 million of senior unsecured notes ( the “ 2020 senior notes ” ) , consisting of two separate tranches : 7-year borrowing : $ 70.0 million priced at 2.77 % coupon , and 12-year borrowing : $ 80.0 million priced at 3.17 % coupon . the proceeds of the $ 80.0 million tranche was funded on december 17 , 2020. the $ 70.0 million tranche was funded in january 2021. the company used the proceeds to repay the existing $ 125.0 million 5.42 % senior notes maturing on january 20 , 2021 , as well as for general corporate purposes . interest on the 2020 senior notes will be paid semi-annually . the company 's debt agreements require the company to maintain certain financial ratios . as of february 28 , 2021 , the company was in compliance with all covenants or other requirements set forth in the debt agreements . share repurchases on january 19 , 2012 , the company 's board of directors authorized the repurchase of up to ten percent of the then outstanding shares of the company 's common stock ( the `` 2012 authorization '' ) . the 2012 authorization did not have an expiration date , and the amount and prices paid for any future share purchases under the authorization were to be based on market conditions and other factors at the time of the purchase . repurchases under the 2012 authorization were made through open market purchases or private transactions . on november 10 , 2020 , the company 's board of directors authorized a $ 100 million share repurchase program pursuant to which the company may repurchase its common stock ( the “ 2020 authorization ” ) . repurchases under the 2020 authorization will be made through open market and or private transactions , in accordance with applicable federal securities laws , and could include repurchases pursuant to rule 10b5-1 trading plans , which allows stock repurchases when the company might otherwise be precluded from doing so . during fiscal 2021 , the company repurchased 882,916 of its common shares in the amount of $ 32.3 million at an average purchase price of $ 36.60 under the 2012 authorization . the company purchased 330,829 of its common shares in the amount of $ 16.0 million at an average purchase price of $ 48.36 under the 2020 authorization during fiscal 2021. other exposures we have exposure to commodity price increases in both segments of our business , primarily copper , aluminum , steel and nickel based alloys in the infrastructure solutions segment and zinc and natural gas in the metal coatings segment . we attempt to minimize these increases through escalation clauses in customer contracts for copper , aluminum , steel and nickel based alloys , when market conditions allow and through fixed cost contract purchases on zinc . in addition to these measures , we 31 attempt to recover other cost increases through improvements to our manufacturing process , supply chain management , and through increases in prices where competitively feasible . off balance sheet arrangements and contractual commitments as of february 28 , 2021 , the company did not have any off-balance sheet arrangements as defined under sec rules .
| results of operations for the fiscal year ended february 28 , 2021 , we recorded sales of $ 838.9 million compared to prior year 's sales of $ 1.062 billion . of total sales for fiscal 2021 , approximately 54.6 % were generated from the metal coatings segment and approximately 45.4 % of our sales were generated from the infrastructure solutions segment . net income for fiscal 2021 was $ 39.6 million compared to $ 48.2 million for fiscal 2020. net income as a percentage of sales was 4.7 % for fiscal 2021 as compared to 4.5 % for fiscal 2020. diluted earnings per share decreased by 17.4 % , to $ 1.52 per share for fiscal 2021 , compared to $ 1.84 per share for fiscal 2020. during fiscal 2021 , we divested two businesses and closed a small number of under-performing operations . see `` restructuring and impairment charges '' below . backlog our backlog relates entirely to our infrastructure solutions segment and is inclusive of transaction taxes for certain foreign subsidiaries . as of february 28 , 2021 , our backlog was $ 186.1 million , a decrease of $ 57.7 million , or 23.7 % , compared to fiscal 2020. the book to sales ratio increased in fiscal 2021 as compared to fiscal 2020. the book to sales ratio was 0.94 to 1 for fiscal 2021 and 0.92 to 1 for fiscal 2020. the increase in book to sales ratio in fiscal 2021 resulted from certain multi-year international electrical projects booked in the prior year for which sales were recognized in fiscal 2021. the following table reflects bookings and sales for fiscal 2021 and 2020 ( in thousands , except ratios ) .
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because of changes in our business , we are not able to determine with reasonable certainty whether we will renew our seattle lease . as a result , we have not considered renewal options when recording rou assets , lease liabilities or lease expense . twelve months ended total component lease expense was as follows ( in thousands ) : december 31 , 2020 operating leases $ 661 supplemental cash flow information related to leases was as follows ( in thousands ) : cash paid for amounts included in the measurement of lease liabilities $ 668 supplemental balance sheet information related to leases was as follows ( dollars in thousands ) : december 31 , 2020 operating leases : right of use $ 1,853 current portion of operating leases liability $ 344 operating leases liability , net of current portion 1,630 total operating leases liabilities $ 1,974 weighted average remaining lease term ( in years ) 6.15 weighted average discount rate 8.5 % future operating lease commitments are as follows ( in thousands ) : replace_table_token_25_th 42 10. commitments and contingencies lease and rent obligations our commitments include obligations outstanding under operating leases , which expire through 2027. we have lease commitments for office space in seattle , washington and trowbridge , uk . see note 9 , “ leases . ” loss contingencies from time to time , we are subject to legal proceedings , claims , and litigation arising in the ordinary course of business including tax assessments . we defend ourselves vigorously against any such claims . when ( i ) it is probable that an asset has been impaired , or a liability has been incurred and ( ii ) the amount of the loss can be reasonably estimated , we record the estimated loss . we provide disclosure in the notes to the consolidated financial statements for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements . significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable . we base accruals made on the best information available at the time , which can be highly subjective . the final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements . 11. shareholders ' equity equity compensation plans we have a stock plan ( the “ stock plan ” ) and an inducement stock plan for newly hired employees ( the “ inducement plan ” ) ( collectively the “ plans ” ) . under the plans , stock options may be granted with a fixed exercise price that is equivalent to the fair market value of our common stock on the date of grant . these options have a term of up to 10 years and vest over a predetermined period , generally four years . incentive stock options granted under the stock plan may only be granted to our employees . the plans also allow for awards of non-qualified stock options , stock appreciation rights , restricted and unrestricted stock awards , and rsus . share-based compensation the estimated fair value of share-based awards is recognized as compensation expense over the vesting period of the award , net of estimated forfeitures . we estimate forfeitures based on historical experience and expected future activity . the fair value of rsus is determined based on the number of shares granted and the quoted price of our common stock on the date of grant . the fair value of stock options is estimated at the grant date based on the fair value of each vesting tranche as calculated by the black-scholes-merton ( “ bsm ” ) option-pricing model . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , share-based compensation expense may differ materially in the future from that recorded in the current period . the fair values of our stock option grants were estimated with the following weighted average assumptions : replace_table_token_26_th the impact on our results of operations from share-based compensation expense was as follows ( in thousands , except per share amounts ) : replace_table_token_27_th 43 stock option activity the following table summarizes stock option activity : replace_table_token_28_th at december 31 , 2020 , total compensation cost not yet recognized related to granted stock options was approximately $ 436,000 , net of estimated forfeitures . this cost will be amortized on the straight-line method over a weighted-average period of approximately 1.4 years . the following table summarizes certain additional information about stock options : replace_table_token_29_th the aggregate intrinsic value represents the difference between the exercise price story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes . this management 's discussion and analysis of financial condition and results of operations may contain some statements and information that are not historical facts but are forward-looking statements . for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business—cautionary note regarding forward-looking statements , ” and item 1a of part i , “ risk factors. ” overview bsquare is a software and services company that designs , configures , and deploys technologies that solve difficult problems for manufacturers and operators of connected devices . our customers choose bsquare to help realize the promise of iot to transform their businesses . story_separator_special_tag these software licenses represent one distinct performance obligation . revenue is recognized when the software is delivered to the customer . 18 professional services we enter into contracts for professional services , including for our iot-related service offerings , that include software development and customization . we identify each performance obligation in our professional services contracts at contract inception . the contracts generally include project deliverables specified by each customer . the contract pricing is either at stated billing rates per service hour and material costs or at a fixed amount . services provided under professional engineering contracts generally result in the transfer of control of the applicable deliverable over time . we recognize revenue on service contracts based on time and materials as we have the right to invoice . we recognize revenue on fixed fee contracts on the proportion of labor hours expended to the total hours expected to complete the contract performance obligation . certain professional service contracts include substantive customer acceptance provisions , in which case we recognize revenue upon customer acceptance . the determination of the total labor hours expected to complete the performance obligations on fixed fee contracts involves significant judgment . we incorporate revisions to hour and cost estimates when the causal facts become known . in certain situations , when it is impractical for us to reasonably measure the outcome of a performance obligation , and where we anticipate that we will not incur a loss , an adjusted cost-based input method is used for revenue recognition . equal amounts of revenue and cost are recognized during the contract period , and profit is recognized when the project is completed and accepted . leases we lease office facilities , primarily under operating leases , which expire at various dates through 2027. these leases generally contain renewal options for a defined number of years at the then-fair market rental rate or rate stipulated in the lease agreement , which we have an option to exercise at the end of the initial lease term . we determine if an arrangement is a lease at inception . on our balance sheet , our office facility leases are included in right-of-use ( “ rou ” ) assets and related lease liabilities are included in the operating leases and operating leases , long-term statement line items . rou assets represent our right to use the underlying assets for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease agreements . operating lease rou assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the term of the lease . for leases that do not provide an implicit rate , we use an incremental borrowing rate based on information available at the commencement date to determine the present value of lease payments . we will use the implicit rate in the lease when readily determinable . the company accounts for its lease expense with free rent periods and step-rent provisions on a straight-line basis over the original term of the lease and any extension options that the company more likely than not expects to exercise , from the date the company has control of the property . certain leases provide for periodic rental increases based on price indices . lease expense for lease payments is recognized on a straight-line basis over the lease term . intangible assets we evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . our intangible assets consist of customer relationships arising from business acquisitions . we periodically assess the value of our intangible assets . factors that could trigger an impairment analysis include significant under-performance relative to historical or projected future operating results , significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends . if this evaluation indicates that the value of the intangible asset may be impaired , we assess the likelihood of recoverability of the net carrying value of the asset over its remaining useful life . if this assessment indicates that the intangible asset is not recoverable , based on the estimated undiscounted future cash flows of the technology over the remaining useful life , we reduce the net carrying value of the related intangible asset to fair value . 19 taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets . we must then assess the likelihood that any deferred tax assets will be realized from future taxable income , and , to the extent we believe that recovery is not likely , we must establish a valuation allowance . we are required to use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances . as part of this analysis , we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances . the evidence considered for each jurisdiction includes , among other items , ( i ) the historical levels of income or loss over a range of time periods that extends beyond the two years presented , ( ii ) the historical sources of income and losses , ( iii ) the expectations
| results of operations the following table presents our summarized results of operations for the periods indicated . our historical operating results are not necessarily indicative of the results for any future period . replace_table_token_1_th 20 revenue we generate revenue from the sale of software , both embedded operating system software that we resell and our own proprietary software , and related professional services . total revenue decreased in 2020 compared to 2019 , due to decreased sales in our partner solutions segment , primarily in north america and asia , as well as decreased revenue in our edge to cloud segment . additional revenue details were as follows : replace_table_token_2_th partner solutions revenue partner solutions revenue decreased $ 8.4 million and 17 % in 2020 compared to 2019 , we believe customer demand for embedded operating systems was adversely impacted by the economic downturn and related uncertainty stemming from the global covid-19 pandemic . we have some customer concentration in industries particularly impacted by covid-19 , such as casino gaming , hospitality , and point-of-sale systems . edge to cloud revenue edge to cloud revenue decreased $ 3.8 million and 44 % in 2020 compared to 2019 , due primarily to professional services revenue earned in 2019 that was not repeated in 2020. we expect edge to cloud revenue will continue to vary in timing and amounts . gross profit and gross margin cost of partner solutions revenue consists primarily of the cost of embedded operating system software product costs payable to third-party vendors , net of rebate credits earned through microsoft 's distributor incentive program . cost of edge to cloud revenue consists primarily of salaries and benefits , contractor costs and re-billable expenses , and amortization of certain intangible assets related to acquisitions . gross profit and gross margin were as follows : replace_table_token_3_th ( 1 ) for gross margin , amounts represent percentage point change .
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those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud . our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements . the following information contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see “ forward-looking statements ” elsewhere in this report for a description of these risks and uncertainties . overview we are an externally managed reit focusing on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution-related commercial real estate properties located primarily in the united states . our assets consist primarily of freestanding single-tenant properties that are net leased to “ investment grade ” and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers . we intend to focus our future acquisitions primarily on net leased , single-tenant service retail properties , defined as properties leased to tenants in the retail banking , restaurant , grocery , pharmacy , gas , convenience , fitness , and auto services sect ors . as of december 31 , 2020 , we owned 920 properties , comprised of 19.3 million rentable square feet , which were 93.9 % leased , including 887 single-tenant net leased commercial properties ( 849 of which are leased to retail tenants ) and 33 multi-tenant retail properties . based on annualized rental income on a straight-line basis as of december 31 , 2020 , the total single-tenant properties comprised 70 % of our total portfolio and were 60 % leased to service retail tenants , and the total multi-tenant properties comprised 30 % of our total portfolio and were 50 % leased to experiential retail tenants , defined as tenants in the restaurant , discount retail , entertainment , salon/beauty and grocery sectors , among others . substantially all of our business is conducted through the op and its wholly owned subsidiaries . our advisor manages our day-to-day business with the assistance of our property manager . our advisor and property manager are under common control with ar global and these related parties receive compensation and fees for providing services to us . we also reimburse these entities for certain expenses they incur in providing these services to us . management update on the impacts of the covid-19 pandemic the economic uncertainty created by the covid-19 global pandemic has created several risks and uncertainties that may impact our business , including our future results of operations and our liquidity . a pandemic , epidemic or outbreak of a contagious disease , such as the ongoing global pandemic of covid-19 affecting states or regions in which we or our tenants operate , could have material and adverse effects on our business , financial condition , results of operations and cash flows . the ultimate impact on our results of operations , our liquidity and the ability of our tenants to continue to pay us rent will depend on numerous factors including the overall length and severity of the covid-19 pandemic . management is unable to predict the nature and scope of any of these factors . these factors include the following , among others : the negative impacts of the covid-19 pandemic has caused and may continue to cause certain of our tenants to be unable to make rent payments to us timely , or at all . however , we have taken proactive steps with regard to rent collections to mitigate the impact on our business ( see “ —management actions ” below ) . there may be a decline in the demand for tenants to lease real estate , as well as a negative impact on rental rates . as of december 31 , 2020 , our portfolio had a high occupancy level of 93.9 % , the weighted average remaining term of our leases was 8.8 years ( based on annualized straight-line rent ) and only 9 % of our leases expiring were in the next two years ( based on annualized straight line rent ) . capital market volatility and a tightening of credit standards could negatively impact our ability to obtain debt financing . however , despite capital market volatility , we closed on a $ 715 million loan in july 2020 secured by , among other things , a first mortgage on 368 single-tenant properties and used a portion of the proceeds to repay $ 497.0 million principal amount on a mortgage that was coming due in september 2020 and the remainder to repay outstanding amounts under our revolving unsecured corporate credit facility ( our “ credit facility ” ) . the volatility in the global financial market could negatively impact our ability to raise capital through equity offerings , which as a result , could impact our decisions as to when and if we will seek additional equity funding . the negative impact of the pandemic on our results of operations and cash flows could impact our ability to comply with covenants in our credit facility and the amount available for future borrowings thereunder . the potential negative impact on the health of personnel of our advisor , particularly if a significant number of the advisor 's employees are impacted , could result in a deterioration in our ability to ensure business continuity . for additional information on the risks and uncertainties associated with the covid-19 pandemic , please see item 1a . story_separator_special_tag there can be no assurance that such cash rent will be collected . 42 replace_table_token_13_th ( 1 ) we granted rent credits with respect to less than 1 % of cash rent due for january 2021. the total amount deferred under approved agreements , for deferral agreements , entered into through december 31 , 2020 , was $ 1.1 million and $ 7.0 million for the three and twelve months ended december 31 , 2020 , respectively . the total amounts of rent credits ( i.e . abatements ) , for abatement agreements entered into through december 31 , 2020 , was $ 0.1 million and $ 2.7 million for the three and twelve months ended december 31 , 2020 , respectively . with respect to all approved agreements in 2020 that included an extension of the lease , the weighted average deferral or rent credit period was five months and $ 2.7 million of cash rent , in return for a weighted average extension term of 36 months and $ 46.5 million of future cash rent , resulting in net additional cash rent of $ 43.8 million to be received over the aggregate extension terms . in addition to the proactive measures taken on rent collections , we have taken additional steps to maximize our flexibility related to our liquidity and minimize the related risk during this uncertain time . consistent with our plans to acquire additional properties , we borrowed $ 150.0 million and $ 20 million in march and april , respectively , under our credit facility . in july 2020 , we entered into an amendment to our credit facility designed to provide us with additional flexibility during the period from april 1 , 2020 through march 31 , 2021 ( the “ adjustment period ” ) to continue addressing the adverse impacts of the covid-19 pandemic , including certain relief from financial covenants . see note 5 — credit facility for further details . concurrently with this amendment , and in connection with our refinancing of certain mortgage debt , we repaid approximately $ 197 million outstanding under our credit facility ( see note 4 — mortgage notes payable , net for additional information ) . additionally , on march 30 , 2020 , we announced a reduction in our dividend , beginning in the second quarter of 2020 , reducing the cash needed to fund dividend payments by approximately $ 27.2 million per year based on shares outstanding at that time . for additional information on our financing activity during the year ended 2020 , see the “ liquidity and capital resources - borrowings ” section of this management 's discussion and analysis of financial condition and results of operations . significant accounting estimates and critical accounting policies set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements . certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management . as a result , these estimates are subject to a degree of uncertainty . these significant accounting estimates and critical accounting policies include : impacts of the covid-19 pandemic as discussed above , we have taken a proactive approach to achieve mutually agreeable solutions with our tenants impacted by the covid-19 pandemic and in some cases , in the second , third and fourth quarters of 2020 , we executed several types of lease amendments . these agreements include deferrals and abatements ( i.e . rent credits ) and also may include extensions to the term of the leases . for accounting purposes , in accordance with asc 842 : leases , normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not , modification accounting would be applied which would require a company to reassess the classification of the lease ( including leases for which the prior classification under asc 840 was retained as part of the election to apply the package of practical expedients allowed upon the adoption of asc 842 , which does not apply to leases subsequently modified ) . however , in light of the covid-19 pandemic in which many leases are being modified , the fasb and sec have provided relief that allows companies to make a policy election as to whether they treat covid-19 related lease amendments as a provision included in the pre-concession arrangement , and therefore , not a lease modification , or to treat the lease amendment as a modification . in order to be considered covid-19 related , cash flows must be substantially the same or less than those prior to the concession . for covid-19 relief qualified changes , there are two methods to potentially account for such rent deferrals or abatements under the relief , ( 1 ) as if the changes were originally contemplated in the lease contract or ( 2 ) as if the deferred payments are variable lease payments contained in the lease contract . for all other lease changes that did not qualify for fasb relief , we would be required to apply modification accounting including assessing classification under asc 842. some , but not all of our lease modifications qualify for the fasb relief . in accordance with the relief provisions , instead of treating these qualifying leases as modifications , we have elected to treat the modifications as if previously contained in the 43 lease and recast rents receivable prospectively ( if necessary ) . under that accounting , for modifications that were deferrals only , there would be no impact on overall rental revenue and for any abatement amounts that reduced total rent to be received , the impact would be recognized ratably over the remaining life of the lease .
| results of operations below is a discussion of our results of operations for the years ended december 31 , 2020 and 2019. please see the “ results of operations ” section located on page 45 under item 7 of our annual report on form 10-k for the year ended december 31 , 2019 for comparison of our results of operations for the years ended december 31 , 2019 to 2018. in addition to the comparative year over year discussion below , please see the “ overview — management update on the impacts of the covid-19 pandemic ” section above for additional information on the risks and uncertainties associated with the covid-19 pandemic and management 's action taken to mitigate those risks and uncertainties . comparison of the year ended december 31 , 2020 to 2019 we owned 593 properties for the entirety of the years ended december 31 , 2020 and 2019 ( our “ 2019-2020 same store ” ) , that were 93.4 % leased as of december 31 , 2020. additionally , during 2020 and 2019 , we acquired 327 properties ( our “ acquisitions since january 1 , 2019 ” ) that were 98.6 % leased as of december 31 , 2020. during the years ended december 31 , 2020 and 2019 , we sold 31 properties ( our “ disposals since january 1 , 2019 ” ) . 47 the following table summarizes our leasing activity during the year ended december 31 , 2020 : replace_table_token_14_th [ 1 ] annualized rental income on a straight-line basis as of december 31 , 2020. represents the gaap basis annualized straight-line rent that is recognized over the term on the respective leases , which includes free rent , periodic rent increases , and excludes recoveries . [ 2 ] new leases reflect leases in which a new tenant took possession of the space during the year ended december 31 , 2020 , excluding new property acquisitions .
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the continued advancement of display technology and rapid growth of video consumption on digital delivery systems and mobile applications has increased the demand for video display processing technology in recent years . our products can be used in a range of devices from large flat panel displays to small low power mobile applications . our products are designed to reduce overall system power requirements and reduce costs for our customers by minimizing bandwidth , reducing panel costs and optimizing the video display pipeline efficiency . our primary target markets include digital projection systems , tablets , smartphones , and ultrabook tm devices . we have an intellectual property portfolio of 135 patents related to the visual display of digital image data . we focus our research and development efforts on developing video enhancement solutions for our target markets that increase performance , video quality and device functionality while reducing power consumed . we seek to expand our technology portfolio through internal development and co-development with business partners , and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets . pixelworks was founded in 1997 and is incorporated under the laws of the state of oregon . historically , significant portions of our revenue have been generated by sales to a relatively small number of end customers and distributors . we sell our products worldwide through a direct sales force , distributors and manufacturers ' representatives . we sell to distributors in china , europe , japan , korea , southeast asia , taiwan and the u.s. , and our manufacturers ' representatives support some of our korean and european sales . our distributors typically provide engineering support to our end customers and often have valuable and established relationships with our end customers . in certain countries in which we operate , it is customary to sell to distributors . while distributor payment to us is not dependent upon the distributor 's ability to resell the product or to collect from the end customer , the distributors may provide longer payment terms to end customers than those we would offer . significant portions of our products are sold overseas . sales outside the u.s. accounted for approximately 100 % , 94 % and 83 % of revenue in 2015 , 2014 and 2013 , respectively . our integrators , branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide . all of our revenue to date has been denominated in u.s. dollars . 33 story_separator_special_tag increased to 48 % of revenue in 2014 from 45 % of revenue in 2013. the increase in cost of revenue as a percentage of revenue was primarily due to a decrease in the recognition of higher margin licensing revenue during 2014 compared to 2013. this increase was partially offset by a decrease in cost of revenue as a percentage of revenue due to a decrease in licensing costs during 2014 compared to 2013. excluding the impact of licensing revenue and licensing costs , cost of revenue as a percentage of revenue decreased 2 % during 2014 compared to 2013 , primarily due to relatively constant overhead costs compared to increased ic revenue over the same periods . 35 research and development research and development expense includes compensation and related costs for personnel , development-related expenses including non-recurring engineering and fees for outside services , depreciation and amortization , expensed equipment , facilities and information technology expense allocations and travel and related expenses . co-development agreement during 2012 , we entered into a best efforts co-development agreement ( the “ co-development agreement ” ) with a customer to defray a portion of the research and development expenses that would be incurred in connection with our development of an ic product to be sold exclusively to the customer . under the co-development agreement , we retain ownership of any modifications or improvements that are made to our pre-existing ip and may use such improvements in products sold to other customers . at the completion of certain development milestones under the co-development agreement , we invoiced the customer and recognized offsets to research and development expense of $ 3.5 million in each of 2012 and 2013. all milestones under the co-development agreement were completed as of december 31 , 2013. we began selling units of the product developed under the co-development agreement during the second quarter of 2014. research and development expense was as follows ( in thousands ) : replace_table_token_6_th 2015 v. 2014 research and development expense decreased $ 0.7 million from 2014 to 2015. the decrease was primarily due to a $ 0.5 million decrease in stock-based compensation expense primarily due to the timing of awards granted and a $ 0.5 million decrease in depreciation and amortization expense due to the timing of development activities . these decreases were partially offset by a $ 0.2 million increase in facilities and information technology allocations . the decreases were also offset by a $ 0.1 million increase due to a benefit to research and development recognized in 2014 for a reduction in direct labor costs and allocated overhead associated with the utilization of research and development engineers on license revenue agreements ; these costs were recorded in cost of revenue . there was no similar benefit to research and development in 2015 . 2014 v. 2013 research and development expense increased $ 4.6 million from 2013 to 2014. the increase was primarily due to recognizing a benefit to research and development expense of $ 3.5 million related to the co-development agreement in 2013 , for which a similar benefit was not recognized in 2014. the increase was also due to a $ 1.2 million increase in stock-based compensation expense primarily due to restricted stock units granted to senior management during the fourth quarter of 2013 and the third quarter of 2014 and a $ 0.3 million increase in compensation expense primarily due to annual merit salary increases and an increased management bonus accrual , partially offset by a decrease in headcount . story_separator_special_tag total cash and cash equivalents decreased $ 2.9 million from $ 20.8 million at december 31 , 2013 to $ 17.9 million at december 31 , 2014 . the decrease resulted primarily from $ 5.9 million used for purchases of property and equipment and payments on other asset financings partially offset by $ 1.3 million in proceeds from the issuances of common stock under our employee equity incentive plans and $ 1.7 million provided by operating activities primarily due to changes in working capital . as of december 31 , 2015 , our cash and cash equivalents balance of $ 26.6 million consisted of $ 1.3 million in cash and $ 25.3 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2015 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . at the time of purchase , short-term credit rating must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations ( `` nrsro '' ) and securities of issuers with a long-term credit rating must be rated at least a or a2 by at least two nrsros . our investment policy is reviewed at least annually by our audit committee . as of december 31 , 2015 , we had total cash and cash equivalents of $ 26.6 million , of which approximately $ 1.2 million was held by our foreign subsidiaries . we provide for u.s. taxes on the earnings of our foreign subsidiaries and will only recognize u.s. taxable income from repatriation to the extent of our unremitted earnings . any income recognized from the repatriation will be offset by our net operating loss carryforwards . as of december 31 , 2015 , we could access all cash held by our foreign subsidiaries without incurring significant cash taxes . accounts receivable , net accounts receivable , net increased to $ 6.0 million at december 31 , 2015 from $ 4.6 million at december 31 , 2014 . average number of days sales outstanding increased to 40 days at december 31 , 2015 from 28 days at december 31 , 2014 . the increase in accounts receivable and days sales outstanding was primarily due to the timing of shipments . inventories inventories increased to $ 3.3 million at december 31 , 2015 from $ 2.9 million at december 31 , 2014 . inventory turnover decreased to 7.8 at december 31 , 2015 from 11.3 at december 31 , 2014 , primarily due to higher average inventory balances and decreased cost of goods sold during the fourth quarter of 2015 compared to the fourth quarter of 2014. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . 38 capital resources equity offering on august 12 , 2015 , we completed the sale of 3,737,500 shares of common stock , in an underwritten registered offering at a price to the public of $ 4.75 per share . net proceeds to the company , after deducting underwriting discounts and commissions and other expenses payable by us , were approximately $ 16.4 million . short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement ( the `` revolving loan agreement '' ) with silicon valley bank ( the `` bank '' ) . on december 14 , 2012 , we and the bank entered into amendment no . 1 ( the `` amendment no . 1 '' ) to the revolving loan agreement . the revolving loan agreement , as amended , provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 1.0 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . on december 4 , 2013 , we and the bank entered into amendment no . 2 ( the `` amendment no . 2 '' ) to the revolving loan agreement which changes the maturity date of the revolving line of credit provided pursuant to the revolving loan agreement to january 1 , 2016. the maturity date was previously december 14 , 2014 , as provided by amendment no . 1 to the revolving loan agreement . on december 18 , 2015 , we and the bank entered into amendment no . 3 to the revolving loan agreement which changes the maturity date of the revolving line of credit provided pursuant to the revolving loan agreement to december 30 , 2016. in addition , the revolving loan agreement , as amended , provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the company on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide the company with usable liquidity . the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of the company 's obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2015 , we were in compliance with all of the terms of the revolving loan agreement , as amended .
| results of operations year ended december 31 , 2015 compared with year ended december 31 , 2014 , and year ended december 31 , 2014 compared with year ended december 31 , 2013. revenue , net net revenue was as follows ( in thousands ) : replace_table_token_4_th 2015 v. 2014 net revenue decreased $ 1.4 million , or 2 % , from 2014 to 2015. revenue related to integrated circuit ( `` ic '' ) product sales was $ 59.5 million and $ 57.7 million for 2015 and 2014 , respectively . revenue related to licensing of intellectual property ( `` ip '' ) was negligible for 2015 and was $ 3.2 million for 2014. the $ 1.8 million increase in ic product sales from 2014 to 2015 , was primarily attributable to increased unit sales into the digital projector and mobile device markets and decreased unit sales into the television and panel markets , which generally have a lower average selling price ( `` asp '' ) than digital projector market products . the decrease in sales into the television and panel markets was due to a transition to lower volume niche products . the $ 3.2 million of licensing revenue recorded in 2014 was due to achieving milestones under licensing agreements entered into during 2012 and 2013 . 2014 v. 2013 net revenue increased $ 12.8 million , or 27 % , from 2013 to 2014. revenue related to ic product sales was $ 57.7 million and $ 40.0 million for 2014 and 2013 , respectively . revenue related to licensing of ip was $ 3.2 million and $ 8.1 million for 2014 and 2013 , respectively . the increase related to ic product sales was primarily attributable to a 30 % increase in units sold and an 11 % increase in asp .
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subsequent to the sale story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financial statements and the notes thereto , each of which are contained in item 8 entitled financial statements and supplementary data , and other financial information incorporated by reference herein . some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section as well as the section below entitled special note regarding forward-looking statements 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 . introduction and overview of operations we operate an extensive network of direct routes . we provide premium voice communication services for national telecom operators , mobile operators , wholesale carriers , prepaid operators , voice over internet protocol ( voip ) service operators and internet service providers ( isps ) . we provide a quality service via direct routes and by forming strong relationships with carefully selected partners . we classify our services into two categories : traditional services and international carrier services ( ics ) . we have provided these services from our two business units : north america telecom and ics . however , in the second quarter of 2013 , the company entered into a definitive purchase agreement to sell its north america telecom segment and sought shareholder approval of such transaction . on july 31 , 2013 , the company completed the initial closing of the sale of substantially all of its north america telecom segment . the closing of the sale of the remainder of our north america telecom segment , consisting of our subsidiary primus telecommunications , inc. ( pti ) , has been deferred pending the receipt of regulatory approvals . as a result of the disposition of substantially all of our north america telecom operations , and the pending disposition of the remainder of such operations , the north america telecom segment no longer is a separate reportable business segment and we have applied retrospective adjustments to reflect such segment as a discontinued operation . during 2013 , we also provided certain growth services through our blackiron data business unit , which operated our pure data center operations in canada . on april 17 , 2013 , we consummated the divestiture of blackiron data , as a result of which we no longer operate a blackiron data business unit and have applied retrospective adjustments to reflect blackiron data as a discontinued operation . as a result of the foregoing , our reportable operating segment is ics . effective in the fourth quarter of 2013 , we determined to reclassify ics as a continuing operation . since the second quarter of 2012 , ics had been reported as a discontinued operation as a result of being held for sale . our focus is on expanding ics and the continued evaluation of strategic initiatives to maximize shareholder value . within ics , we interconnect with major u.s. operators and route voice traffic to all 145,000+ npa-nxx codes in the united states . we employ both lnp dipping and lrn capabilities to ensure that voice calls get to the termination point faster and more directly . this saves our customers money , and provides for a better end user experience . destination networks are targeted dynamically for accurate routing , helping to eliminate incremental charges and reducing overall operating costs . we pride ourselves on a high quality of service with an emphasis on long-standing relationships with our customers and partners . we manage our traditional services , which includes our domestic and international long-distance voice , local landline , wireless , prepaid cards , and dial-up internet services , and our international carrier services ; particularly in our primary markets of asia pacific , latin america , north america/canada/mexico and europe/middle east/asia . based on schedule 13d filings of harbinger group inc. ( hgi ) , hgi and other hgi-affiliated entities purchased approximately 40.5 % of ptgi in january 2014 . 38 recent developments decision to cease the pursuit of divestiture of ics in december 2013 , based on management 's assessment of the requirements under asc 360 , it was determined that ics no longer met the criteria of a held for sale asset . on february 11 , 2014 , the board of directors officially ratified management 's december 2013 assessment , and reclassified ics from held for sale to held and used , effective december 31 , 2013. as a result , ics became classified as a continuing operation . accordingly , the company has applied retrospective adjustments for the years ended december 31 , 2012 and 2011 and revenue , costs and expenses of ics are now included in the respective captions in the consolidated statements of operations . in addition , the assets and liabilities of ics are now included in the respective captions in the consolidated balance sheets as of december 31 , 2013. redemption of 13 % notes , 10 % notes and 10 % exchange notes and satisfaction and discharge of related indentures on august 30 , 2013 , ptgi international holding , inc. ( f/k/a primus telecommunications holding , inc. pthi ) , consummated the redemption of approximately $ 125.3 million of its 10 % senior secured notes due 2017 ( the 10 % notes ) and 10 % senior secured exchange notes due 2017 ( the 10 % exchange notes ) . the $ 125.3 million consisted of approximately $ 12.7 million in aggregate principal amount of its 10 % notes at a redemption price equal to 106.50 % of the principal amount thereof and $ 112.6 million in aggregate principal amount of its 10 % exchange notes at a redemption price equal to 100.00 % of the principal amount thereof , plus accrued but unpaid interest to the date of redemption . story_separator_special_tag in the future , we expect to continue to derive a portion of our net revenue and incur a portion of our operating costs from outside the u.s. , and therefore changes in exchange rates may continue to have a significant , and potentially adverse , effect on our results of operations . our risk of loss regarding foreign currency exchange rate risk is caused primarily by fluctuations in the usd/british pound sterling ( gbp ) exchange rate . due to a percentage of our revenue derived outside of the u.s. , changes in the usd relative to the gbp could have an adverse impact on our future results of operations . in addition , prior to the sale of the company 's australia operations during the second quarter of 2012 and the sale of blackiron data and north america telecom during the second and third quarters of 2013 , respectively , we also experienced risk of loss regarding foreign currency exchange rates due to fluctuations in the usd/australian dollar ( aud ) and usd/canadian dollar ( cad ) exchange rates . we have agreements with certain subsidiaries for repayment of a portion of the investments and advances made to these subsidiaries . as we anticipate repayment in the foreseeable future , we recognize the unrealized gains and losses in foreign currency transaction gain ( loss ) on the condensed consolidated statements of operations . the exposure of our income from operations to fluctuations in foreign currency exchange rates is reduced in part because a majority of the costs that we incur in connection with our foreign operations are also denominated in local currencies . we are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries . we translate the local currency statements of operations of our foreign subsidiaries into usd using the average exchange rate during the reporting period . changes in foreign 40 exchange rates affect the reported profits and losses and cash flows of our international subsidiaries and may distort comparisons from year to year . by way of example , when the usd strengthens compared to the gbp , there could be a negative or positive effect on the reported results for ics , depending upon whether the business in ics is operating profitably or at a loss . it takes more profits in gbp to generate the same amount of profits in usd and a greater loss in gbp to generate the same amount of loss in usd . the opposite is also true . for instance , when the usd weakens against the gbp , there is a positive effect on reported profits and a negative effect on the reported losses for ics . for the year ended december 31 , 2013 , as compared to the year ended december 31 , 2012 , the usd was stronger on average as compared to the cad and gbp . for the year ended december 31 , 2012 , as compared to the year ended december 31 , 2011 , the usd was stronger on average as compared to the cad and gbp ; the usd was weaker on average as compared to the aud . the following tables demonstrate the impact of currency fluctuations on our net revenue for the years ended december 31 , 2013 , 2012 and 2011 : net revenue by location , including discontinued operationsin usd ( in thousands ) replace_table_token_7_th net revenue by location , including discontinued operationsin local currencies ( in thousands ) replace_table_token_8_th ( 1 ) table includes revenues from discontinued operations which are subject to currency risk . critical accounting policies to aid in the understanding of our financial reporting , our most critical accounting policies are described below . these policies have the potential to have a more significant impact on our financial statements , either because of the significance of the financial statement item to which they relate , or because they require judgment and estimation due to the uncertainty involved in measuring , at a specific point in time , events which are continuous in nature . revenue recognition and deferred revenue net revenue is derived from carrying a mix of business , residential and carrier long-distance traffic , data and internet traffic . for certain voice services , net revenue is earned based on the number of minutes during a call , and are recorded upon completion of a call . revenue for a period is calculated from information received through the company 's network switches . customized software has been designed to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates . this software provides the company the ability to do a timely and accurate analysis of revenue earned in a period . separate prepaid services software is used to track additional information related to prepaid service usage such as activation date , monthly usage amounts and expiration date . 41 revenue on these prepaid services is recognized as service is provided until expiration , when all unused minutes , which are no longer available to the customers , are recognized as revenue . net revenue is also earned on a fixed monthly fee basis for unlimited local and long-distance voice plans and for the provision of data/internet services ( including retail voip ) , hosting , and colocation . in the united states , we charge customers federal universal service fund ( usf ) fees . we recognize revenue on a gross basis for usf and related fees . we record these fees as revenue when billed . net revenue represents gross revenue , net of allowance for doubtful accounts receivable , service credits and service adjustments . presentation of taxes collected the company reports any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between the company and a customer ( including sales , use , value-added and some excise taxes ) on a net basis ( excluded from revenues ) .
| results of operations results of operations for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 replace_table_token_10_th 45 net revenue : net revenue , exclusive of the currency effect , decreased $ 70.5 million , or 23.3 % , to $ 232.5 million for the year ended december 31 , 2013 from $ 303.0 million for the year ended december 31 , 2012. inclusive of the currency effect which accounted for a decrease of $ 1.8 million , net revenue decreased $ 72.3 million to $ 230.7 million for the year ended december 31 , 2013 from $ 303.0 million for the year ended december 31 , 2012. the decrease is primarily due to a significant decline in both domestic and international terminations year over year . replace_table_token_11_th cost of revenue : cost of revenue , exclusive of the currency effect , decreased $ 63.6 million to $ 222.1 million , or 95.5 % of net revenue , for the year ended december 31 , 2013 from $ 285.6 million , or 94.3 % of net revenue , for the year ended december 31 , 2012. inclusive of the currency effect , which accounted for a $ 1.7 million decrease , cost of revenue decreased $ 65.3 million to $ 220.3 million for the year ended december 31 , 2013 from $ 285.6 million for the year ended december 31 , 2012. the decrease is primarily due to the decrease in net revenue . while there have been significant declines in both net revenue and cost of revenue , exclusive of currency , cost of revenue as a percentage of net revenue remained flat ; and inclusive of currency , decreased only 120 basis points year over year .
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you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes 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 annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this form annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage biopharmaceutical company dedicated to developing and commercializing novel therapeutics to treat patients suffering from rare inherited genetic disorders of hemoglobin , known as hemoglobinopathies . our pipeline is built on the differentiated therapeutic potential of our initial product candidate , imr-687 , which is an oral , once-a-day , potentially disease-modifying treatment for sickle cell disease , or scd , and ß-thalassemia . imr-687 is a highly selective , potent small molecule inhibitor of phosphodiesterase-9 , or pde9 , that has a multimodal mechanism of action that acts primarily on red blood cells , and has the potential to act on white blood cells , adhesion mediators and other cell types that are implicated in these disorders . we recently completed a phase 2a clinical trial of imr-687 in adult patients with scd and are currently conducting an open label extension , or ole , clinical trial , which allows patients from the phase 2a clinical trial to continue into a long-term four-year trial to test safety and measure tolerability of imr-687 . in the second quarter of 2020 , we initiated a phase 2b clinical trial of imr-687 for the treatment of patients with scd and a phase 2b clinical trial of imr-687 for the treatment of patients with ß-thalassemia . we are currently enrolling patients in each trial and expect to report interim data from each of these trials in the second half of 2021. we continue to evaluate the impact of the covid-19 pandemic on these phase 2b trials , as discussed below , and therefore , our estimated timelines for these clinical trials could be delayed . in addition , we recently completed preclinical research of imr-687 in heart failure with preserved ejection fraction , or hfpef , and are developing a phase 2 protocol to support potential future clinical development of imr-687 in this indication . since our inception in 2016 , our operations have focused on organizing and staffing our company , business planning , raising capital , establishing our intellectual property portfolio and performing research and development of imr-687 . to date , we have funded our operations primarily through the sale of common stock in our initial public offering , or ipo , and the sale of convertible preferred stock . in march 2020 , we completed an ipo of our common stock and issued and sold 4,700,000 shares of common stock at a public offering price of $ 16.00 per share , resulting in gross proceeds of $ 75.2 million . in april 2020 , the underwriters exercised their option to purchase additional shares in full to purchase 705,000 additional shares of common stock for aggregate gross proceeds of $ 11.3 million . inclusive of the underwriters ' option to purchase additional shares , we received approximately $ 76.5 million in net proceeds from the ipo after deducting $ 10.0 million of underwriting discounts and commissions and offering expenses . upon completion of the ipo , all 70,378,661 shares of outstanding convertible preferred stock automatically converted into 11,172,955 shares of common stock . in february 2020 we effected a 1-for-6.299 reverse stock split of our common stock . all historical share and per share information shown herein and in our consolidated financial statements and related notes have been retroactively adjusted to give effect to the reverse stock split . we have incurred significant operating losses since inception . our losses from operations were $ 24.1 million , and $ 41.7 million for the years ended december 31 , 2019 , and 2020 , respectively . as of december 31 , 2020 , we had an accumulated deficit of approximately $ 96.1 million . we expect to continue to incur significant operating losses for the foreseeable future , as we advance imr-687 and any product candidates we may develop in the future from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates . we expect to incur significant expenses related to maintaining and expanding our intellectual property portfolio , hiring additional research and development and business personnel and operating as a public company . in addition , our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our clinical trials and our expenditures on other research and development activities . we do not have any products approved for sale . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for imr-687 or any future product candidate . in addition , if we obtain regulatory approval for imr-687 or any future product candidate and to the extent that we engage in 97 commercialization activities on our own , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing , manufacturing , and distribution activities . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances and licensing arrangements . story_separator_special_tag we are obligated to pay tiered royalties of low-to-mid single-digit percentages to lundbeck based on our , and any of our affiliates ' and sublicensees ' , net sales of licensed products , and tiered royalties of low single-digit percentages to lundbeck based on our , and any of our affiliates ' and sublicensees ' , net sales of pde9 products , if any . see “ business – exclusive license agreement ” for a further description of the license agreement with lundbeck . financial operations overview revenue we have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future , if at all . if our development efforts for imr-687 or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements . operating expenses research and development . research and development expenses consist primarily of costs incurred in connection with the preclinical and clinical development and manufacture of imr-687 , and include : personnel-related expenses , including salaries , benefits and stock-based compensation expenses , for individuals involved in research and development activities ; external research and development expenses incurred under agreements with contract research organizations , or cros , investigative sites , and consultants that conduct our preclinical studies and clinical trials and other scientific development services ; costs incurred under agreements with contract manufacturing organizations , or cmos , for developing and manufacturing material for our preclinical studies and clinical trials ; costs related to compliance with regulatory requirements ; milestone fees incurred in connection with our current license agreement with lundbeck ; and facilities and other allocated expenses , which include direct and allocated expenses for rent , insurance and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid expenses or accrued research and development expenses . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized , even when there is no alternative future use for the research and development . the capitalized amounts are expensed as the related goods are delivered or the services are performed . a significant portion of our research and development costs have been external costs , which we track after a clinical product candidate has been identified . our internal research and development costs are primarily personnel-related costs and other indirect costs . our research and development expenses to-date have been incurred in connection with our development of imr-687 in scd and β-thalassemia . we do not intend to track our internal research and development expenses on a program-by-program basis as our personnel are deployed across multiple projects under development . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to 99 the increased size and duration of later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as we continue the development of imr-687 and any product candidates we may develop in the future . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of imr-687 and any product candidates we may develop in the future , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development program and plans . the following table summarizes our research and development expenses for the periods indicated : replace_table_token_6_th the successful development of imr-687 and any product candidates we may develop in the future is highly uncertain . therefore , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of imr-687 or any future product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from the sale of imr-687 or potential future product candidates , if approved . this is due to the numerous risks and uncertainties associated with developing product candidates , including the uncertainty of : the impact of the ongoing covid-19 pandemic and our response to it ; the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; our ability to maintain our current research and development programs and to establish new ones ; establishing an appropriate safety profile with investigational new drug application , or ind , enabling studies ; successful patient enrollment in , and the initiation of , clinical trials ; the successful completion of clinical trials with safety , tolerability and efficacy profiles that are satisfactory to the u.s. food and drug administration , or fda , or any comparable foreign regulatory authority ; the timing , receipt and terms of any regulatory approvals from applicable regulatory authorities ; our ability to establish new licensing or collaboration arrangements ; the performance of our future collaborators , if any ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining , maintaining , defending
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_7_th research and development expenses research and development expenses increased by approximately $ 13.1 million from $ 19.0 million for the year ended december 31 , 2019 to $ 32.2 million for the year ended december 31 , 2020. the increase in research and development expenses was primarily attributable to the following : a $ 11.3 million increase in costs related to the development and manufacturing of clinical materials , clinical research and oversight of our clinical trials and investigative fees for imr-687 ; a $ 2.5 million increase in personnel-related costs , including a $ 0.4 million increase in stock-based compensation expense , primarily due to an increase in headcount to support the growth of our research and development efforts ; and a $ 0.6 million decrease in other research and development operational costs , including facilities , supplies , and travel . 101 general and administrative expenses general and administrative expenses increased by approximately $ 4.4 million from $ 5.1 million for the year ended december 31 , 2019 to $ 9.5 million for the year ended december 31 , 2020. the increase in general and administrative expenses was primarily attributable to the following : a $ 2.3 million increase in other general and administrative operational costs , including facilities , rent and increased insurance costs as a result of operating as a public company ; a $ 1.7 million increase in personnel costs , including a $ 0.9 million increase in stock-based compensation expense , primarily due to an increase headcount ; and a $ 0.4 million increase in legal and professional costs .
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actual results may differ from these estimates and such differences could be material to the financial statements . this discussion should be read in conjunction with our consolidated financial statements included in this annual report and the accompanying notes , and the information set forth under the caption “ critical accounting policies and estimates ” below . during the fourth quarter of 2015 , as a result of recent investment activity , including signed acquisitions , we reviewed and changed our reportable segments to divide our international segment into regional segments . we now operate in five reportable segments : u.s. property , asia property , emea property , latin america property and services . in evaluating financial performance in each business segment , management uses , among other factors , segment gross margin and segment operating profit ( see note 19 to our consolidated financial statements included herein ) . executive overview we are one of the largest global reits and a leading independent owner , operator and developer of multitenant communications real estate . our primary business is the leasing of space on communications sites to wireless service providers , radio and television broadcast companies , wireless data providers , government agencies and municipalities and tenants in a number of other industries . in addition to the communications sites in our portfolio , we manage rooftop and tower sites for property owners under various contractual arrangements . we also hold property interests that we lease to communications service providers and third-party tower operators . we refer to this business as our property operations , which accounted for 98 % of our total revenues for the year ended december 31 , 2015 and includes our u.s. property segment , asia property segment , emea property segment and latin america property segment . we also offer tower-related services , including site acquisition , zoning and permitting and structural analysis services , which primarily support our site leasing business , including the addition of new tenants and equipment on our sites . 24 the following table details the number of communications sites , excluding managed sites , we owned or operated as of december 31 , 2015 : replace_table_token_8_th _ ( 1 ) approximately 97 % of the operated towers are held pursuant to long-term capital leases , including those subject to purchase options . on october 21 , 2015 , we signed a definitive agreement pursuant to which we expect to acquire a 51 % controlling ownership interest in viom , a telecommunications infrastructure company that owns and operates over 42,000 wireless communications towers and 200 indoor das networks in india . upon closing , we expect to consolidate the full financial results for viom . the majority of our tenant leases with wireless carriers have an initial non-cancellable term of at least ten years , with multiple renewal terms . accordingly , nearly all of the revenue generated by our property operations during the year ended december 31 , 2015 was recurring revenue that we should continue to receive in future periods . based upon foreign currency exchange rates and the tenant leases in place as of december 31 , 2015 , we expect to generate over $ 30 billion of non-cancellable tenant lease revenue over future periods , absent the impact of straight-line lease accounting . most of our tenant leases have provisions that periodically increase the rent due under the lease , typically annually based on a fixed escalation ( approximately 3 % in the united states ) or an inflationary index in our international markets , or a combination of both . in addition , certain of our tenant leases provide for additional revenue to cover costs , such as ground rent or power and fuel costs . the revenues generated by our property operations may be affected by cancellations of existing tenant leases . as discussed above , most of our tenant leases with wireless carriers and broadcasters are multiyear contracts , which typically are non-cancellable ; however , in some instances , a lease may be cancelled upon the payment of a termination fee . revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our property operations . during the year ended december 31 , 2015 , loss of revenue from tenant lease cancellations or renegotiations represented less than 2 % of our property operations revenues . property operations revenue growth . due to our diversified communications site portfolio , our tenant lease rates vary considerably depending upon numerous factors , including , but not limited to , amount and type of tenant equipment on the tower , remaining tower capacity and tower location . we measure the remaining tower capacity by assessing several factors , including tower height , tower type , environmental conditions , existing equipment on the tower and zoning and permitting 25 regulations in effect in the jurisdiction where the tower is located . in many instances , tower capacity can be increased with relatively modest tower augmentation expenditures . the primary factors affecting the revenue growth in our property segments are : organic revenue from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period ( “ legacy sites ” ) ; contractual rent escalations on existing tenant leases , net of churn ; new revenue attributable to leasing additional space on our legacy sites ; and new revenue attributable to sites acquired or constructed since the beginning of the prior year period ( “ new sites ” ) . we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless services and our ability to meet the corresponding incremental demand for our wireless real estate . by adding new tenants and new equipment for existing tenants on our sites , we are able to increase these sites ' utilization and profitability . story_separator_special_tag we believe that the network technology migration we have seen in the united states , which has led to significantly denser networks and meaningful new business commencements for us over a number of years , will ultimately be replicated in our less advanced international markets . as a result , we expect to be able to leverage our extensive international portfolio of approximately 60,190 communications sites and the relationships we have built with our carrier customers to drive sustainable , long - term growth . we have holistic master lease agreements with certain of our tenants that provide for consistent , long-term revenue and a reduction in the likelihood of churn . our holistic master lease agreements build and augment strong strategic partnerships with our tenants and have significantly reduced collocation cycle times , thereby providing our tenants with the ability to rapidly and efficiently deploy equipment on our sites . property operations new site revenue growth . during the year ended december 31 , 2015 , we grew our portfolio of communications real estate through the acquisition and construction of approximately 25,370 sites . in a majority of our asia , emea and latin america markets , the acquisition or construction of new sites resulted in increases in both tenant and pass-through revenues ( such as ground rent or power and fuel costs ) and expenses . we continue to evaluate opportunities to acquire communications real estate portfolios , both domestically and internationally , to determine whether they meet our risk-adjusted hurdle rates and whether we believe we can effectively integrate them into our existing portfolio . replace_table_token_9_th property operations expenses . direct operating expenses incurred by our property segments include direct site level expenses and consist primarily of ground rent and power and fuel costs , some or all of which may be passed through to our tenants , as well as property taxes , repairs and maintenance . these segment direct operating expenses exclude all segment and corporate selling , general , administrative and development expenses , which are aggregated into one line item entitled selling , general , administrative and development expense in our consolidated statements of operations . in general , our property segments ' selling , general , administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year . as a result , leasing additional space to new tenants on our legacy sites provides significant incremental cash flow . we may , however , incur additional segment 27 selling , general , administrative and development expenses as we increase our presence in our existing markets or expand into new markets . our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities . services segment revenue growth . as we continue to focus on growing our property operations , we anticipate that our services revenue will continue to represent a small percentage of our total revenues . non-gaap financial measures included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation , amortization and accretion , as adjusted ( “ adjusted ebitda ” ) , funds from operations , as defined by the national association of real estate investment trusts ( “ nareit ffo ” ) and adjusted funds from operations ( “ affo ” ) . we define adjusted ebitda as net income before income ( loss ) on equity method investments ; income tax benefit ( provision ) ; other income ( expense ) ; gain ( loss ) on retirement of long-term obligations ; interest expense ; interest income ; other operating income ( expense ) ; depreciation , amortization and accretion ; and stock-based compensation expense . nareit ffo is defined as net income before gains or losses from the sale or disposal of real estate , real estate related impairment charges , real estate related depreciation , amortization and accretion and dividends on preferred stock , and including adjustments for ( i ) unconsolidated affiliates and ( ii ) noncontrolling interest . we define affo as nareit ffo before ( i ) straight-line revenue and expense ; ( ii ) stock-based compensation expense ; ( iii ) the non-cash portion of our tax provision ; ( iv ) non-real estate related depreciation , amortization and accretion ; ( v ) amortization of deferred financing costs , capitalized interest , debt discounts and premiums and long-term deferred interest charges ; ( vi ) other income ( expense ) ; ( vii ) gain ( loss ) on retirement of long-term obligations ; ( viii ) other operating income ( expense ) ; and adjustments for ( ix ) unconsolidated affiliates and ( x ) noncontrolling interest , less cash payments related to capital improvements and cash payments related to corporate capital expenditures . we present affo for the year ended december 31 , 2015 before the one-time cash charge incurred in connection with a tax election , pursuant to which one of our subsidiaries no longer operates as a separate reit , as it is nonrecurring and we do not believe it is an indication of our operating performance . adjusted ebitda , nareit ffo and affo are not intended to replace net income or any other performance measures determined in accordance with gaap . neither nareit ffo nor affo represent cash flows from operating activities in accordance with gaap and , therefore , these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs , including our ability to make cash distributions . rather , adjusted ebitda , nareit ffo and affo are presented as we believe each is a useful indicator of our current operating performance .
| results of operations years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except percentages ) revenue replace_table_token_10_th for the year ended december 31 , 2015 : the increase in u.s. property segment revenue was primarily attributable to growth of ( i ) 11 % due to 11,449 new sites from the verizon transaction , which resulted in an increase of $ 296.8 million in revenue and ( ii ) 7 % from legacy sites , including 6 % from new tenant leases and amendments to existing tenant leases and 1 % from contractual rent escalations , net of churn . the remaining revenue increase was attributable to approximately 1,045 new sites ( excluding the verizon transaction ) and the impact of straight-line lease accounting . the increase in asia property segment revenue was attributable to growth of ( i ) 11 % due to approximately 3,890 new sites and ( ii ) 5 % from legacy sites , including 7 % generated from new tenant leases , partially offset by a 1 % reduction in pass-through revenue due to declining fuel costs and consumption and a 1 % decrease due to churn , net of contractual rent escalations . revenue growth was partially offset by the negative impact from foreign currency translation of 6 % related to fluctuations in indian rupee ( “ inr ” ) . the increase in emea property segment revenue was attributable to growth of ( i ) 37 % due to approximately 5,100 new sites , including 4,716 new sites from the airtel acquisition in nigeria , which contributed $ 109.7 million in revenue and ( ii ) 9 % from legacy sites , including 6 % from contractual rent escalations , net of churn , and 4 % from new tenant leases and amendments to existing tenant leases , partially offset by a 1 % reduction in pass-through revenue due to declining fuel costs and consumption .
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as part of our review , we consider all positive story_separator_special_tag this 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 and other financial information appearing elsewhere in this annual report on form 10-k , and with part ii , item 7 ( “ management 's discussion and analysis of financial condition and results of operations ” ) of our form 10-k for our fiscal year ended december 31 , 2019 , filed with the sec on february 13 , 2020 , which provides a discussion of our financial condition and results of operations for fiscal year 2019 compared to fiscal year 2018. the following discussion includes statements that are forward-looking statements that are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . overview general we are a leading provider of high-performance building solutions that meet the demands of builders , remodelers , and homeowners worldwide . we have leveraged our expertise serving the new home construction , repair and remodeling , and outdoor structures markets to become an industry leader known for innovation , quality , and reliability . our manufacturing facilities are located in the u.s. , canada , chile , and brazil . to serve these markets , we operate in four segments : siding , osb , ewp , and south america . executive summary total net sales for 2020 increased by $ 478 million ( or 21 % ) over the prior year to $ 2.8 billion . smartside net sales increased by $ 118 million ( or 15 % ) , and osb prices increased by $ 481 million , partially offset by five percent lower osb sales volume . lp south america net sales was $ 10 million higher than the prior year , net of $ 27 million of unfavorable currency movements . ewp net sales was lower by $ 7 million , and our strategic exits from fiber and canexel products reduced net sales by $ 65 million and $ 32 million , respectively . net income attributed to lp was $ 499 million ( $ 4.46 per diluted share ) for 2020 compared to a net loss of $ 5 million ( $ ( 0.04 ) per diluted share ) in the prior year . in addition to the growth in smartside net sales and increases to osb prices , raw material costs ( primarily wood fiber and resin ) were favorable as compared to the prior year by $ 32 million . fiber discontinuance costs of $ 20 million were also recognized during 2020. during 2019 , we recognized pre-tax impairment charges of $ 92 million related to certain operating and non-operating assets . our adjusted ebitda increased $ 572 million over the prior year to $ 781 million , due to smartside growth , $ 481 million of osb pricing , and the favorable raw material prices . demand for building products demand for our products correlates to a significant degree to the level of new home construction activity in north america , which historically has been characterized by significant cyclicality . while the covid-19 pandemic did have an initial adverse impact on new home construction and repair and remodeling activity during the first and second quarters of 2020 , the level of new home construction and remodel activity during 2020 increased overall as compared the prior year . the u.s. census bureau reported on january 21 , 2021 , that 2020 actual single housing starts were 12 % higher than those in 2019. actual multi-family housing starts in 2020 were about three percent lower than those in 2019. repair and remodeling activity is difficult to reasonably measure , but many indications , including the substantial increase in lp 's retail sales , suggest that it grew significantly in 2020 . 27 the chart below , which is based on data published by u.s. census bureau , provides a graphical summary of new housing starts for single and multi-family in the u.s. showing actual and rolling five and ten-year averages for housing starts . supply and demand for siding smartside is a specialty building material and is subject to competition from various siding technologies , including vinyl , stucco , wood , fiber cement , brick , and others . we believe we are the largest manufacturer to the $ 900 million engineered wood siding and trim market . the overall siding and trim market is estimated to be over $ 11 billion . we have consistently grown our smartside above the underlying market growth rates . smartside is generally less sensitive to new housing market cyclicality since roughly 50 % of its demand comes from other markets , including : sheds and repair and remodel . our growth in this market depends upon continued displacement of vinyl , wood fiber , cement , stucco , bricks and other alternatives , our product innovation and our technological expertise in wood and wood composites to address the needs of our customers . supply and demand for osb osb is a commodity product , and it is subject to competition from manufacturers worldwide . product supply is influenced primarily by fluctuations in available manufacturing capacity and imports . the ratio of overall osb demand to capacity generally drives price . while osb prices increased significantly during 2020 as compared to 2019 , we can not predict whether the prices of our osb products will remain at current levels or increase or decrease in the future . critical accounting policies and significant 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 u.s. gaap . the preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag we review our deferred tax assets for recoverability and establish valuation allowances based on historical taxable income , projected future taxable income , applicable tax strategies , and the expected timing of the reversals of existing temporary differences . a valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized . as of december 31 , 2020 , the valuation allowances on our deferred tax assets were $ 10 million . in addition , we evaluate uncertainties in the application of complex tax regulations in the calculation of tax liabilities . we provide for uncertain tax positions and the related interest and penalties based upon management 's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . we make this assessment based only on the technical merits of the tax position . the technical merits of a tax position derive from both statutory and judicial authority ( legislation and statutes , legislative intent , regulations , rulings , and case law ) and their applicability to the facts and circumstances of the tax position . if a tax position does not meet the more likely than not recognition threshold , the benefit of that position is not recognized in the financial statements , and a liability to unrecognize the tax benefits is established . a tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in our consolidated financial statements . the tax benefit recognized is measured as the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate resolution with a taxing authority . the actual benefits ( expense ) ultimately realized may differ from our estimates . in future periods , changes in facts , circumstances , and new information may require us to change the recognition and measurement estimates with regard to individual tax positions . changes in recognition and measurement estimates are recorded in the consolidated financial statements in the period in which such changes occur . as of december 31 , 2020 , we had liabilities for unrecognized tax benefits pertaining to uncertain tax positions totaling $ 11 million . customer program costs our businesses routinely incur customer program costs to obtain favorable product placement , to promote sales of products and to maintain competitive pricing . customer program costs and incentives , including rebates and promotion and volume allowances , are accounted for as a reduction in net sales at the time the program is initiated and or the revenue is recognized . the costs include , but are not limited to , volume allowances and rebates , promotional allowances , and cooperative advertising programs . these costs are recorded at the later of the time of sale or the implementation of the program based on management 's best estimates . our estimates are based on historical and projected experience for each type of program or customer . volume allowances are accrued based on our estimates of customer volume achievement and other factors incorporated into customer agreements , such as new products , merchandising support , and customer training . although we believe we can reasonably estimate customer volumes and support and the related customer payments at interim periods , it is possible that actual results could be different from previously estimated amounts . at the end of each year , a significant portion of the actual volume and support activity is known . thus , we do not believe that a material change in the amounts recorded as customer program costs payable is likely . as of december 31 , 2020 , we had $ 44 million accrued as customer rebates . 30 non-gaap financial measures in evaluating our business , we utilize non-gaap financial measures that fall within the meaning of sec regulation g and regulation s-k item 10 ( e ) , which we believe provide users of the financial information with additional meaningful comparison to prior reported results . non-gaap financial measures do not have standardized definitions and are not defined by u.s. gaap . in this annual report on form 10-k , we disclose income attributed to lp before interest expense , provision for income taxes , depreciation and amortization , and exclude stock-based compensation expense , loss on impairment attributed to lp , product-line discontinuance charges , other operating credits and charges , net , loss on early debt extinguishment , investment income , and other non-operating items as adjusted ebitda ( adjusted ebitda ) which is a non-gaap financial measure . we have included adjusted ebitda in this report because we view it as an important supplemental measure of our performance and believe that it is frequently used by interested persons in the evaluation of companies that have different financing and capital structures and or tax rates . we also disclose income attributed to lp , excluding loss on impairment attributed to lp , product-line discontinuance charges , interest expense outside of normal operations , other operating credits and charges , net , loss on early debt extinguishment , gain ( loss ) on acquisition , and adjusts for a normalized tax rate as adjusted income ( adjusted income ) . we also disclose adjusted diluted eps , calculated as adjusted income divided by diluted shares outstanding . we believe that adjusted diluted eps and adjusted income are useful measures for evaluating our ability to generate earnings and that providing this measure should allow interested persons to more readily compare the earnings for past and future periods . neither adjusted ebitda , adjusted income , nor adjusted diluted eps is a substitute for the u.s. gaap measure of net income or for any other u.s. gaap measures of operating performance . it should be noted that other companies may present similarly-titled measures differently and therefore , as presented by us , these measures may not be comparable to similarly-titled measures reported by other companies .
| our operating results our results of operations for each of our segments are discussed below , as are results of operations for the “ other ” category , which comprises other products that are not individually significant . see note 20 of the notes to the consolidated financial statements included in item 8 of this annual report on form 10-k for further information regarding our segments . siding the siding segment serves diverse end markets with a broad product offering including lp ® smartside ® trim & siding , lp ® smartside ® expertfinish ® prefinished siding , and lp outdoor building solutions ® products for premium outdoor buildings . our smartside products consist of a full line of engineered wood siding , trim , soffit , and fascia . our lp canexel ® prefinished siding was reclassified from siding to our other segment during the year ended december 31 , 2020. all prior periods presented have been adjusted for comparability . segment net sales , adjusted ebitda , and adjusted ebitda margin for this segment were as follows : replace_table_token_8_th 33 net sales in this segment by product line were as follows : replace_table_token_9_th percent changes in average net sales price and unit shipments were as follows : 2020 versus 2019 average selling price unit shipments smartside 2 % 13 % year ended december 31 , 2020 , compared to year ended december 31 , 2019 siding net sales increased by $ 42 million ( or five percent ) compared to 2019 , primarily due to smartside revenue growth of $ 118 million , or 15 % ( 13 % volume of unit shipments , two percent average net sales price ) .
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for purposes of calculating diluted eps , net income is adjusted for the after-tax amount of interest and deferred financing costs associated with our convertible debt , and the denominator reflects the potential dilution that could occur if stock options , story_separator_special_tag ( amounts in thousands , except per share data ) in addition to historical information , this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements . we encourage you to review the risks and uncertainties , discussed in the section entitled item 1a risk factors , and the note regarding forward-looking statements , included at the beginning of this form 10-k. the risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements or implied in historical results and trends . the following discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this form 10-k. overview we are a biopharmaceutical company engaged in the discovery , development and commercialization of biologic therapeutic products aimed at treating patients with severe and life-threatening disease states , including those in the therapeutic areas of hematology , nephrology including transplant rejection , neurology , ophthalmology and cancer . our marketed product soliris ® ( eculizumab ) is the first and only therapy approved for the treatment of patients with paroxysmal nocturnal hemoglobinuria ( pnh ) , an ultra-rare and life-threatening blood disorder . we were incorporated in 1992 and began commercial sale of soliris in 2007. soliris is designed to inhibit a specific aspect of the complement component of the immune system and thereby treat inflammation associated with chronic disorders in the therapeutic areas of hematology , nephrology including transplant rejection , neurology and ophthalmology . soliris is a humanized monoclonal antibody that generally blocks complement activity for one to two weeks after a single dose at the doses currently prescribed . the initial indication for which we received approval for soliris is pnh . pnh is an ultra-rare , debilitating and life-threatening , acquired genetic deficiency blood disorder defined by uncontrolled complement activation leading to the destruction of red blood cells , or hemolysis . the chronic hemolysis in patients with pnh may be associated with life-threatening thromboses , recurrent pain , kidney disease , disabling fatigue , impaired quality of life , severe anemia , pulmonary hypertension , shortness of breath and intermittent episodes of dark-colored urine ( hemoglobinuria ) . soliris was approved by the u.s. food and drug administration ( fda ) and the european commission ( e.c . ) in 2007 , by japan 's ministry of health , labour and welfare ( mhlw ) in 2010 and has been approved in several other territories . additionally , soliris was granted orphan drug designation for the treatment of pnh in the united states , europe , japan and several other territories . in 2009 , the fda and e.c . granted soliris orphan drug designation for the treatment of patients with atypical hemolytic uremic syndrome ( ahus ) , an ultra-rare , inherited and life-threatening complement-inhibitor deficiency disease that often progresses to end-stage kidney disease , kidney failure or death . critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , business overview and summary of significant accounting policies . under accounting principles generally accepted in the united states , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition 43 contingent liabilities inventories research and development expenses share-based compensation income taxes revenue recognition net product sales our principal source of revenue is product sales . we have applied the following principles in recognizing revenue : to date , our product sales have consisted solely of soliris . we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured and we have no further performance obligations . revenue is recorded upon receipt of the product by the end customer , which is typically a hospital , physician 's office , private or government pharmacy or other health care facility . amounts collected from customers and remitted to governmental authorities , such as value-added taxes ( vat ) in foreign jurisdictions , are presented on a net basis in the company 's statements of operations and do not impact net product sales . in the united states , our customers are primarily specialty distributors and specialty pharmacies which supply physician office clinics , hospital outpatient clinics , infusion clinics or home health care providers . we also sell soliris to government agencies . outside the united states , our customers are primarily hospitals , hospital buying groups , pharmacies , other health care providers and distributors . in addition to sales in countries where soliris is commercially available , we have also recorded revenue on sales for individual patients through named-patient programs . the relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where soliris has not received final approval for commercial sales . because of factors such as the pricing of soliris , the limited number of patients , the short period from sale of product to patient infusion and the lack of contractual return rights , soliris customers generally carry limited inventory . we monitor inventory within our distribution channel to determine whether deferral of sales is required . to date , actual refunds and returns have been negligible . story_separator_special_tag activity levels are monitored through close communication with the cro 's and other clinical trial vendors , including detailed invoice and task completion review , analysis of expenses against budgeted amounts , analysis of work performed against approved contract budgets and payment schedules , and recognition of any changes in scope of the services to be performed . certain cro and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial . the estimates are reviewed and discussed with the cro or vendor as necessary , and are included in research and development expenses for the related period . for clinical study sites , which are paid periodically on a per-subject basis to the institutions performing the clinical study , we accrue an estimated amount based on subject screening and enrollment in each quarter . the estimates may differ from the actual amount subsequently invoiced , which may result in adjustment to research and development expense several months after the related services were performed . share-based compensation we have one share-based compensation plan known as the 2004 incentive plan . under this plan , restricted stock , restricted stock units , stock options and other stock-related awards may be granted to our directors , officers , employees and consultants or advisors of the company or any subsidiary . our estimates of employee stock option values rely on estimates of factors we input into the black-scholes model . the key factors involve an estimate of future uncertain events . significant assumptions include the use of historical volatility to determine the expected stock price volatility . we also estimate expected term until exercise , forfeiture or cancellation , as well as the reduction in the expense from expected forfeitures . we currently use historical exercise and cancellation patterns as our best estimate of future estimated life . actual volatility and lives of options may be significantly different from our estimates . if factors change and we employ different assumptions , the share-based compensation expense that we record in future periods may differ significantly from our prior recorded amounts . income taxes we utilize the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts 46 and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse . we provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized . we follow the authoritative guidance regarding accounting for uncertainty in income taxes , which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . these unrecognized tax benefits relate primarily to issues common among multinational corporations in our industry . we apply a variety of methodologies in making these estimates which include studies performed by independent economists , advice from industry and subject experts , evaluation of public actions taken by the internal revenue service and other taxing authorities , as well as our own industry experience . we provide estimates for unrecognized tax benefits which may be subject to material adjustments until matters are resolved with taxing authorities or statutes expire . if our estimates are not representative of actual outcomes , our results of operations could be materially impacted . in the fourth quarter of 2009 , we reversed the valuation allowance recorded against a substantial portion of our deferred tax assets in the united states , resulting in a tax benefit of $ 215,516. the decision to reverse the valuation allowance was made after management determined that it was more likely than not that these deferred tax assets would be realized . we made the determination after evaluation of our levels of recent profitability , as well as forecasts of future taxable income which impact utilization of tax attributes , primarily net operating losses and research income tax credits . we also reversed the valuation allowance recorded against certain non-u.s. deferred tax assets in the second quarter of 2010 where realization of those assets was now more likely than not . we continue to maintain a valuation allowance against certain other deferred tax assets where the realization is not certain . we periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized . we consider many factors when assessing the likelihood of future realization of deferred tax assets , including our recent cumulative earnings experience by taxing jurisdiction , expectations of future taxable income , carryforward periods available to us for tax reporting purposes , various income tax strategies and other relevant factors . significant judgment is required in making this assessment and , to the extent future expectations change , we would assess the recoverability of our deferred tax assets at that time . if we determine that the deferred tax assets are not realizable in a future period , we would record material changes to income tax expense in that period . 47 story_separator_special_tag style= '' font-family : times new roman '' > increase of $ 6,392 in external clinical development expenses related primarily to an expansion of studies of eculizumab for non-pnh indications , offset by decreases in spending on pnh programs ( see table above ) . increase of $ 1,070 in discovery research was primarily due to external research and consulting fees .
| results of operations the following table sets forth consolidated statements of operations data for the periods indicated . this information has been derived from the consolidated financial statements included elsewhere in this form 10-k. replace_table_token_6_th comparison of the year ended december 31 , 2010 to the year ended december 31 , 2009 revenues revenues by significant geographic region are as follows : replace_table_token_7_th the increase in revenue for fiscal year 2010 versus 2009 was primarily due to an increased number of patients treated with soliris globally . the increase in treated patients was due to additional patients and physicians requesting soliris therapy , as well as reimbursement and price approvals in additional territories , including approvals in japan , included in other above , which impacted sales in the third and fourth quarters of 2010. the increase in revenues was offset by the negative impact of approximately $ 9,277 for the year ended december 31 , 2010 due to changes in foreign currency exchange rates ( inclusive of hedging activity ) , primarily the euro and british pound , compared to usd , versus the year ended december 31 , 2009. we recorded a gain in revenue of $ 8,778 and $ 3,363 related to our foreign currency cash flow hedging program , which is included in revenue from outside the united states , for the years ended december 31 , 2010 and 2009 , respectively . 48 cost of sales cost of sales was $ 64,437 and $ 45,059 , or 12 % of product revenue , for the years ended december 31 , 2010 and 2009 , respectively . cost of sales includes manufacturing costs as well as actual and estimated royalty expenses associated with sales of soliris . on january 26 , 2011 , novartis filed a civil action against alexion pharmaceuticals , inc. and other biopharmaceuticals companies in the u.s. district court for the district of delaware . novartis claims willful infringement by alexion of u.s. patent no .
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additionally , 37.4 million shares of class c common stock related to the ceo award are included in class c common stock on the closing of the ipo . 79 the following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect story_separator_special_tag financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “ financial statements and supplementary data ” of this annual report on form 10-k. in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs that involve significant risks and uncertainties . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to those differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors , ” “ note regarding forward-looking statements , ” and “ note regarding user metrics and other data. ” executive overview of full year 2017 results our key user metrics and financial results for the fiscal year 2017 are as follows : user metrics daily active users , or daus , were 187 million in the fourth quarter of 2017 , compared to 158 million in the fourth quarter of 2016 , an increase of 28.8 million or 18 % year-over-year . average revenue per user , or arpu , was $ 1.53 in the fourth quarter of 2017 , compared to $ 1.05 in the fourth quarter of 2016 , an increase of 46 % year-over-year . financial results revenue was $ 824.9 million , an increase of 104 % year-over-year . total costs and expenses were $ 4.3 billion , an increase of 84 % year-over-year , excluding stock-based compensation expense and related payroll tax expense . loss from operations was $ 3.5 billion . net loss was $ 3.4 billion with diluted loss per share of $ ( 2.95 ) . adjusted ebitda was $ ( 720.1 ) million . cash used in operations was $ 734.7 million and free cash flow was $ ( 819.2 ) million . capital expenditures were $ 84.5 million . cash , cash equivalents , and marketable securities were $ 2.0 billion as of december 31 , 2017. overview snap inc. is a camera company . we believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate . our products empower people to express themselves , live in the moment , learn about the world , and have fun together . our flagship product , snapchat , is a camera application that helps people communicate visually with friends and family through short videos and images called snaps . on average , 187 million people use snapchat daily and create over 3.5 billion snaps every day . 42 trends in user metrics user engagement we define a daily active user as a registered snapchat user who opens the snapchat application at least once during a defined 24-hour period . we measure average daily active users for a particular quarter by calculating the average daily active users for that quarter . we also break out daily active users by geography because certain markets have a greater revenue opportunity and lower bandwidth costs . we had 187 million daus on average across the fourth quarter of 2017 , compared to 158 million in the fourth quarter of 2016 , an increase of 18 % . quarterly average daily active users ( in millions ) 43 ( 1 ) north america includes mexico and the caribbean . ( 2 ) europe includes russia and turkey . monetization we monetize our business primarily through advertising . our advertising products include snap ads and sponsored creative tools like sponsored lenses and sponsored geofilters . while our advertising business is still in its early stages , it has grown rapidly . in the year ended december 31 , 2017 , we recorded revenue of $ 824.9 million compared to revenue of $ 404.5 million for the year ended december 31 , 2016 , a 104 % year-over-year increase . we measure progress in our advertising business using arpu because it helps us understand the rate at which we 're monetizing our daily user base . we define arpu as quarterly revenue divided by the average daily active users . for purposes of calculating arpu , revenue by user geography is apportioned to each region based on a determination of the geographic location in which advertising impressions are delivered , as this approximates revenue based on user activity . this differs from the presentation of our revenue by geography in the notes to our consolidated financial statements , where revenue is based on the billing address of the advertising customer . 44 quarterly average revenue per user ( 1 ) north america includes mexico and the caribbean . ( 2 ) europe includes russia and turkey . arpu was $ 1.53 in the fourth quarter of 2017 , up from $ 1.05 a year ago and $ 1.17 in the third quarter of 2017. in north america , arpu was $ 2.75 , 80 % higher than our global average . we believe north america remains a leading indicator for the scale potential of our business . 45 results of operations components of results of operations revenue we generate substantially all of our revenue through the sale of our advertising products , which include snap ads and sponsored creative tools , and measurement services , referred to as advertising revenue . we sell advertising directly to advertisers , referred to as snap-sold revenue . certain partners that provide content on snapchat , or content partners , also sell directly to advertisers , referred to as partner-sold revenue . we report snap-sold revenue on a gross basis and partner-sold revenue on a net basis . story_separator_special_tag we also made marketing investments during the year ended december 31 , 2016. general and administrative expenses replace_table_token_14_th 2017 compared to 2016 general and administrative expenses for the year ended december 31 , 2017 increased $ 1.4 billion compared to the same period in 2016. the increase was primarily due an increase in stock-based compensation expense of $ 1.2 billion , composed of an award granted to our ceo with an expense of $ 636.6 million and the remainder primarily related to the recognition of expense related to rsus with a performance condition satisfied on the effectiveness of the registration statement for our ipo in march 2017. the increase for the year ended december 31 , 2017 was also driven by increased personnel costs from an increase in general and administrative headcount of approximately 24 % . additionally , there was an increase in professional fees related to increased acquisition activity , legal , and general growth . 2016 compared to 2015 general and administrative expenses for the year ended december 31 , 2016 increased $ 16.6 million , or 11 % , compared to the same period in 2015. the increase was primarily due to increased personnel costs from an increase in general and administrative headcount of approximately 220 % , partially offset by $ 43.6 million of stock-based compensation from the accelerated vesting of modified stock-based compensation awards for certain former employees in 2015. interest income replace_table_token_15_th 2017 compared to 2016 interest income for the year ended december 31 , 2017 increased $ 16.4 million compared to the same period in 2016. the increase was primarily a result of a larger invested balance in marketable securities and higher interest rates on u.s. government-backed securities . 2016 compared to 2015 interest income for the year ended december 31 , 2016 increased $ 3.3 million , or 233 % , compared to the same period in 2015. the increase was primarily a result of a larger invested balance in marketable securities , which returned a higher rate of interest . 51 interest expense replace_table_token_16_th 2017 compared to 2016 interest expense for the year ended december 31 , 2017 was $ 3.5 million , compared to $ 1.4 million in the same period in 2016. interest expense was composed primarily of interest on financing obligations related to a build-to-suit lease placed into service in the third quarter of 2016 and commitment fees and amortization of costs related to our credit facility , which was executed in the third quarter of 2016 . 2016 compared to 2015 interest expense for the year ended december 31 , 2016 was $ 1.4 million , compared to $ 0 in the same period in 2015. interest expense was composed primarily of interest on build-to-suit lease financing obligations placed into service in the third quarter of 2016 and commitment fees and amortization of costs related to our credit facility , which was executed in the third quarter of 2016. other income ( expense ) , net replace_table_token_17_th 2017 compared to 2016 other income , net for the year ended december 31 , 2017 was $ 4.5 million , compared to other expense , net of $ 4.6 million for the same period in 2016. the change from the comparative period was primarily a result of a decrease in our share of losses on equity method investments and an increase in foreign currency transaction gains . 2016 compared to 2015 other expense , net for the year ended december 31 , 2016 was $ 4.6 million . the increase in expense was primarily a result of an increase in our share of losses on equity method investments and an increase in foreign currency transaction losses , partially offset by gains on sales of marketable securities . income tax benefit ( expense ) replace_table_token_18_th 52 2017 compared to 2016 income tax benefit was $ 18.3 million for the year ended december 31 , 2017 compared to $ 7.1 million for the same period in 2016. the income tax benefits in both periods were primarily from the partial releases of valuation allowances against our net deferred tax assets . the valuation allowance releases were the result of net deferred tax liabilities originating from acquisitions that were an available source of income to realize a portion of our deferred tax assets . 2016 compared to 2015 income tax benefit was $ 7.1 million for the year ended december 31 , 2016 , compared to $ 7.6 million for the same period in 2015. the income tax benefits in both periods were primarily from the partial release of a valuation allowance against our net deferred tax assets . the valuation allowance release was the result of net deferred tax liabilities originating from acquisitions that were an available source of income to realize a portion of our deferred tax assets . our effective tax rate differs from the u.s. statutory tax rate primarily due to a valuation allowance on our deferred tax assets as it is more likely than not that some or all of our deferred tax assets will not be realized . on december 22 , 2017 , the tax cuts and jobs act of 2017 , or the tax act , was signed into law making significant changes to the code . changes include , but are not limited to , a corporate tax rate decrease to 21 % effective for tax years beginning after december 31 , 2017. this change in tax rate resulted in a reduction in our net u.s. deferred tax assets before valuation allowance by $ 396.2 million , which was fully offset by a reduction in our valuation allowance .
| discussion of results of operations the following table sets forth our consolidated statements of operations data : replace_table_token_6_th ( 1 ) stock-based compensation and related payroll tax expense included in above line items : 47 replace_table_token_7_th ( 2 ) depreciation and amortization expense included in the above line items : replace_table_token_8_th ( 3 ) see “ selected financial data—non-gaap financial measures ” of this annual report on form 10-k for more information and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated and presented in accordance with gaap . the following table sets forth the components of our consolidated statements of operations data for each of the periods presented as a percentage of revenue : replace_table_token_9_th revenue replace_table_token_10_th 48 2017 compared to 2016 revenue for the year ended december 31 , 2017 increased $ 420.5 million compared to the same period in 2016. the increase in revenue was primarily due to an increase in the number of advertisements delivered . the number of advertisements delivered increased between the periods primarily due to an increase in advertisers and demand across our product offerings , our growing sales efforts , and increased user engagement as measured by an 18 % increase in daus . additionally , there was incremental spend in advertisements sold through our advertising api which launched in november 2016 , allowing advertisers access to additional inventory at a lower price than our direct sales channels . arpu increased due to the growth in revenue as a result of the number of advertisements delivered , which outpaced dau growth during the period .
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the company may make future payments of up to $ 23.6 million contingent upon attainment of various development and regulatory milestones and $ 95.0 million contingent upon attainment of various sales milestones . additionally , the company will story_separator_special_tag some of the statements in this “ management 's discussion and analysis of financial condition and results of operations ” are forward-looking statements . these forward-looking statements are based on management 's beliefs and assumptions and on information currently available to our management and involve significant elements of subjective judgment and analysis . words such as “ may , ” “ will , ” “ should , ” “ could , ” “ would , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ project , ” “ predict , ” “ potential , ” “ seek ” “ target , ” “ goals , ” “ intend , ” variations of such words , and similar expressions are intended to identify forward-looking statements . our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements . factors that might cause such a difference include those discussed under the caption “ special note regarding forward looking statements ” and in “ risk factors ” and elsewhere in this annual report on form 10-k. these and many other factors could affect our future financial and operating results . we undertake no obligation to update any forward-looking statement to reflect events after the date of this annual report on form 10-k. overview we are a clinical-stage pharmaceutical company focused on discovering and developing novel small molecule oncology drugs directed against tumor and immune cell targets that control key metabolic pathways in the tumor microenvironment . tumor metabolism and immuno-oncology have emerged as promising new fields for cancer drug discovery , and recent clinical successes with therapeutic agents in each field have demonstrated the potential to create fundamentally new therapies for cancer patients . we are developing agents that take advantage of the unique metabolic requirements of tumor cells and cancer-fighting immune cells such as cytotoxic t-cells . our lead product candidate , cb-839 , is an internally discovered , first-in-class oral inhibitor of glutaminase , a critical enzyme in tumor cells . we are currently evaluating cb‑839 in multiple phase 1b clinical trials in solid tumors . cb-839 administered as a single agent has resulted in clinical responses in renal cell cancer and acute myeloid leukemia and clinical benefit in several other tumor types . we are currently enrolling patients in a series of combination phase 1b cohorts in specific solid tumor types , and are planning to begin phase 2 trials in renal cell carcinoma and triple negative breast cancer in 2017. our second product candidate , cb‑1158 , is a first-in-class oral inhibitor of arginase , an enzyme that depletes the amino acid arginine , a key metabolic nutrient for t‑cells , and is being co-developed with incyte pharmaceuticals for hematology and oncology indications . cb-1158 is currently being tested alone and in combination with a checkpoint inhibitor in a phase 1/2 clinical trial in patients with solid tumors . we also have ongoing research efforts that are focused on discovering additional product candidates against novel tumor metabolism and immunology targets . our lead product candidate , cb-839 , takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival . cb-839 inhibits glutaminase , an enzyme required by cancer cells to utilize glutamine effectively . in preclinical studies , cb-839 demonstrated broad antitumor activity in tumor cell lines , inhibited the growth of human tumors in animal models and was well tolerated in toxicity studies . cb-839 was also synergistic with several approved , standard of care , cancer therapeutics . we believe cb-839 has the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers , and is the only selective glutaminase inhibitor currently in clinical trials . we currently retain all commercial rights to cb-839 and have been granted a u.s. patent , which includes composition of matter coverage for cb-839 through 2032. cb-839 may also have the potential to work in combination with immuno-oncology ( i-o ) therapeutics . inhibition of glutaminase results in accumulation of glutamine , the substrate of glutaminase , in tumors . glutamine , which is frequently depleted in the tumor microenvironment due to avid uptake by tumor cells , has been shown to be an important nutrient for t-cell proliferation . administration of cb-839 to tumor-bearing animals substantially enhances the anti-tumor activity of checkpoint inhibitors , potentially by restoring the levels of glutamine in the tumor microenvironment and thereby enabling t-cells to proliferate . checkpoint inhibitors , including the approved agents nivolumab ( marketed as opdivo ) and pembrolizumab ( marketed as keytruda ) , are a class of immuno-oncology agents directed against programmed death protein-1 ( pd-1 ) or programmed death ligand-1 ( pd-l1 ) that promote the activation and tumor-killing properties of the patient 's own immune cells , such as cytotoxic t-cells . cb-839 could potentially have multiple mechanisms of action in the treatment of cancer first by starving the tumor cell , and second by facilitating the activation of t-cells in the nutrient-deprived tumor microenvironment . our second product candidate , cb-1158 , is a potent and selective orally bioavailable inhibitor of the enzyme arginase , that was discovered at calithera and is being co-developed with incyte corporation . arginase depletes arginine , a nutrient that is critical for the activation and proliferation of the body 's cancer-fighting immune cells , such as cytotoxic t-cells and natural killer ( nk ) -cells . during normal activation of the immune system , arginase , which is expressed by suppressive myeloid immune cells , plays an important role in halting t-cell proliferation . story_separator_special_tag in order to determine the fair value of our common stock underlying option grants , our boa rd of directors considered , among other things , timely valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provide by the american institute of certified public accountants practice guide , valu ation of privately-held-company equity securities issued as compensation . given the absence of a public trading market for our common stock , our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock , including our stage of development ; progress of our research and development efforts ; the rights , preferences and privileges of our preferred stock relative to those of our common stock ; e quity market conditions affecting comparable public companies and the lack of marketability of our common stock . after the closing of our ipo , our board of directors determines the fair value of each share of underlying common stock based on the closing pr ice of our common stock as reported by the nasdaq select global market on the date of grant . income taxes as of december 31 , 2016 , we had approximately $ 108.8 million and $ 48.0 million , respectively , of federal and state operating loss carryforwards available to reduce future taxable income that will begin to expire in 2030 for federal and state tax purposes . as of december 31 , 2016 , we also had research and development tax credit carryforwards of approximately $ 3.4 million and $ 2.5 million , respectively , for federal and state purposes available to offset future taxable income tax . if not utilized , the federal carryforwards will expire in various amounts beginning in 2030 , and the state credits can be carried forward indefinitely . utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the internal revenue code of 1986 , as amended , and similar state provisions . we have performed an analysis to determine whether an `` ownership change '' has occurred from inception to december 31 , 2014. based on this analysis , management has determined that there was an ownership change . the annual limitation may result in the expiration of net operating losses and credits before utilization , however , we do not believe any of our net operating losses and research and development credits are limited by this potential ownership change . financial operations overview research and development expenses research and development expenses represent costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist primarily of the following : employee-related expenses , which include salaries , benefits and stock-based compensation ; expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of preclinical studies and clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies ; and license fees and milestone payments related to our licensing agreements . 47 the largest component of our total operating expenses has historically been our investment in research and develop ment activities including the clinical development of our product candidates . we allocate to research and development expenses the salaries , benefits , stock-based compensation expense , and indirect costs of our clinical and preclinical programs on a progra m-specific basis , and we include these costs in the program-specific expenses . the following table shows our research and development expenses for 2016 , 2015 , and 2014 : replace_table_token_5_th we expect our research and development expenses will increase during the next few years as we advance our product candidates into and through clinical trials , pursue regulatory approval of our product candidates , which will require a significant investment in contract manufacturing and inventory build-up related costs . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving marketing approval for our product candidates . the probability of success of our product candidates may be affected by numerous factors , including clinical data , competition , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist of personnel costs , allocated expenses and other expenses for outside professional services , including legal , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . allocated expenses consist of facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies . we have incurred and expect to continue to incur additional expenses as a result of operating as a public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , particularly after we cease to be an “ emerging growth company. ” in addition , we have incurred and expect to continue to incur increased expenses associated with being a public company , including additional insurance , investor relations and other increases related to needs for additional human resources and professional services .
| results of operations comparison of the years ended december 31 , 2016 and 2015 replace_table_token_6_th 48 research and development research and development expenses increased $ 4.0 million , or 17 % , from $ 23.7 million for 2015 to $ 27.7 million for 2016. the increase was due to an increase of $ 2.3 million in personnel-related costs primarily as a result of higher headcount , salary increases and stock-based compensation expenses , an increase of $ 1.1 million primarily related to increased preclinical development and manufacturing activities in support of our arginase inhibitors program , and an increase of $ 0.8 million in clinical trial related expenses in connection with our cb-839 and cb-1158 phase 1 clinical trials , partially offset by a decrease of $ 0.2 million related to fees under our licensing arrangements . general and administrative general and administrative expenses increased $ 1.5 million , or 17 % , from $ 9.1 million for 2015 to $ 10.6 million for 2016. the increase was due to an increase of $ 1.2 million in personnel-related costs as a result of higher headcount , salary increases and stock-based compensation expense , $ 0.3 million due to a one-time severance charge related to a former employee , and an increase of $ 0.2 million in professional services costs primarily related to legal costs to support our patent portfolio , partially offset by a decrease of $ 0.2 million for a payment to a third party related to a terminated license arrangement . comparison of the years ended december 31 , 2015 and 2014 replace_table_token_7_th * percentage not meaningful .
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senior unsecured 3.375 % convertible notes on may 28 , 2008 , the company completed a registered offering of $ 172,500 aggregate principal amount of senior unsecured 3.375 % convertible notes due 2038 story_separator_special_tag the following discussion and analysis of our results of operations and financial condition for the fiscal years ended march 31 , 2013 , 2012 , and 2011 , should be read in conjunction with our audited consolidated financial statements and the notes to those statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , opinions , expectations , anticipations and intentions and beliefs . actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors . see cautionary note regarding forward-looking statements , business and risk factors , sections elsewhere in this annual report on form 10-k. in the following discussion and analysis of results of operations and financial condition , certain financial measures may be considered non-gaap financial measures under securities and exchange commission rules . these rules require supplemental explanation and reconciliation , which is provided in this annual report on form 10-k. enersys ' management uses the non-gaap measures , ebitda and adjusted ebitda , in its computation of compliance with loan covenants . these measures , as used by enersys , adjust net earnings determined in accordance with gaap for interest , taxes , depreciation and amortization , and certain charges or credits as permitted by our credit agreements , that were recorded during the periods presented . enersys ' management uses the non-gaap measures , primary working capital and primary working capital percentage ( see definition in overview below ) along with capital expenditures , in its evaluation of business segment cash flow and financial position performance . these non-gaap disclosures have limitations as analytical tools , should not be viewed as a substitute for cash flow or operating earnings determined in accordance with gaap , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . this supplemental presentation should not be construed as an inference that the company 's future results will be unaffected by similar adjustments to operating earnings determined in accordance with gaap . overview we are the global leader in stored energy solutions for industrial applications . we manufacture , market and distribute industrial batteries and related products such as chargers , power equipment and battery accessories , and we provide related after-market and customer-support services for industrial batteries . we market and sell our products globally to over 10,000 customers in more than 100 countries through a network of distributors , independent representatives and our internal sales force . we operate and manage our business in three geographic regions of the worldamericas , emea and asia , as described below . our business is highly decentralized with manufacturing locations throughout the world . more than half of our manufacturing capacity is located outside of the united states , and approximately 60 % of our net sales are generated outside of the united states . the company has three reportable segments based on geographic regions , defined as follows : americas , which includes north and south america , with our segment headquarters in reading , pennsylvania , usa , emea , which includes europe , the middle east and africa , with our segment headquarters in zurich , switzerland , and asia , which includes asia , australia and oceania , with our segment headquarters in singapore . 22 see note 22 to the consolidated financial statements for segment related disclosures . we evaluate segment performance based primarily upon operating earnings , exclusive of highlighted items . highlighted items are those that the company deems are not indicative of ongoing operating results , including those charges that the company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing segment performance . all corporate and centrally incurred costs are allocated to the reportable segments based principally on net sales . we evaluate segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels ( see definition of primary working capital in liquidity and capital resources below ) . our management structure , financial reporting systems , and associated internal controls and procedures , are all consistent with our three geographic segments . we report on a march 31 fiscal year-end . our financial results are largely driven by the following factors : global economic conditions and general cyclical patterns of the industries in which our customers operate ; changes in our selling prices and , in periods when our product costs increase , our ability to raise our selling prices to pass such cost increases through to our customers ; the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity ; the extent to which we can control our fixed and variable costs , including those for our raw materials , manufacturing , distribution and operating activities ; changes in our level of debt and changes in the variable interest rates under our credit facilities ; the mix of earnings in the various tax jurisdictions we operate in and their tax impact on our income tax rates ; and the size and number of acquisitions and our ability to achieve their intended benefits . we have two primary industrial battery product lines : reserve power products and motive power products . story_separator_special_tag the company does not expect to be committed to significant additional restructuring charges in fiscal 2014 related to these actions and expects to complete the program during fiscal 2014. during fiscal 2013 , the company announced further restructurings related to improving the efficiency of its manufacturing operations in emea , primarily consisting of cash expenses for employee severance-related payments and non-cash expenses associated with the write-off of certain fixed assets and inventory . the company estimates that these actions will result in the reduction of approximately 130 employees upon completion . our fiscal 2013 operating results reflect approximately $ 1.3 million of the estimated $ 7.0 million of favorable annualized pre-tax earnings impact of the fiscal 2013 programs . the company expects to be committed to an additional $ 3.0 million of restructuring charges related to these programs during fiscal 2014 , and expects to complete the program during fiscal 2015. during fiscal 2013 , the company announced a restructuring related to the closure of its manufacturing facility located in chaoan , people 's republic of china , in which the company will transfer the manufacturing at that location to its chongqing , people 's republic of china facility to improve operational efficiencies . the company expects to be committed to an additional $ 0.7 million related to the program and expects to complete the program in fiscal 2014. critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts in the consolidated financial statements and accompanying notes . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectability is reasonably assured and pricing is fixed and determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments of the world . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . 25 management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we utilize financial projections , certain cash flow measures , as well as our market capitalization in the determination of the estimated fair value of these assets . with respect to our other long-lived assets other than goodwill and indefinite-lived trademarks , we test for impairment when indicators of impairment are present . an asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount . the impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset . in making future cash flow analyses of goodwill and other long-lived assets , we make assumptions relating to the following : the intended use of assets and the expected future cash flows resulting directly from such use ; industry-specific economic conditions ; competitor activities and regulatory initiatives ; and client and customer preferences and patterns . we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our financial statements . litigation and claims from time to time , the company has been or may be a party to various legal actions and investigations including , among others , employment matters , compliance with government regulations , federal and state employment laws , including wage and hour laws , contractual disputes and other matters , including matters arising in the ordinary course of business . these claims may be brought by , among others , governments , customers , suppliers and employees . management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved , coupled with the material impact on our results of operations that could result from litigation or other claims . in determining legal reserves , management considers , among other issues : interpretation of contractual rights and obligations ; the status of government regulatory initiatives , interpretations and investigations ; the status of settlement negotiations ; prior experience with similar types of claims ; whether there is available insurance coverage ; and advice of outside counsel . 26 environmental loss contingencies accruals for environmental loss contingencies ( i.e. , environmental reserves ) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated .
| overview as we discussed in our overview and current market conditions above , our results have been significantly affected by the economic environment during the past three fiscal years . in periods of increasing revenue , such as in fiscal 2012 and 2011 , operating cash flow was generally reduced by the need for additional primary working capital . in fiscal 2013 , revenue and primary working capital remained relatively flat . we have maintained sufficient lines of credit since the company was formed in 2000 to fund our requirements for primary working capital , capital expenditures , acquisitions , common stock repurchases and other investments . as discussed earlier , we believe that the 2011 credit facility , which consists of a revolving line of credit of $ 350 million expiring in march 2016 , along with other credit lines of $ 148 million and our available cash and cash equivalents of $ 249.3 million as of march 31 , 2013 , will be sufficient for our needs and anticipated growth in the foreseeable future . cash flow and financing activities cash and cash equivalents at march 31 , 2013 , 2012 and 2011 , were $ 249.3 million , $ 160.5 million and $ 108.9 million , respectively . 38 cash provided by operating activities for fiscal 2013 , 2012 and 2011 , was $ 244.4 million , $ 204.2 million and $ 76.5 million , respectively . during fiscal 2013 , cash from operating activities was provided primarily from net earnings of $ 165.0 million , depreciation and amortization of $ 50.5 million and a net source of $ 26.4 million from non-cash interest expense , provision for doubtful accounts , deferred taxes , net gains and settlements on derivatives , stock compensation , asset write-offs related to restructuring and losses on disposal of fixed assets .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included in part i , item 1a of this annual report on form 10-k. overview we are a specialty pharmaceutical company that operates through two business divisions : an acute care division and a revenue-generating cdmo division . each of these divisions are deemed to be reportable segments for financial reporting purposes . our acute care segment is primarily focused on developing innovative products for hospital and related settings . our lead product candidate , iv meloxicam , has successfully completed two pivotal phase iii clinical trials in prescription of post-operative pain . overall we expect to enroll a total of approximately 1,100 patients in our phase iii program . to complete this program , we await final visits for more than 700 patients enrolled following a variety of surgical procedures in our additional safety study of iv meloxicam . assuming we continue to observe a favorable safety profile in the safety study , we anticipate filing an nda , for injectable meloxicam with the fda , in the summer of 2017. our acute care segment has no revenue and our costs consist primarily of expenses incurred in conducting our clinical trials and preclinical studies , acquiring clinical trial materials , regulatory activities and personnel costs . our cdmo segment leverages our formulation expertise to develop and manufacture pharmaceutical products using our proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products . these collaborations result in revenue streams including royalties , profit sharing , research and development and manufacturing , which support continued operations for our cdmo segment and have contributed funds to be used in our research and development and pre-commercialization activities in our acute care segment . we operate a 97,000 square foot , dea licensed manufacturing facility in gainesville , georgia and we currently develop and or manufacture the following key products with our commercial partners : ritalin la® , focalin xr® , verelan pm® , generic verapamil and zohydro er® , as well as development stage products . our cdmo segment 's revenue streams are derived from manufacturing , royalty and profit sharing revenues as well as our research and development of services performed for commercial partners . we have a limited operating history . in addition to revenue generated from our cdmo segment , we have funded our operations to date primarily from proceeds received from public offerings and private placements of convertible preferred stock , convertible notes and common stock . on march 12 , 2014 , we closed our initial public offering , or ipo , in which we sold 4,312,500 shares of common stock for net proceeds of approximately $ 30.3 million . on july 7 , 2015 , we closed a private placement with certain accredited investors in which we sold 1,379,311 shares of common stock at a price per share of $ 11.60 , for net proceeds of approximately $ 14.8 million . on august 19 , 2016 , we closed an underwritten public offering in which we sold 1,986,666 shares of common stock at a price per share of $ 7.50 for net proceeds of approximately $ 13.4 million . on december 16 , 2016 , we closed an underwritten public offering in which we sold 6,670,000 shares of common stock at a price per share of $ 6.00 for net proceeds of approximately $ 36.9 million . as of december 31 , 2016 , we have also sold 1,143,940 shares of common stock under a common stock purchase agreement with aspire capital , llc , or the aspire agreement , for proceeds of approximately $ 7.8 million . the aspire agreement expired in february 2017. we have incurred losses and generated negative cash flows from operations since inception . as of december 31 , 2016 , we had an accumulated deficit of $ 61.3 million . substantially all of our operating losses resulted from costs incurred in connection with our development programs , including our non-clinical and formulation development activities , manufacturing and clinical trials . we have used revenue generated by our cdmo segment primarily to fund operations at our gainesville , georgia manufacturing facility , to make payments under our credit facility and to partially fund our development and pre-commercialization activities of our acute care segment . we believe our cdmo 's revenue will continue to contribute cash for general corporate purposes that may , to some extent , reduce the amount of external capital needed to fund development operations . we expect to incur increasing expenses over the next several years to develop both injectable meloxicam . for iv meloxicam , we plan to complete our phase iii safety trial and prepare for nda submission , as well as continue pre-commercial activities . based upon the availability of additional financial resources , we may also develop and commercialize our other product candidates in our pipeline , including additional proprietary formulations of injectable meloxicam , dex and fado . we expect that annual operating results of operations will fluctuate for the foreseeable future due to several factors . as a result , we expect to continue to incur significant and increasing operating losses for the foreseeable future . 60 on april 10 , 2015 , we completed the gainesville transaction . the gainesville transaction transformed our business through the addition of a revenue-generating business and the increase in our workforce as a result of the addition of the employees at our gainesville , georgia manufacturing facility . the consideration paid consisted of $ 50.0 million cash , a $ 4.0 million working capital adjustment and a seven-year w arrant to purchase 350,000 shares of our common stock at an exercise price of $ 19.46 per share . story_separator_special_tag accordingly , we can not currently estimate with any degree of certainty the amount of time or costs that we will be required to expend in the future on our product candidates to complete current or future clinical or pre-commercial stages prior to their regulatory approval , if such approval is ever granted . as a result of these uncertainties surrounding the timing and outcome of any approvals , we are currently unable to estimate precisely when , if ever , any of our other product candidates will generate revenues and cash flows . we expect our research and development costs to primarily relate to injectable meloxicam for the foreseeable future as we advance this product candidate through the remaining clinical trials in our phase iii program , manufacturing scale-up and other pre-approval activities . we also expect to have expenses as we initiate clinical trials and related work for our other product candidates . we may elect to seek out collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , marketing and finance functions . general and administrative expenses also include professional fees for legal , including patent related expenses , consulting , auditing and tax services , and stock compensation expense . we expect to continue to have greater expenses relating to our operations as a public company , injectable meloxicam pre-commercialization costs , including increased headcount and increased salary , consulting , legal and compliance , accounting , insurance and investor relations costs . we also expect that our patent costs will continue to increase due to the new patents acquired through the gainesville transaction and , in addition , due to the higher annuity fees that will be due on patents that are issued . in addition , if additional formulation technology is developed for our product candidates , patent expenses could increase further . amortization of intangible assets we recognize amortization expense related to the intangible asset for our contract manufacturing relationships on a straight-line basis over an estimated useful life of six years . the intangible asset related to injectable meloxicam represents in-process research and development , which is considered an indefinite-lived intangible asset that is assessed for impairment annually or more frequently if impairment indicators exist . 62 change in fair value of contingent consideration in connection with the acquisition of injectable meloxicam in the gainesville transaction , we are required to pay up to an additional $ 125.0 million in milestone payments ( including , at our election , either ( i ) $ 10 million upon nda filing and $ 30 million upon regulatory approval or ( ii ) an aggregate of $ 45 million upon regulatory approval , as well as net sales milestones ) and royalties on future net product sales of between 10 % and 12 % ( subject to a 30 % reduction when no longer covered by patent ) . the estimated fair value of the initial $ 54.6 million payment obligation was recorded as part of the purchase price for the gainesville transaction . each reporting period , we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or income . change in fair value of warrants we have classified as liabilities certain warrants outstanding which contain a contingent net cash settlement feature , or an anti-dilution provision . the fair value of these warrants are remeasured through settlement or expiration with changes in fair value recognized as a period charge within the statement of operations . interest expense interest expense for the years ended december 31 , 2016 and 2015 was a result of interest expense incurred on our orbimed senior secured term loan and the amortization of the related financing costs . net operating losses and tax carryforwards as of december 31 , 2016 , we had approximately $ 4.2 million of federal net operating loss carryforwards . we also had federal and state research and development tax credit carryforwards of $ 2.8 million available to offset future taxable income . u.s. tax laws limit the time during which these carryforwards may be utilized against future taxes . these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028 , if not utilized . as a result , we may not be able to take full advantage of these carryforwards for federal and state tax purposes . under the tax reform act of 1986 , or the act , the utilization of a corporation 's net operating loss and research and development tax credit carryforwards is limited following a greater than 50 % change in ownership during a three-year period . any unused annual limitation may be carried forward to future years for the balance of the carryforward period . we are currently undergoing an analysis to determine whether or not ownership changes , as defined by the act , have occurred since inception . we preliminarily determined that we have experienced ownership changes , as defined by the act , during the 2008 , 2014 and 2016 tax years as a result of past financings ; accordingly , our ability to utilize the aforementioned carryforwards will be limited . although the carryforwards will be limited , we have determined that none of the net operating losses will expire prior to being utilized as a result of the changes . in addition , state net operating loss carryforwards may be further limited , including pennsylvania , which has a limitation equal to the greater of 30.0 % of taxable income after modifications and apportionment or $ 5,000,000 on state net operating losses utilized in any one year .
| results of operations comparison of the years ended december 31 , 2016 and 2015 replace_table_token_9_th revenue and costs of sales . our revenues were $ 69.3 million and $ 52.0 million and cost of sales were $ 37.2 million and $ 28.1 million for the years ended december 31 , 2016 and 2015 , respectively . the increase of $ 17.3 million in revenue and $ 9.1 million in cost of sales was primarily the result 2016 representing a full year of operation of our cdmo segment , which was only included in approximately nine months of 2015 ( following the closing of the gainesville transaction early in the second quarter of 2015 ) . in 2016 revenues also included $ 2.3 million related to a one-time contractually based manufacturing revenue payment from one of our commercial partners and approximately $ 1.1 million in higher profit-share revenue from another commercial partner 's new customer base . research and development . our research and development expenses were $ 33.3 million and $ 12.3 million for the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 21.0 million and 171 % from december 31 , 2015 , primarily due to an increase of $ 19.5 million in our iv meloxicam clinical expenses and $ 2.5 million in increased salaries and benefits expense due to increased headcount partially offset by a decrease in pre-commercial manufacturing costs and other pipeline clinical expenses . general and administrative . our general and administrative expenses were $ 12.7 million and $ 13.0 million for the years ended december 31 , 2016 and 2015 , respectively , a decrease of $ 0.3 million and 2.3 % from december 31 , 2015 primarily due to lower professional fees ( due to expenses incurred in the 2015 gainesville transaction ) , partially offset by higher headcount and pre-commercialization expenses in 2016. amortization of intangible assets .
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we also have operations which provide financial services to customers through our wholly owned mortgage subsidiary , taylor morrison home funding ( “ tmhf ” ) , and title services through our wholly owned title services subsidiary , inspired title services , llc ( “ inspired title ” ) . our business is organized into multiple homebuilding operating components , and a financial services component , all of which are managed as four reportable segments : east , central , west and financial services , as follows : east atlanta , charlotte , chicago , jacksonville , orlando , raleigh , southwest florida , and tampa central austin , dallas , denver , and houston west bay area , phoenix , sacramento , and southern california financial services tmhf and inspired title 2018 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > as of december 31 , 2018 we recognized an incremental $ 39.3 million warranty charge in our central region . for the year ended december 31 , 2017 , we did not incur or recognize such warranty charge . although we believe we have identified substantially all homes impacted by the repair issue , it is reasonably possible that the estimated liability will change as a result of our evaluation of potential changes in the estimated repair costs and the number of homes impacted . during 2017 , the tax cuts and jobs act legislation was enacted which made comprehensive reforms to the united states tax code , including a decrease to the corporate statutory tax rate from 35 % to 21 % , and a mandatory deemed repatriation tax of foreign earnings at a reduced rate , that may be payable over eight years . our effective tax rate for the year ending december 31 , 2017 includes one-time tax expense charges of $ 57.4 million to account for the lower tax rate impact to our existing 34 deferred tax assets and $ 3.6 million for the mandatory deemed repatriation of foreign earnings related to the sale of our canadian operations in 2015. in addition to the impact of the matters discussed in the risk factors listed in item 1a of this annual report , our future results could differ materially from our historical results due to these changes . non-gaap measures in addition to the results reported in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , we have provided information in this annual report relating to “ adjusted net income , ” “ adjusted earnings per share , ” “ adjusted income before income taxes , ” “ net homebuilding debt to total capitalization ratio , ” and “ adjusted home closings gross margin. ” adjusted net income ( basic and diluted ) and adjusted earnings per common share ( basic and diluted ) reflect the net income available to the company excluding the impact of : significant and unusual transactions , transaction and corporate reorganization expenses , and the tax impact due to such items ; the tax reform impact due to the revaluation of deferred assets and liabilities and due to the mandatory deemed repatriation of foreign earnings ; and resulting adjustments to non-controlling interest . adjusted income before income taxes reflects our income before income taxes excluding the impact of significant and unusual transactions and transaction and corporate reorganization expenses related to our acquisition of av homes and our internal corporate reorganization . adjusted home closings gross margin is calculated based on gaap home closings gross margin ( which is inclusive of capitalized interest ) , excluding impairments ( if any ) , warranty charges ( if any ) and purchase accounting adjustments . we calculate net homebuilding debt to capitalization ratio by dividing ( i ) total debt , less unamortized debt issuance costs and mortgage warehouse borrowings , net of unrestricted cash and cash equivalents , by ( ii ) total capitalization ( the sum of net homebuilding debt and total stockholders ' equity ) . management uses all of these non-gaap measures to evaluate our operational and economic performance and to set targets for performance-based compensation on a consolidated basis to compare to prior years which did not include such items . we believe that adjusted net income , adjusted earnings per share and adjusted income before income taxes are useful for investors in order to allow them to evaluate our operations without the effects of various items we do not believe are characteristic of our ongoing operations or performance and also because each assists both investors and management in analyzing and benchmarking the performance and value of our business . we believe that adjusted home closings gross margin is useful to investors because it allows investors to evaluate the performance of our homebuilding operations without the varying effects of impairment charges , certain warranty charges , and purchase accounting adjustments . we also use the ratio of net homebuilding debt to capitalization as an indicator of overall leverage and to evaluate our performance against other companies in the homebuilding industry . because we use the ratio of net homebuilding debt to capitalization to evaluate our performance against other companies in the homebuilding industry , we believe this measure is also relevant and useful to investors for that reason . these measures are considered non-gaap financial measures and should be considered in addition to , rather than as a substitute for , the comparable u.s. gaap financial measures as a measure of our operating performance . critical accounting policies general the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities at the date of our financial statements . story_separator_special_tag capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales . 36 we assess the recoverability of our land inventory in accordance with the provisions of accounting standards codification ( “ asc ” ) topic 360 , “ property , plant , and equipment . ” we review our real estate inventory for indicators of impairment by community during each reporting period . if indicators of impairment are present for a community , we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows . generally , if the carrying value of the assets exceeds their estimated undiscounted cash flows , then the assets are deemed to be impaired and are recorded at fair value as of the assessment date . our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices , construction costs , sales pace , and other factors . changes in these expectations may lead to a change in the outcome of our impairment analysis , and actual results may also differ from our assumptions . in certain cases , we may elect to cease development and or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve . we refer to such communities as long-term strategic assets . the decision may be based on financial and or operational metrics as determined by us . if we decide to cease development , we will evaluate such project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized . our assessment of the carrying value of our long-term strategic assets typically includes subjective estimates of future performance , including the timing of when development will recommence , the type of product to be offered , and the margin to be realized . in the future , some of these inactive communities may be re-opened while others may be sold . in the ordinary course of business , we enter into various specific performance agreements to acquire lots . real estate not owned under these agreements is reflected in real estate not owned with a corresponding liability in liabilities attributable to real estate not owned in the consolidated balance sheets . insurance costs , self-insurance reserves and warranty reserves we have certain deductible amounts under our workers ' compensation , automobile and general liability insurance policies , and we record expense and liabilities for the estimated costs of potential claims for construction defects . we also generally require our sub-contractors and design professionals to indemnify us and provide evidence of insurance for liabilities arising from their work , subject to certain limitations . beneva indemnity company ( “ beneva ” ) , one of our wholly owned subsidiaries , provides insurance coverage for construction defects discovered up to ten years following the closing of a home , premises operations risk and property coverage . we accrue for the expected costs associated with the deductibles and self-insured amounts under our various insurance policies based on historical claims , estimates for claims incurred but not reported , and potential for recovery of costs from insurance and other sources . the estimates are subject to significant variability due to various factors , such as claim settlement patterns , litigation trends and the length of time in which a construction defect claim might be made after the closing of a home . we offer a limited warranty to cover various defects in workmanship or materials , including structural defects . we may also facilitate a longer warranty in certain markets or to comply with regulatory requirements . warranty reserves are recorded as each home closes in an amount estimated to be adequate to cover expected future costs of materials and outside labor during warranty periods . our warranty is not considered a separate deliverable in each sale arrangement , so it is accounted for in accordance with asc topic 450 , “ contingencies . ” in accordance with asc 450 , warranties that are not separately priced are generally accounted for by accruing the estimated costs to fulfill the warranty obligation . thus , the warranty would not be considered a separate deliverable in the arrangement since it is not priced apart from the home . as a result , we accrue the estimated costs to fulfill the warranty obligation in accordance with asc 450 at the time a home closes , as a component of cost of home closings . our reserves are based on factors that include an actuarial study for historical and anticipated claims , trends related to similar product types , number of home closings , and geographical areas . we also provide third-party warranty coverage on homes where required by federal housing administration or veterans administration lenders . we regularly review the reasonableness and adequacy of our reserves and make adjustments to the balance of the preexisting reserves to reflect changes in trends and historical data as information becomes available . self-insurance and warranty reserves are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets . investments in unconsolidated entities and variable interest entities ( vies ) we are involved in joint ventures with related and unrelated third parties for homebuilding and development activities . we use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee . for unconsolidated entities in which we function as the managing 37 member , we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control .
| highlights and recent developments our financial and operational highlights for the year ended december 31 , 2018 and recent developments subsequent to the year end are summarized below : financial : in january 2018 , we completed our final series of public offerings and repurchases of our class a common stock from tpg and oaktree , resulting in a fully floated public company . on january 26 , 2018 we amended the maturity date of our revolving credit facility from april 2019 to january 2022 allowing incremental financial flexibility . on june 29 , 2018 , we further amended the revolving credit facility to increase the borrowing capacity to $ 600.0 million . we generated $ 4.2 billion in total revenue and $ 4.1 billion in home closings revenue for the year ended december 31 , 2018 , increases of 8.8 % and 8.3 % , respectively , compared to the prior year 's total revenue and home closings revenue . net income before allocation to non-controlling interest and diluted earnings per share for the year ended december 31 , 2018 was $ 210.5 million and $ 1.83 compared to $ 176.7 million and $ 1.47 for the year ended december 31 , 2017. adjusting for the effects of significant and unusual items ( 1 ) , net income before allocation to non-controlling interest and diluted earnings per share for the year ended december 31 , 2018 was $ 305.5 million and $ 2.65 , respectively . on october 2 , 2018 we completed the acquisition of av homes for total consideration of $ 534.9 million . on october 2 , 2018 , we entered into a 364-day credit agreement and borrowed $ 200.0 million to facilitate the acquisition . in addition , we assumed av homes ' senior notes due 2022 in the principal amount of $ 400.0 million .
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refer to note 3 , “ discontinued operations , ” for additional information regarding the spin-off . effective in the fourth quarter of 2017 , the company changed its operating segments , which are also the company 's reportable segments , as a result of operational changes to flatten the organization and regionalize our sales approach . prior to the operational changes , the company had one reportable segment , cranes . as a result of the operational changes , which were finalized and implemented in the fourth quarter of 2017 , the business began to be managed on a regional basis . under the regional operating structure , each geographic region is managed separately to better align with the location of the company 's customers and the unique market dynamics of each geographic region . in the fourth quarter of fiscal 2017 , the company identified the americas , euraf , and meap as the reportable segments . the americas operating segment includes the north american and south american continents . the euraf operating segment includes the continents of europe and africa . the meap operating segment includes the asia and australian continents and the middle east region . in management 's discussion and analysis , unless otherwise indicated , references to manitowoc , the company , we and us refer to the manitowoc company , inc. and its consolidated subsidiaries . the following discussion and analysis provides an overview analysis behind our results for 2015 through 2017 and is broken down into three sections . first , we provide an overview of our results of operations for the years 2015 through 2017 on a segment and consolidated basis . next , we discuss our market conditions , liquidity and capital resources , off-balance sheet arrangements and obligations and commitments . finally , we provide a discussion of risk management techniques , contingent liability issues , and critical accounting policies . all dollar amounts , except per share amounts , are in millions of dollars throughout the tables included in management 's discussion and analysis of financial conditions and results of operations unless otherwise indicated . 26 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( 2.0 ) % consolidated net sales decreased 2.0 % in 2017 compared to 2016. the decrease in net sales was primarily due to lower shipments of vpc crawler cranes delivered in 2017 as a significant portion of the america 's backlog entering 2016 was comprised of vpc crawler cranes which had been booked in 2016 and previous years , lower demand for mobile cranes in meap , and lower demand for mobile cranes in euraf . this was partially offset by higher demand for tower cranes in europe . consolidated net sales were also favorably impacted by approximately $ 18.4 million from favorable changes in foreign currency exchange rates . gross profit replace_table_token_9_th gross profit for the year ended december 31 , 2017 increased 11.3 % to $ 281.9 million compared to $ 253.3 million for the year ended december 31 , 2016. this change was attributable primarily to manufacturing cost reduction initiatives such as the consolidation of the manitowoc , wi facility into the shady grove , pa facility . as a result of these cost reductions , the gross profit percentage increased in 2017 to 17.8 % from 15.7 % in 2016. engineering , selling and administrative expenses ( in millions ) 2017 2016 change engineering , selling and administrative expenses $ 252.6 $ 280.7 ( 10.0 ) % es & a expenses for the year ended december 31 , 2017 decreased $ 28.1 million to $ 252.6 million . this change was driven primarily by decreases in wages and benefits due to headcount reductions and discretionary cost controls , partially offset by higher short-term incentive compensation costs . 29 asset impairment expense ( in millions ) 2017 2016 change asset impairment expense $ 0.1 $ 96.9 * * measure not meaningful asset impairment expense for the year ended december 31 , 2017 was $ 0.1 million compared to $ 96.9 million for the year ended december 31 , 2016. in the third quarter of 2016 , the company recorded $ 96.9 million in asset impairment expense . in conjunction with the decision to close the manitowoc , wisconsin facility , it permanently suspended implementation of its sap enterprise resource planning ( “ erp ” ) platform and recorded a write-off of $ 58.6 million related to sap construction-in-progress and $ 18.6 million related to sap and other information technology assets . this amount also included a $ 13.8 million write-down to fair value of the company 's fixed assets at the manitowoc , wisconsin manufacturing facility . restructuring expense ( in millions ) 2017 2016 change restructuring expense $ 27.2 $ 23.4 16.2 % restructuring expense for the year ended december 31 , 2017 totaled $ 27.2 million compared to $ 23.4 million in 2016. these costs related primarily to employee termination benefits associated with workforce reductions . the workforce reductions in 2017 and 2016 are part of ongoing manufacturing and operations rationalization programs in the u.s. and europe . during 2017 , the company completed the relocation of its crawler crane manufacturing operations located in manitowoc , wisconsin to shady grove , pennsylvania . see further detail at note 19 , “ restructuring. ” interest expense & amortization of deferred financing fees replace_table_token_10_th interest expense for the year ended december 31 , 2017 totaled $ 39.2 million versus $ 39.6 million for the year ended december 31 , 2016. the decrease in interest expense of $ 0.4 million for the year ended december 31 , 2017 compared to the prior year was caused by a lower average debt balance in 2017 as compared to the prior year , partly offset by a higher average interest rate . story_separator_special_tag the workforce reductions in 2016 were part of the manufacturing and operations rationalization programs , including the consolidation of the company 's manufacturing facilities in manitowoc , wisconsin into its shady grove , pennsylvania facility . additionally , restructuring expense in the twelve months ended december 31 , 2016 , and december 31 , 2015 included $ 2.3 million and $ 3.5 million , respectively , of expense related to executive severance . see further detail at note 19 , “ restructuring. ” 32 interest expense & amortization of deferred financing fees replace_table_token_13_th interest expense for the year ended december 31 , 2016 totaled $ 39.6 million versus $ 95.6 million for the year ended december 31 , 2015. the decrease in interest expense of $ 56.0 million for the year ended december 31 , 2016 compared to the prior year was the result of lower average debt balance due to debt restructuring as part of the spin-off . amortization expense for deferred financing fees was $ 2.2 million for the year ended december 31 , 2016 as compared to $ 4.2 million in 2015. the decrease in amortization expense for deferred financing fees was related to the lower balance of deferred financing fees as a result of the redemption of certain prior notes during the spin-off . see further detail at note 10 , “ debt. ” loss on debt extinguishment ( in millions ) 2016 2015 change loss on debt extinguishment $ 76.3 $ 0.2 * * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2016 totaled $ 76.3 million , compared to $ 0.2 million in 2015. the loss on debt extinguishment for 2016 consisted of : $ 31.5 million related to the march 3 , 2016 redemption of the prior 2020 notes , which included $ 24.6 million related to the redemption premium and $ 6.9 million related to the write-off of deferred financing fees ; $ 34.6 million on the redemption of the prior 2022 notes , comprised of $ 31.2 million related to the redemption premium and $ 3.4 million related to the write-off of deferred financing fees ; $ 5.9 million on the termination of the prior senior credit facility as a result of the write-off of deferred financing expenses ; and $ 4.3 million loss on the termination of interest rate swaps related to the prior senior credit facility . other income ( expense ) – net ( in millions ) 2016 2015 change other income - net $ 3.3 $ 1.4 * * measure not meaningful other income - net for the year ended december 31 , 2016 was $ 3.3 million compared to other income - net of $ 1.4 million for the prior year . the change primarily relates to foreign currency exchange remeasurement . income taxes replace_table_token_14_th * measure not meaningful due to the company 's historic losses and full valuation allowances , the effective annual tax rate is not a meaningful measure of the company 's cash tax position or performance of the business . the 2016 effective tax rate was impacted by the establishment of valuation allowance reserves against the company 's deferred tax assets in several jurisdictions , most notably the united states , as these jurisdictions moved to cumulative three-year loss positions during the year . see further detail at note 12 , “ income taxes. ” 33 ( loss ) income from discontinued operations ( in millions ) 2016 2015 change ( loss ) income from discontinued operations $ ( 7.2 ) $ 135.4 * * measure not meaningful the results from discontinued operations was a loss of $ 7.2 million and income of $ 135.4 million , net of income taxes , for the years ended december 31 , 2016 and 2015 , respectively . the activity from discontinued operations in 2016 and 2015 are primarily the result of the spin-off of the foodservice business . see additional discussion at note 3 , “ discontinued operations. ” non-gaap measures the company uses ebitda , adjusted ebitda and adjusted operating loss , which are financial measures that are not prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , as additional metrics to evaluate the company 's performance . the company defines ebitda as earnings before interest , taxes , depreciation and amortization . the company defines adjusted ebitda as ebitda plus the addback of restructuring expense , asset impairment expense and other ( expense ) income - net . the company defines adjusted operating income ( loss ) as adjusted ebitda excluding the addback of depreciation . the company believes these non-gaap measures provide important supplemental information to readers regarding business trends that can be used in evaluating its results of operations because these financial measures provide a consistent method of comparing financial performance and are commonly used by investors to assess performance . these non-gaap financial measures should be considered together with the gaap financial information provided herein . the company 's adjusted ebitda and adjusted operating income for the year ended december 31 , 2017 was $ 67.4 million and $ 29.3 million , respectively . the reconciliation of gaap net income ( loss ) to ebitda , and further to adjusted ebitda , adjusted operating ( loss ) income and gaap operating income ( loss ) is as follows ( in millions ) : replace_table_token_15_th ( 1 ) other expense ( income ) - net includes loss on debt extinguishment , other ( expense ) income and other ( expense ) income - net . covenant compliant ebitda was $ 76.3 million as of december 31 , 2017 on a trailing twelve month basis , as defined by the abl revolving credit facility . the calculation of covenant compliant ebitda has certain limitations and restrictions on addbacks and has been included for informational purposes only .
| results of consolidated operations replace_table_token_5_th 27 segment operating performance the company manages its business primarily on a geographic basis . the company 's reportable operating segments consist of the americas , euraf , and meap . further information regarding the company 's reportable segments can be found in note 16 , “ segments , ” to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. americas replace_table_token_6_th americas net sales decreased 5.8 % in 2017 to $ 693.6 million from $ 736.3 million in 2016. this change was primarily due to lower shipments of variable position counterweight ( “ vpc ” ) crawler cranes delivered in 2017 as a significant portion of the america 's backlog entering 2016 was comprised of vpc crawler cranes which had been booked in 2016 and previous years . the vast majority of this backlog was shipped and recognized as revenue in the first half of 2016. this was partially offset by higher shipments of other mobile and tower products in 2017. americas net sales were also favorably impacted by approximately $ .4 million from favorable changes in foreign currency exchange rates . americas operating income increased 118.3 % in 2017 to $ 6.8 million from a loss of $ 37.1 million in 2016. this change was primarily due to lower engineering , selling and administrative ( “ es & a ” ) costs of $ 18.4 million as a result of headcount reductions during the latter half of 2016 and early 2017 and asset impairment charges of $ 14.6 million in 2016 related to the closure of the manitowoc , wisconsin manufacturing location , which did not reoccur in 2017. this was partially offset by lower net sales year over year as discussed above .
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principal commercial applications include : i ) user authentication for login and access to mobile devices , computers , networks , and software programs ; ii ) user authentication for financial transactions and purchases ( online and in-person ) ; iii ) physical access control to buildings , and iv ) screening and background checks of prospective employees and customers . we sell our software and services globally through systems integrators and oems , and directly to end user customers . we also derive a portion of our revenue from the sale of imaging software licenses to oems and systems integrators that incorporate our software into medical imaging products and medical systems . effective january 1 , 2018 , we adopted financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) , topic 606 , revenue from contracts with customers ( “ asc 606 ” ) , using the full retrospective transition method . adoption of the standard using the full retrospective method required us to restate certain previously reported results . refer to note 2 – recently adopted accounting pronouncements for further information on the impacts of adopting asc 606 . 24 story_separator_special_tag flows from this business . royalties decreased 100 % from $ 0.1 million in 2017 to zero in 2018. as a percentage of total revenue , royalties decreased from 1 % in 2017 to zero in 2018. the royalty dollar decrease in 2018 was primarily due to no dsl royalties from both of our licensees . one of our royalty customers reported no royalties in 2018 and the other customer completed its royalty obligation in 2017. we do not consider dsl royalties to be a key element of our business and we believe that it is unlikely we will receive dsl royalties in future periods . cost of software licenses cost of software licenses consists primarily of the cost of third party software included in certain software products delivered to the u.s. marine corps ( “ usmc ” ) and u.s. navy ( the “ navy ” ) . cost of software licenses decreased 93 % from $ 274,000 in 2017 to $ 20,000 in 2018. cost of software licenses as a percentage of software license sales decreased from 3 % in 2017 to less than 1 % in 2018. the dollar decrease in cost of software licenses was primarily due to no sales of software to the usmc and to lower sales of software to the navy that included third party software . cost of services cost of services consists of engineering costs to perform customer services projects . such costs primarily include : i ) engineering salaries , stock-based compensation , fringe benefits , and facilities ; and ii ) engineering consultants and contractors . cost of services increased 103 % from $ 601,000 in 2017 to $ 1.2 million in 2018. cost of services as a percentage of services revenue decreased from 48 % in 2017 to 45 % in 2018 , which means that gross margins increased from 52 % to 55 % . the dollar increase in cost of services was primarily due to a large project with a systems integrator that we signed in the second quarter of 2018. the increase was partially offset by lower services revenue from our other customers . we anticipate further cost of services from this project over the next two to three quarters . gross margins on services of 55 % , and 52 % , in 2018 , and 2017 , respectively , were a function of : i ) the nature of the projects ; ii ) the level of engineering difficulty and labor hours required to complete project tasks ; and iii ) how much we were able to charge . gross margins in these years reflect the profitability mix of customer projects . we expect that gross margins on services will continue to fluctuate in future periods based on the nature , complexity , and pricing of future projects . 26 research and development expense research and development expense consists of costs for : i ) engineering personnel , including salaries , stock-based compensation , fringe benefits , and facilities ; ii ) engineering consultants and contractors , and iii ) other engineering expenses such as supplies , equipment depreciation , dues and memberships and travel . engineering costs incurred to develop our technology and products are classified as research and development expense . as described in the cost of services section , engineering costs incurred to provide engineering services for customer projects are classified as cost of services , and are not included in research and development expense . the classification of total engineering costs to research and development expense and cost of services was ( in thousands ) : replace_table_token_2_th research and development expense decreased 9 % from $ 7.8 million in 2017 to $ 7.1 million in 2018. as a percentage of total revenue , research and development expense decreased from 50 % in 2017 to 44 % in 2018. the decrease in research and development expense was primarily due to the reallocation of engineers from internal development projects to customer services projects . as the table above indicates , total engineering costs decreased by $ 45,000 in 2018 as compared to 2017. the spending decrease was primarily due to lower spending on third-party development costs , which were partially offset by higher employee costs . our engineering headcount increased by two in 2018. we believe our engineering organization was adequately staffed as of december 31 , 2018. as we described in the strategy section in part 1 of this form 10-k , we intend to introduce new products that will allow us to offer more complete biometrics solutions . we believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue . our preference is to develop such products internally , however to the extent we are unable to do that , we may purchase or license technologies from third parties . story_separator_special_tag income tax expense for 2017 was based on : i ) the u.s. statutory rate of 34 % , ii ) increased by the impact of the federal rate change on deferred tax assets due to enactment of the tax cuts and jobs act , iii ) increased by state income taxes ; and iv ) reduced by permanent adjustments and research tax credits . in the year ended december 31 , 2017 , as a result of the adoption of asu 2016-09 , that was effective on january 1 , 2017 , we recognized all excess tax benefits and tax deficiencies as income tax expense or benefit . on december 22 , 2017 , the president of the united states signed into law the tax cuts and jobs act . this legislation makes significant change in u.s. tax law including a reduction in the corporate tax rates , changes to net operating loss carryforwards and carrybacks , and a repeal of the corporate alternative minimum tax . the legislation reduced the u.s. corporate tax rate from the current rate of 34 % to 21 % . as a result of the enacted law , we were required to revalue deferred tax assets and liabilities at the enacted rate . this revaluation resulted in a provision of $ 0.4 million to income tax expense and a corresponding reduction in the deferred tax assets . liquidity and capital resources in recent years , we have financed the company with our cash balances , cash generated from operations , and cash received from the sale of patent assets . equity financing has not been a meaningful source of financing for us in recent years . cash flows from operating , investing and financing activities are described below . cash flow from operating activities in the years ended december 31 , 2018 , and 2017 , our operating activities provided net cash of $ 0.7 million , and $ 3.7 million , respectively . a discussion of cash flow from operating activities for each of the last two years follows : year ended december 31 , 2018. cash provided by operating activities was $ 0.7 million in 2018. cash provided by operations was primarily the result of $ 1.2 million of net income and the add back of $ 1.0 million of non-cash items for depreciation , amortization and stock-based compensation . cash from these sources was partially offset by $ 1.5 million of changes in assets and liabilities . year ended december 31 , 2017. cash provided by operating activities was $ 3.7 million in 2017. cash provided by operations was primarily the result of $ 1.0 million of net income and the add back of $ 1.2 million of non-cash items for depreciation , amortization and stock-based compensation . cash provided by operating activities also included $ 1.5 million of cash from changes in assets and liabilities . cash flow from investing activities in the year ended december 31 , 2018 , our investing activities used net cash of $ 0.2 million . in the year ended december 31 , 2017 , our investing activities provided net cash of $ 0.9 million . a discussion of cash flow from investing activities for each of the last two years follows : year ended december 31 , 2018. cash used by investing activities of $ 0.2 million in 2018 consisted of purchases of property and equipment . year ended december 31 , 2017. cash provided by investing activities of $ 0.9 million in 2017 was primarily the result of $ 1.0 million of proceeds from the sale of investments , which was partially offset by $ 0.1 million of purchases of property and equipment . we have no material commitments for capital expenditures . cash flow from financing activities in the years ended december 31 , 2018 and 2017 , our financing activities used net cash of $ 0.5 million and $ 4.9 million , respectively . a discussion of cash flow from financing activities for each of the last three years follows : 29 year ended december 31 , 2018. cash used in financing activities was $ 0.5 million in 2018. financing activity cash usage was primarily the result of $ 392,000 used to buy back stock under our stock repurchase program and $ 107,000 used to pay income taxes for employees who surrendered shares in connection with stock grants . cash used for these purposes was partially offset by $ 50,000 of cash received from the issuance of stock under our espp program . year ended december 31 , 2017. cash used in financing activities was $ 4.9 million in 2017. financing activity cash usage was primarily the result of $ 4.8 million used to buy back stock under our stock repurchase program and $ 186,000 used to pay income taxes for employees who surrendered shares in connection with stock grants . cash used for these purposes was partially offset by $ 74,000 of cash received from the issuance of stock under our espp program and stock option exercises . at december 31 , 2018 , we had cash and cash equivalents of $ 51.6 million . while we can not assure you that we will not require additional financing , or that such financing will be available to us , we believe that our cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months from the filing date . to date , inflation has not had a material impact on our financial results . there can be no assurance , however , that inflation will not adversely affect our financial results in the future . off-balance sheet arrangements we do not currently have any arrangements with unconsolidated entities , such as entities often referred to as structured finance , special purpose entities , or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes .
| summary of financial results we used revenue and operating income to summarize financial results over the past two years as we believe these measurements are the most meaningful way to understand our operating performance . 2018 compared to 2017 revenue and operating income in 2018 were $ 16.1 million and $ 0.4 million , respectively , which compared to revenue and operating income in 2017 of $ 15.5 million and $ 1.1 million , respectively . higher revenue in 2018 as compared to 2017 was primarily due to higher biometrics license , maintenance and services revenue . this was partially offset by lower imaging license revenue . lower operating income in 2018 as compared to 2017 was primarily due to lower income from a patent arrangement that was partially offset by : i ) higher revenue in 2018 ; and ii ) lower total costs and expenses in 2018. software licenses software licenses consist of revenue from the sale of biometrics and imaging software products . sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners . software license revenue decreased 12 % from $ 9.1 million in 2017 to $ 8.0 million in 2018. as a percentage of total revenue , software license revenue decreased from 59 % in 2017 to 50 % in 2018. the $ 1.1 million decrease in software license revenue was primarily due to a $ 2.3 million decrease in imaging software license sales that was partially offset by $ 1.2 million increase in biometrics software license sales .
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in testing for impairment story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , the notes thereto , and the comparative summary of selected financial data appearing elsewhere in this report . overview we are a fully integrated , self-administered , publicly-traded reit specializing in the ownership , management , development and redevelopment of community shopping centers . most of our properties are multi-anchored by supermarkets and or national chain stores . our primary business is managing and leasing space to tenants in the shopping centers we own . we also manage certain centers for our unconsolidated joint ventures for which we charge fees . our credit risk , therefore , is concentrated in the retail industry . at december 31 , 2017 , we owned and managed , either directly or through our interest in real estate joint ventures , a total of 59 shopping centers , with approximately 14.3 million square feet of gross leasable area owned by us and our joint ventures . we also own various parcels of land available for development or for sale , the majority of which are adjacent to certain of our existing developed properties . our portfolio consists of town center and urban-infill neighborhood and power center properties that include national chain store tenants , market leading supermarket tenants , as well as a strong-line-up of smaller national retailers to optimize the overall merchandise mix . our centers also include entertainment components , including theaters , fitness centers and restaurants , which , in addition to supermarkets , are daily drivers of consumer traffic at our properties . national chain anchor tenants in our centers include , among others , tj maxx/marshalls , bed bath and beyond , dick 's sporting goods , and home depot . supermarket anchor tenants in our centers include , among others , publix super market , whole foods , kroger , aldi , and sprouts . theater , fitness and restaurant tenants include , among others , regal cinema , la fitness , starbucks , panera , and rusty bucket . our shopping centers are primarily located in key growth markets in the 40 largest metropolitan markets in the united states such as metro detroit , southeast florida , greater denver , cincinnati , st. louis , jacksonville , tampa/lakeland , milwaukee , chicago , atlanta , and minneapolis-st. paul . our focus on these markets has enabled us to develop a thorough understanding of their unique characteristics and potentially take advantage of additional acquisition opportunities in these markets . our consolidated portfolio was 93.3 % leased at december 31 , 2017 as compared to 94.4 % at december 31 , 2016. the decline in leased occupancy is primarily a result of the gander mountain , mc sporting goods and rue21 bankruptcies . hurricane irma in september 2017 hurricane irma made landfall in florida where several of our shopping centers are located . certain of these centers incurred minimal damage , primarily to rooftops , signage and landscaping , as a result of high winds . overall , repair costs were less than $ 0.4 million which were partially offset by recovery income in accordance with our current tenant recovery rates . no centers incurred repairs that exceeded our insurance deductible . critical accounting policies management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require our most subjective judgment and use of estimates in the preparation of our consolidated financial statements . revenue recognition and accounts receivable most of our leases contain non-contingent rent escalations for which we recognize income on a straight-line basis over the non-cancelable lease term . this method results in rental income in the early years of a lease being higher than actual cash received , creating a straight-line rent receivable asset which is included in the “ other assets ” line item in our consolidated balance sheets . we review our unbilled straight-line rent receivable balance to determine the future collectability of revenue that will not be billed to 27 or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . an allowance to write down the straight-line receivable balance is taken in the period that future collectability is uncertain . additionally , we provide for bad debt expense based upon the allowance method of accounting . we continuously monitor the collectability of our accounts receivable from specific tenants , analyze historical bad debts , customer creditworthiness , current economic trends and changes in tenant payment terms when evaluating the adequacy of the allowance for bad debts . allowances are taken for those balances that we have reason to believe will be uncollectible . for more information refer to note 1 organization and summary of significant accounting policies , revenue recognition and accounts receivable subtopics of the notes to the consolidated financial statements . acquisitions acquisitions of properties are accounted for utilizing the acquisition method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements policy , which are used to allocate the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , identifiable intangibles and any gain on purchase . story_separator_special_tag loss on extinguishment of debt of approximately $ 1.3 million in 2016 resulted from a $ 0.9 million loss upon the conveyance of our aquia office property to the lender and a $ 0.4 million cash prepayment penalty on a mortgage payoff in 2016 with an original maturity of april 2017 in order to issue unsecured long term financing at a lower interest rate . the gain of $ 1.4 million in 2015 related to the write-off of debt premiums associated with the early payoff of corresponding debt . liquidity and capital resources our primary uses of capital include principal and interest payments on our outstanding indebtedness , recurring capital expenditures such as tenant improvements , leasing commissions , improvements made to individual properties , shareholder dividends , redevelopments , operating expenses of our business , debt maturities , acquisitions and developments . we generally strive to cover our principal and interest payments , operating expenses , shareholder distributions , and recurring capital expenditures from cash flow from operations , although from time to time we may borrow or sell assets to finance a portion of those uses . we believe the combination of cash flow from operations , cash balances , available borrowings under our unsecured credit facility , issuance of long-term debt , property dispositions , and issuance of equity securities will provide adequate capital resources to fund all of our expected uses over at least the next 12 months . although we believe that the combination of factors discussed above will provide sufficient liquidity , no such assurance can be given . we believe our current capital structure provides us with the financial flexibility to fund our current capital needs . we intend to continue to enhance our financial and operational flexibility by extending the duration of our debt , appropriately ladder our debt maturities and further expand our unencumbered asset base . in addition , we believe we have access to multiple forms of capital which includes unsecured corporate debt , preferred and common equity including our at-the-market equity program we have in place . 31 at december 31 , 2017 and 2016 , we had $ 12.9 million and $ 14.7 million , respectively , in cash and cash equivalents and restricted cash . restricted cash was comprised primarily of funds held in escrow by lenders to pay real estate taxes , insurance premiums and certain capital expenditures , in addition to deposits on potential future acquisitions . in the fourth quarter of 2017 we repaid $ 36.3 million of mortgage debt originally scheduled to mature in early 2018. as of december 31 , 2017 we had no debt maturing in 2018. as of december 31 , 2017 we had $ 318.7 million available to be drawn on our $ 350.0 million unsecured revolving credit facility subject to our compliance with certain covenants . our long-term liquidity needs consist primarily of funds necessary to pay indebtedness at maturity , potential acquisitions of properties , redevelopment of existing properties , the development of land and non-recurring capital expenditures . we continually search for investment opportunities that may require additional capital and or liquidity , which will afford us the opportunity to significantly increase our return on total investment . we will continue to pursue the strategy of selling mature properties or non-core assets that no longer meet our investment criteria . our ability to obtain acceptable selling prices and satisfactory terms and financing will impact the timing of future sales . we anticipate using net proceeds from the sale of properties to reduce outstanding debt and support current and future growth initiatives . to the extent that asset sales are not sufficient to meet our long-term liquidity needs , we expect to meet such needs by incurring debt or issuing equity . the following is a summary of our cash flow activities : replace_table_token_14_th operating activities net cash flow provided by operating activities increased $ 0.3 million in 2017 compared to 2016 primarily due to the following : operating income , adjusted for non-cash activity , increased $ 0.5 million ; net accounts receivable decreased $ 3.8 million ; accounts payable , accrued expenses and other liabilities , and other assets increased approximately $ 2.8 million ; and long-term and share-based compensation expense increased $ 0.9 million . investing activities net cash used in investing activities increased $ 18.1 million compared to 2016 primarily due to : acquisitions of real estate increased $ 152.9 million ; development and capital improvements to real estate decreased $ 8.8 million ; net proceeds from the sale of real estate increased $ 125.5 million ; distributions from sales of joint venture properties decreased $ 1.3 million ; and restricted cash increased $ 1.8 million . in early 2017 we acquired two properties at a combined gross purchase price of $ 164.3 million , net of $ 4.0 million paid in the previous year as deposits and three outparcel acquisitions throughout the year with a combined gross purchase price of $ 1.6 million . in 2016 we acquired one property in the fourth quarter for $ 32.0 million . proceeds of $ 19.0 million from a prior disposal were placed into escrow at closing and subsequently released for the 2016 acquisition under an internal revenue code section 1031 exchange . at december 31 , 2017 , we had six properties under redevelopment or expansion that have an estimated cost of $ 73.7 million , of which $ 33.9 million remains to be invested . completion for these projects is expected over the next year . during 2017 we closed eleven property dispositions , a walgreen 's data center and five outparcel sales with aggregate net selling proceeds of $ 216.5 million . in 2016 we sold six properties and six outparcels with aggregate net selling proceeds of $ 91.0 million . refer to note 4 property acquisitions and dispositions of the notes to the consolidated financial statements for additional information related to dispositions .
| results of operations comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items that have significantly changed during the year ended december 31 , 2017 as compared to 2016 : replace_table_token_12_th total revenue in 2017 increased $ 4.2 million , or 1.6 % from 2016 . the increase is primarily due to the following : $ 17.3 million increase related to acquisitions completed in 2017 and 2016 ; $ 3.1 million increase at existing centers ; offset by $ 14.8 million decrease related to properties sold in 2017 and 2016 ; $ 1.1 million decrease related to disposal of our office building ; and a $ 0.1 million decrease in management and other fee income the $ 3.1 million increase at existing centers was primarily the result of higher minimum rent . recovery income from tenants decreased $ 1.4 million , or 2.2 % , primarily due to lower net recoverable operating expenses and real estate taxes of $ 1.0 million . recoverable operating expense in 2017 decreased $ 1.9 million , or ( 6.5 ) % , from 2016 primarily due to a decrease at existing centers of $ 1.3 million , as a result of lower spending , as well as a net decrease in operating expenses from acquisition and disposition activity of $ 0.6 million .
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discontinued operations : in april 2014 , amended guidance was issued for reporting of discontinued operations and disclosures of disposals of components . the amended guidance raises the threshold for disposals to qualify as discontinued operations and permits significant continuing involvement and continuing cash flows with the discontinued operation . in addition , the amended guidance requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation . the amended guidance is effective for us prospectively commencing in the first quarter of 2016. early adoption is permitted . we story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations , referred to as the financial review , is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the company together with its subsidiaries . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes in item 8 of part ii of this annual report on form 10-k. the company 's fiscal year begins on april 1 and ends on march 31. unless otherwise noted , all references to a particular year shall mean the company 's fiscal year . certain statements in this report constitute forward-looking statements . see item 1 - business - forward-looking statements in part i of this annual report on form 10-k for additional factors relating to these statements ; also see item 1a - risk factors in part i of this annual report on form 10-k for a list of certain risk factors applicable to our business , financial condition and results of operations . we conduct our business through two operating segments : mckesson distribution solutions and mckesson technology solutions . see financial note 25 , “ segments of business , ” to the consolidated financial statements appearing in this annual report on form 10-k for a description of these segments . 29 mckesson corporation financial review ( continued ) story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 21 % to $ 8.3 billion in 2014 and 7 % to $ 6.8 billion in 2013. as a percentage of revenues , gross profit increased by 43 bp in 2014 and by 38 bp in 2013 . gross profit margin increased in 2014 and 2013 reflecting increases in both of our operating segments . 32 mckesson corporation financial review ( continued ) distribution solutions distribution solutions segment 's gross profit margin increased in 2014 compared to 2013 primarily due to our business acquisitions , growth in sales of higher margin generic drugs , and an increase in buy margin . buy margin primarily reflects volume and timing of compensation we receive from pharmaceutical manufacturers . these increases were partially offset by a decrease in sell margin and charges related to the lifo method of accounting for inventories , as further described below . additionally , gross profit was impacted by a $ 50 million charge for the reversal of a fair value step-up of inventory acquired as part of the celesio acquisition . gross profit margin increased in 2013 compared to 2012 primarily due to higher sales of generic drugs , business acquisitions , an increase in buy margin and antitrust settlement receipts , and a lower proportion of revenues within the segment attributed to lower-margin sales to customers ' warehouses . these increases were partially offset by a decrease in sell margin . our last-in , first-out ( “ lifo ” ) net inventory expense was $ 311 million in 2014 , $ 13 million in 2013 and $ 11 million in 2012 . our distribution solutions segment uses the lifo method of accounting for the majority of its inventories , which results in cost of sales that more closely reflects replacement cost than under other accounting methods . the practice in the distribution solutions segment 's distribution businesses is to pass on to customers published price changes from suppliers . manufacturers generally provide us with price protection , which limits price-related inventory losses . a lifo expense is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines , including the effect of branded pharmaceutical products that have lost market exclusivity . a lifo credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory . from 2005 through 2011 , we experienced net price deflation and in 2012 and 2013 , we began to experience a modest net inflationary trend in our pharmaceuticals indices , as price increases on branded pharmaceuticals exceeded the impact of price declines and shifts toward generic pharmaceuticals , including the effect of branded pharmaceutical products that have lost market exclusivity . as a result of this cumulative net price deflation , at march 31 , 2013 , pharmaceutical inventories at lifo were $ 60 million more than market and , accordingly , a $ 60 million lower-of-cost or market ( “ lcm ” ) reserve reduced inventories to market . during 2014 , we experienced net inflation in our pharmaceutical inventories . as a result , in 2014 , we recorded lifo charges of $ 311 million to cost of sales , net of the lcm reserve release . as of march 31 , 2014 , pharmaceutical inventories at lifo did not exceed market . at march 31 , 2014 and march 31 , 2013 , our lifo reserves , net of lcm adjustments were $ 431 million and $ 120 million . additional information regarding our lifo accounting is included under the caption “ critical accounting policies and estimates , ” included in this financial review . technology solutions technology solutions segment 's gross profit margin increased in 2014 compared to 2013 primarily due to growth in higher-margin revenues , partially offset by product alignment charges . story_separator_special_tag this transaction was accounted for as a step acquisition , which requires that we re-measure our previously held 50 % ownership interest to fair value and record the difference between the fair value and carrying value as a gain in the consolidated statements of operations . the re-measurement to fair value resulted in a non-cash pre-tax gain of $ 81 million ( $ 51 million after-tax ) , which was recorded as a gain on business combination within corporate in the consolidated statements of operations . acquisition expenses and related adjustments acquisition expenses and related adjustments , which include transaction and integration expenses that are directly related to acquisitions by the company and gains and losses related to business combinations were $ 218 million , $ 1 million and $ 26 million in 2014 , 2013 and 2012 . expenses for 2014 were primarily related to our acquisition of celesio and integration of pss world medical . expenses for 2013 primarily pertained to pss world medical and a $ 81 million gain on business combination from our acquisition of the remaining 50 % ownership interest in our corporate headquarters building . expenses for 2012 were primarily incurred to integrate a 2011 acquisition . additional acquisition-related expenses are expected to be incurred as we integrate our businesses . acquisition expenses and related adjustments were as follows : replace_table_token_9_th 35 mckesson corporation financial review ( continued ) acquisition expenses and related adjustments by segment were as follows : replace_table_token_10_th amortization expenses of acquired intangible assets purchased in connection with acquisitions recorded in operating expenses were $ 308 million , $ 196 million and $ 167 million in 2014 , 2013 and 2012. the increases in amortization expense reflect our recent business acquisitions . additionally , certain intangible assets associated with a 2007 acquisition were fully amortized in 2012. other income , net : replace_table_token_11_th other income , net decreased slightly in 2014 compared to 2013 primarily due to our acquisition of celesio including acquisition‑related expenses . other income , net increased in 2013 compared to 2012 primarily due to an impairment of an asset in 2012. impairment of an equity investment : in 2013 , we committed to a plan to sell our 49 % equity interest in nadro , s.a. de c.v. ( “ nadro ” ) and in the fourth quarter of 2013 recorded a pre-tax impairment charge of $ 191 million reducing the investment 's carrying value to its estimated fair value . the charge reflected deterioration in nadro 's market position , projected lower revenue growth rates and operating margins and continued business challenges in the wholesale pharmaceutical distribution business in mexico . cumulative foreign currency translation losses of $ 69 million were included in the assessment of the investment 's carrying value for purposes of calculating the impairment charge . cumulative foreign currency translation losses ( net of tax ) , were included in accumulated other comprehensive income on our consolidated balance sheet at march 31 , 2013. the charge was recorded in impairment of an equity investment in the consolidated statements of operations within our distribution solutions segment . in september 2013 , we completed the sale of our 49 % equity interest in nadro . under the terms of the agreement , we received $ 41 million in total cash consideration . there was no material gain or loss on the disposition based on the adjusted net realizable value of the investment at the time of the sale . 36 mckesson corporation financial review ( continued ) segment operating profit , corporate expenses , net and interest expense : replace_table_token_12_th distribution solutions : operating profit margin for our distribution solutions segment in 2014 was flat compared to 2013 , primarily reflecting an increase in gross profit margin and the $ 191 million impairment charge on an equity investment incurred in 2013 , partially offset by higher operating expenses as a percentage of revenues , which includes the effects of our acquisitions . operating profit margin for our distribution solutions segment decreased in 2013 compared to 2012 primarily due to the $ 191 million impairment charge on an equity investment and higher operating expenses as a percentage of revenues , which included the effects of our acquisitions . these 2013 increases were partially offset by an increase in gross profit margin . technology solutions : operating profit margin in our technology solutions segment increased in 2014 compared to 2013 primarily due to an increase in gross profit margin and a decrease in operating expenses as a percentage of revenues . operating profit margin in our technology solutions segment decreased in 2013 compared to 2012 primarily due to an increase in operating expenses as a percentage of revenues . corporate : corporate expenses , net of other income increased in 2014 compared to 2013 due to higher operating expenses . corporate expenses for 2013 also included the $ 81 million gain on business combination . corporate expenses , net of other income decreased in 2013 compared to 2012 primarily due to the gain on business combination and an increase in other income . interest expense : interest expense increased in 2014 compared to 2013 primarily due to our acquisition of celesio , including $ 46 million of bridge loan fees , interest on $ 4.1 billion of new debt issued to fund the acquisition and interest on debt of celesio . these increases are partially offset by repayment of $ 500 million of the current portion of our long-term debt in march 2013. interest expense decreased in 2013 compared to 2012 primarily due to the repayment of $ 400 million of long-term debt in february 2012 , partially offset by $ 11 million of bridge loan fees paid in connection with our acquisition of pss world medical . interest expense fluctuates based on timing , amounts and interest rates of term debt that is repaid and new term debt issued , as well as amounts incurred for bridge loan fees .
| results of operations overview : replace_table_token_5_th nm - not meaningful revenues for 2014 increased from 2013 primarily due to market growth , reflecting growing drug utilization and price increases , our acquisitions of celesio ag ( “ celesio ” ) and pss world medical , inc. ( “ pss world medical ” ) which were completed in february 2014 and 2013 , and our mix of business . revenues for 2014 were also impacted by price deflation associated with brand to generics drug conversion . revenues for 2013 approximated 2012 primarily reflecting market growth , net of price deflation . gross profit and gross profit margin increased in 2014 and 2013 primarily due to our business acquisitions , growth in sales of higher margin generic drugs , higher buy margin and our mix of business , partially offset by a decrease in sell margin . additionally , 2014 gross profit was impacted by lifo-related inventory charges of $ 311 million . operating expenses increased in 2014 and 2013 primarily due to our business acquisitions , including increases in acquisition-related expenses and higher intangible asset amortization , and higher compensation and benefit costs . operating expenses in 2013 were favorably impacted by an $ 81 million non-cash gain on business combination and lower average wholesale price ( “ awp ” ) litigation charges , partially offset by a $ 40 million charge for a legal dispute and a $ 36 million charge for goodwill impairment . awp litigation charges were $ 68 million , $ 72 million and $ 149 million in 2014 , 2013 and 2012 . income from continuing operations before income taxes increased in 2014 and 2013 reflecting higher gross profit , partially offset by higher operating and interest expenses . increased interest expense in 2014 was primarily attributable to our acquisition of celesio .
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through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , wastewater processing , papermaking chemical agents and inorganic chemicals . on december 12 , 2006 , we acquired , through a share exchange , upper class group limited , a british virgin islands holding corporation which then owned all of the outstanding shares of schc . under accounting principles generally accepted in the united states , the share exchange is considered to be a capital transaction in substance , rather than a business combination . that is , the share exchange is equivalent to the issuance of stock by upper class for the net assets of our company , accompanied by a recapitalization , and is accounted for as a change in capital structure . accordingly , the accounting for the share exchange was identical to that resulting from a reverse acquisition , except no goodwill was recorded . under reverse takeover accounting , the post reverse acquisition comparative historical financial statements of the legal acquirer , our company , are those of the legal acquiree , upper class group limited , which is considered to be the accounting acquirer . share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger . on february 5 , 2007 , the compnay , acting through schc , acquired syci . since the ownership of the company and syci was then substantially the same , the transaction was accounted for as a transaction between entities under common control , whereby we recognized the assets and liabilities of syci at their carrying amounts . share and per share amounts stated in this report have been retroactively adjusted to reflect the merger . on august 31 , 2008 , syci completed the construction of a new chemical production line . it passed the examination by shouguang city administration of work safety and local fire department . this new production line focuses on producing environmental friendly additive products , solid lubricant and polyether lubricant , for use in oil and gas exploration . the line has an annual production capacity of 5,000 tons . formal production of this chemical production line started on september 15 , 2008. on october 12 , 2009 we completed a 1-for-4 reverse stock split of our common stock , such that for each four shares outstanding prior to the stock split there was one share outstanding after the reverse stock split . all shares of common stock referenced in this report have been adjusted to reflect the stock split figures . on october 27 , 2009 our shares began trading on the nasdaq global select market under the ticker symbol “ gfre ” and on june 30 , 2011 we changed our ticker symbol to “ gure ” to better reflection of our corporate name . as a result of our acquisitions of schc and syci , our historical financial statements and the information presented below reflects the accounts of schc and syci . the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . 33 story_separator_special_tag the increase was attributable to the strong demand for all of our chemical products . our oil and gas exploration chemicals are the most popular products within the chemical products segment , which contributed $ 24,964,035 ( or 56 % ) and $ 18,721,374 ( or 55 % ) of our chemical segment revenue for the fiscal year 2013 and 2012 , respectively , with an increase of $ 6,242,662 , or 33 % . net revenue from our paper manufacturing additives increased from $ 3,317,077 for the fiscal year 2012 to $ 4,748,932 for the same period in 2013 , an increase of approximately 43 % . net revenue from our pesticides manufacturing additives increased from $ 12,185,799 for the fiscal year 2012 to $ 14,399,803 for the same period in 2013 , an increase of approximately 18 % . the table below shows the changes in the average selling price and sales volume of major chemical products for the fiscal year 2013 as compared to the same period in 2012. increase / ( decrease ) in net revenue of major chemical products , for fiscal year 2013 vs. 2012 , as a result of : oil and gas exploration additives paper manufacturing additives pesticides agricultural additives total increase / ( decrease ) in average selling price $ 1,241,194 $ ( 121,560 ) $ 1,882,354 $ 3,001,988 increase in sales volume $ 5,001,467 $ 1,553,415 $ 331,649 $ 6,886,531 total effect on net revenue of chemical products $ 6,242,661 $ 1,431,855 $ 2,214,003 $ 9,888,519 cost of net revenue replace_table_token_17_th 36 cost of net revenue reflects mainly the raw materials consumed and the direct salaries and benefits of staff engaged in the production process , electricity , depreciation and amortization of manufacturing plant and machinery and other manufacturing costs . our cost of net revenue was $ 84,209,136 for fiscal year 2013 , an increase of $ 10,769,795 ( or approximately 15 % ) compared to fiscal year 2012. the increase in overall cost of net revenue was mainly attributable to the increase in volume of products sold and the increase in depreciation and amortization of manufacturing plant and machinery , which was partially offset by the decrease in the purchase price of raw materials . bromine production capacity and utilization of our factories the table below represents the annual capacity and utilization ratios for all of our bromine producing properties : replace_table_token_18_th ( i ) utilization ratio is calculated based on the annualized actual production volume in tonnes for the period divided by the annual production capacity in tonnes . ( ii ) the increase in 2,800 tonnes production capacity represents the management 's estimate of the capacity of factory no . story_separator_special_tag chemical products segment for the fiscal year 2013 , the cost of net revenue for our chemical products segment was $ 29,508,991 , representing an increase of $ 5,038,267 , or 21 % , over the same period in 2012.the significant costs were costs of raw material and finished goods consumed of $ 25,395,868 ( or 86 % ) and $ 20,484,425 ( or 84 % ) and depreciation and amortization of manufacturing plant and machinery of $ 2,819,911 ( or 10 % ) and $ 2,605,262 ( or 11 % ) for each of the fiscal years 2013 and 2012 , respectively . as the components of our cost of net revenue are fixed levels of depreciation and amortization of our manufacturing plant and machinery , the rate of increase for the cost of net revenue for our chemical products segment was less than that of net revenue . gross profit gross profit was $ 34,182,647 , or 29 % , of net revenue for fiscal year 2013 as compared to $ 28,261,541 , or 28 % , of net revenue for fiscal year 2012. the increase in gross profit percentage was primarily attributable to an increase in the margin percentage in our chemical product segments , which was offset by a drop in the margin percentage of bromine and crude salt segments . replace_table_token_21_th 38 bromine segment for the fiscal year 2013 , the gross profit margin for our bromine segment was 25 % , as compared to 26 % for the fiscal year 2012. as mentioned in the net revenue discussion above , due to the prc government 's macro-economic tightening policy to slow down the economy , our selling price in the fiscal year2013 was affected . we cut the average selling price of bromine from $ 3,225 per tonne for the fiscal year2012 to $ 3,002 per tonne for the same period in 2013 , a decrease of 7 % , in order to compete with other bromine manufacturers . as well , the enhancements to our extraction wells and transmission channels and ducts which commenced in june 2012 and completed in august 2012 and the depreciation of these enhancements which commenced in september 2012 and accelerated the depreciation and amortization of the plant and machinery . we expect that the average selling price and gross profit margin of bromine will remain at current levels towards the first quarter of 2014 should the prc government 's macro-economic tightening policy remain in place . crude salt segment for the fiscal year 2013 , the gross profit margin for our crude salt segment was 31 % as compared to 36 % for the same period in 2012. this 5 % is attributable to the increase in depreciation and amortization of manufacturing facilities as a result of enhancements to our extraction wells and transmission channels and ducts which commenced in june 2012 and completed in august 2012 and the depreciation of these enhancements which commenced in september 2012. chemical products segment the gross profit margin for our chemical products segment for the fiscal year 2013 was 33 % as compared to 29 % for the same period in 2012 , an increase of 4 % . as previously mentioned , this increase in gross profit margin was mainly a result of the increase in both the sales volume and selling price for our oil and gas exploration additives . as sales of oil and gas exploration additives contributed to more than 57 % of our total chemical products segment 's net revenue , the increase in demand and selling price largely increased the gross profit margin of our chemical products segment . research and development costs the total research and development costs incurred for the fiscal years 2013 and 2012 were $ 140,445 and $ 164,586 , respectively , a decrease of 14 % . research and development costs for the fiscal year 2013 and 2012 represented raw materials used by syci for testing the manufacturing routine . write-off/impairment on property , plant and equipment . write-offs on property , plant and equipment of $ 1,042,138 for the fiscal year 2012 represented the write-off of ( i ) replacements of certain protective shells to transmission pipelines and ducts in the amount of $ 911,995 during the second phase of enhancements that started in june 2012 and completed in august 2012 , and ( ii ) replacement of certain machinery and equipment during the enhancements to our bromine production facilities in factory no . 2 of $ 130,143 that started in july 2012 and completed in september 2012. general and administrative expenses . general and administrative expenses were $ 8,563,282 for the fiscal year 2013 , an increase of $ 1,771,172 ( or 26 % ) as compared to $ 6,792,110 for the same period in 2012. the significant increase was primarily due to ( i ) the unrealized exchange loss in relation to the translation difference of inter-company balances in usd and rmb for the fiscal year 2013 in the amount of $ 774,405 , as compared to the unrealized exchange loss for the same period in 2012 in the amount of $ 61,090 , ( ii ) an increase in the depreciation of the newly acquired office units in a commercial building in september 2012 in the amount of $ 649,279 for the fiscal year 2013 compared to the same period in 2012 and ( iii ) an increase in the amount of $ 382,814 of depreciation of property , plant and equipment for factory no . 3 , whose operations were temporarily suspended due to relocation in fiscal year 2013 compared to previous year in which the depreciation was classified as cost of goods sold . gain on relocation of factory . gain on relocation of factory was $ 2,501,336 for the fiscal year 2013. in late september 2013 , the transportation bureau of dongying city and other local government agencies requested the requisition of land where the original factory no . 3 was located for railway construction . other operating income .
| results of operations year ended december 31 , 2013 as compared to year ended december 31 , 2012 replace_table_token_12_th net revenue net revenue for the fiscal year 2013 , was $ 118,391,783 , representing an increase of $ 16,690,901 or 16 % over the same period in 2012. this increase was primarily attributable to the increase of revenue from all of our segments , specifically , ( i ) revenue from our bromine segment increased from $ 56,332,785 for the fiscal year 2012 to $ 60,488,886 for the same period in 2013 , an increase of approximately 7 % ; ( ii ) revenue from our crude salt segment increased from $ 11,143,848 for the fiscal year 2012 to $ 13,790,128 for the same period in 2013 , an increase of approximately 24 % ; and ( iii ) revenue from our chemical products segment increased from $ 34,224,249 for the fiscal year 2012 to $ 44,112,769 for the same period in 2013 , an increase of approximately 29 % . replace_table_token_13_th replace_table_token_14_th replace_table_token_15_th 34 bromine segment the increase in net revenue from our bromine segment was mainly due to the increase in the sales volume . the sales volume of bromine increased from 17,467 tonnes for the fiscal year 2012 to 20,149 tonnes for the same period in 2013 , an increase of 15 % . the major reason for the increase in the sales volume of bromine was mainly attributable to the bromine price being currently at a lower level , and our customers increase of their bromine inventories . the average selling price of bromine decreased from $ 3,225 per tonne for the fiscal year 2012 to $ 3,002 per tonne for the same period in 2013 , a decrease of 7 % .
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the company applies asc 740 income taxes ( “ asc 740 ” ) in accounting for uncertainty in income taxes . the company does not have any material uncertain tax positions for which reserves would be required . the company will recognize interest and penalties related to uncertain tax positions , if any , in income tax expense . the tax cuts and jobs act ( “ the act ” ) was enacted on december 22 , story_separator_special_tag story_separator_special_tag diagnostics . on september 22 , 2014 , we received market clearance from the fda for our first two products , t2dx and t2candida , which have the ability to rapidly identify the five clinically relevant species of candida , a fungal pathogen known to cause sepsis direct from whole blood . on may 24 , 2018 , we received market clearance from the fda for t2bacteria , which runs on the t2dx and has the ability to rapidly identify five of the most common and deadly sepsis-causing bacteria ( members of the eskape pathogens ) directly from whole blood . we have also developed and sell a research use only candida auris assay for the rapid identification of candida auris , a species of candida that is highly drug resistant . two additional diagnostic applications in development are called t2carba resistance+ and t2lyme , which are focused on gram-negative bacterial sepsis infections and lyme disease , respectively . diagnostic applications for additional bacteria species and resistance markers are in development as part of a collaboration with carb-x , a private-public partnership with the u.s. department of health and human services , or hhs , and the wellcome trust of london focused on combatting antibiotic resistance . we expect that existing reimbursement codes will support our sepsis and lyme disease product candidates , and that the anticipated economic savings associated with our sepsis products will be realized directly by hospitals . we believe our sepsis products , which include t2candida and t2bacteria , will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens . according to a study published in the journal of clinical microbiology in 2010 , targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results . in another study published in clinical infectious diseases in 2012 , the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to candida infection and , on that basis , the study concluded that more rapid and accurate diagnostic techniques are needed . due to the high mortality rate associated with candida infections , physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result . antifungal drugs are toxic and may result in side effects and can cost over $ 50 per day . the speed to result of t2candida and t2bacteria coupled with their superior sensitivity as compared to blood culture may help reduce the overuse of ineffective , or even unnecessary , antimicrobial therapy which may reduce side effects for patients , lower hospital costs and potentially counteract the growing resistance to antifungal therapy . the administration of inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens , which the cdc recently called “ one of our most serious health threats. ” the addition of the use of our products , t2bacteria and t2candida , which both run on the t2dx instrument , with the standard of care for the management of patients suspected of sepsis , enables clinicians to potentially treat 90 % of patients with sepsis pathogen infections with the right targeted therapy within the first twelve hours of development of the symptoms of disease . currently , high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60 % of patients with infections . of the remaining 40 % of patients , approximately 30 % of the patients typically have a bacterial infection and 10 % typically have candida infections . t2candida and t2bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs . we compete with traditional blood culture-based diagnostic companies , including becton dickinson & co. and biomerieux , inc. , as well as companies offering post-culture species identification using both molecular and non-molecular methods , including biomerieux , inc. ( and its affiliate , biofire diagnostics , inc. ) , bruker corporation , accelerate diagnostics , luminex , genmark , cepheid and beckman coulter , a danaher company . in addition , there may be a number of new market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived as competitive with our technology . karius , inc. offers a lab developed culture independent diagnostic test for the identification of pathogens that has not been cleared by the fda but may be perceived as competitive with our technology . we have never been profitable and have incurred net losses in each year since inception . our accumulated deficit at december 31 , 2018 was $ 317.2 million . substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling , general and administrative costs associated with our operations . we have incurred significant commercialization expenses related to product sales , marketing , manufacturing and distribution of our initial fda-cleared products , t2dx and t2candida . in addition , we will continue 57 to incur significant costs and expenses as we increase commercialization efforts for our most recent fda-cleared product , t2bacteria , and continue to develop other product candidates , improve existing products and maintain , expand and protect our intellectual property portfolio . we may seek to fund our operations through public equity or private equity or debt financings , as well as other sources . story_separator_special_tag according to a study published by critical care medicine in 2006 , in sepsis patients with documented hypotension , administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9 % and , over the ensuing six hours , each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6 % . we believe our sepsis products , which include t2candida and t2bacteria , will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens . according to a study published in the journal of clinical microbiology in 2010 , targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results . in another study published in clinical infectious diseases in 2012 , the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to candida infection and , on that basis , the study concluded that more rapid and accurate diagnostic techniques are needed . our pivotal clinical trial for t2candida demonstrated that it can deliver actionable results in as few as three hours , with an average time to result during the trial of 4.2 hours , compared to the average time to 58 result of one to six or more days typically required for blood-culture-based diagnostics , which we believe will potentially enable physicians to make treatment decisions and administer targeted treatment to patients in four to six hour s versus 24 to 144 hours for blood culture . data from our pivotal clinical trial for t2bacteria demonstrated that t2bacteria can deliver actionable results in an average of 5.4 hours , compared to an average of 60 hours for detecting the same species by blood culture . in addition , t2bacteria identified 69 patients with bloodstream infections that were missed by the paired blood culture that was simultaneously run . the pivotal study was a study of over 1,400 patient samples collected across 11 hospital and hospital systems across the united states . the investigators concluded the following : ( a ) t2bacteria demonstrated accuracy , including overall sensitivity of 90 % and overall average specificity of 98 % ; ( b ) blood culture species identification results took an average of 3 days while t2bacteria took an average of only 5.4 hours in the clinical trial , providing results more than 2.5 days faster ; ( c ) 66 % of patients in the clinical trial with a bloodstream infection confirmed by t2 and blood culture could have benefited from earlier appropriate antibiotics based on the rapid t2bacteria result . a separate presentation on t2bacteria at asm microbe 2018 by clinicians at ochsner medical center found the following : ( a ) t2bacteria detected 14 infections missed by a paired blood culture – but proven to be a true infection by other cultures ; ( b ) t2bacteria identified every infection detected by blood culture of the target species ( 100 % sensitivity ) ; and ( c ) t2bacteria was accurate in identifying samples without an infection , with 99 % average specificity . the authors concluded that the advantages of t2bacteria over blood culture could make it a valuable tool to enable faster time to targeted antibiotic therapy and reduced use of unnecessary antibiotics . also at asm microbe 2018 , clinicians from northwestern university presented on a poster its findings that the t2bacteria panel was more sensitive when compared to blood culture testing and detected 18 clinically important urinary and respiratory infections that were missed by blood culture . the authors concluded that t2bacteria may improve patient care by providing clinicians rapid and actionable information for treating patients . in november 2015 , the company presented preliminary data demonstrating the ability of our t2bacteria product candidate to provide the rapid and sensitive identification of certain sepsis-causing bacteria included in the panel , directly from whole blood . the bacteria species included in t2bacteria are staphylococcus aureus , enterococcus faecium , escherichia coli , klebsiella pneumoniae , and pseudomonas aeruginosa . the five bacteria species in our t2bacteria panel are responsible for about half of all septic infections . our t2candida panel candida is the fourth leading hospital-acquired bloodstream infection , afflicting more than 135,000 patients per year in the united states , and the most lethal form of common bloodstream infections that cause sepsis , with an average mortality rate of approximately 40 % . this high mortality rate is largely due to a delay in providing targeted therapy to the patient due to the elapsed time from candida infection to positive diagnosis . according to a study published in antimicrobial agents and chemotherapy , the candida mortality rate can be reduced to 11 % with the initiation of targeted therapy within 12 hours of presentation of symptoms . additionally , a typical patient with a candida infection averages 40 days in the hospital , including nine days in intensive care , resulting in an average cost per hospital stay of more than $ 130,000 per patient . in a study published in the american journal of respiratory and critical care medicine , providing targeted antifungal therapy within 24 hours of the presentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost of care by approximately $ 30,000 per patient . our direct pivotal clinical trial was designed to evaluate the sensitivity and specificity of t2candida on the t2dx instrument . the direct trial consisted of two patient arms : a prospective arm with 1,501 samples from patients with a possible infection and a seeded arm with 300 samples , also obtained from patients with a possible infection . t2candida and the t2dx instrument demonstrated a sensitivity of 91.1 percent and a specificity of 99.4 percent .
| financial condition and results of operations this annual report on form 10-k contains forward-looking statements about us and our industry that involve substantial risks and uncertainties . we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in section 27a of the securities act and section 21e of the exchange act . all statements other than statements of historical facts contained in this annual report on form 10-k , including statements regarding our future results of operations and financial position , business strategy , prospective products and product candidates , their expected performance and impact on healthcare costs , marketing clearance from the u.s. food and drug administration , or the fda , regulatory clearance , reimbursement for our product candidates , research and development costs , timing of regulatory filings , timing and likelihood of success , plans and objectives of management for future operations and future results of anticipated products , are forward-looking statements . these statements involve known and unknown risks , uncertainties and other important factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by the forward-looking statements . in some cases , you can identify forward-looking statements by terms such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ could , ” “ intend , ” “ target , ” “ project , ” “ contemplate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential ” or “ continue ” or the negative of these terms or other similar expressions . the forward-looking statements in this annual report on form 10-k are only predictions . we have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business , financial condition and results of operations .
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these contracts meet the criteria for cash flow hedges . the contracts are recorded in other current assets or other current liabilities on the consolidated balance sheets . unrealized gains and losses are recorded as a component of accumulated other comprehensive loss , net . refer to note 14 for additional information . foreign currency translation . story_separator_special_tag the following discussion pertains to the results of operations and financial position of the company and should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report . this section of this form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of polaris ' annual report on form 10-k for the fiscal year ended december 31 , 2019. overview 2020 was a record year for sales which totaled approximately $ 7.0 billion , a four percent increase from 2019 , primarily due to strong orv sales . our annual sales to north american customers increased approximately four percent and our annual sales to customers outside of north america increased approximately one percent in 2020. full year net income attributable to polaris inc. of $ 124.8 million was a 61 percent decrease from 2019 , with diluted earnings per share decreasing 62 percent to $ 1.99 per share . the decrease was primarily due to the $ 379.2 million ( pre-tax ) impairment of goodwill and other intangible assets in the second quarter associated with the company 's aftermarket segment as a result of market and economic conditions resulting from the novel coronavirus ( covid-19 ) pandemic and financial performance and restructuring actions . on january 28 , 2021 , we announced that our board of directors approved a two percent increase in the regular quarterly cash dividend to $ 0.63 per share for the first quarter of 2021 , representing the 26th consecutive year of increased dividends to shareholders effective with the 2021 first quarter dividend . the global spread of covid-19 has negatively impacted the global economy , disrupted global supply chains and created significant volatility and disruption of financial markets . the impact of this pandemic has affected our business segments , employees , dealers , suppliers , and customers in a variety of ways . as a result of covid-19 , our sales and profitability during the first half of 2020 were negatively impacted by the temporary suspension of select plant operations , which reduced our manufacture and shipment of products , as well as the temporary closures of certain dealers . during this period , sales and profitability were also negatively impacted by a decline in economic activity related to certain of our end markets , such as those served by global adjacent markets and aftermarket . beginning in the second quarter we began to see stronger than anticipated retail demand for our powersports products as they provided an attractive social-distancing solution for new and existing powersports customers . our unit retail sales of orvs , snowmobiles , and motorcycles to consumers in north america increased 25 percent in 2020. further , unit retail sales of our boats also increased significantly during the year . polaris north american dealer inventory as of december 31 , 2020 was down 58 percent as retail sales significantly outpaced shipments . at this time , we expect retail demand to be down in 2021 compared to the strong retail of 2020. during the second half of the year we made significant progress managing operations as we seek to satisfy retail demand . however , due to the dynamics of the covid-19 pandemic and other natural disasters , our supply chain and manufacturing operations experienced constraints caused by logistics and production-limiting disruptions . because of the significant economic uncertainty , we are continuing to execute a cautionary approach to spending given the pandemic-generated economic uncertainty . as the impact of the covid-19 pandemic on the economy and our operations evolves , we will continue to assess the impact on the company and respond accordingly . looking ahead , adverse impacts to the economy and certain of the company 's business segments , certain suppliers , dealers or customers as a result of covid-19 may affect the company 's future valuation of certain assets and therefore may increase the likelihood of additional impairment charges , write-offs , or reserves associated with such assets , including goodwill , indefinite and finite-lived intangible assets , property and equipment , inventories , accounts receivable , tax assets , and other assets . we believe we are well positioned to mitigate the impacts of covid-19 . we will continue to adjust mitigation measures as needed related to employee health and safety . those measures might include further suspensions of select plant operations , modifying workspaces , continuing social distancing policies , implementing new personal protective equipment or health screening policies at our facilities , or such other industry best practices needed to continue to maintain a healthy and safe environment for our employees amidst the pandemic . in addition , while we have and will 25 continue to enhance functionality and security of technology for off-site functions , we are also planning for the eventual reintroduction of our currently remote workforce to our facilities . the duration of these trends and the magnitude of such impacts can not be precisely estimated at this time , as they are affected by a number of factors ( some of which are outside management 's control ) , including those presented in item 1a . risk factors of this annual report . story_separator_special_tag approximately flat compared to 2019 's average per unit sales price . story_separator_special_tag net repayments under debt arrangements , finance lease obligations and notes payable totaled $ 246.2 million and $ 270.0 million in 2020 and 2019 , respectively . proceeds from the issuance of stock under employee plans were $ 33.6 million and $ 15.7 million in 2020 and 2019 , respectively . 31 financing arrangements : we are party to an unsecured credit agreement , which includes a $ 700.0 million variable interest rate revolving loan facility that expires in july 2023 , under which we have unsecured borrowings . at december 31 , 2020 , there were no borrowings outstanding under this arrangement . our credit agreement also includes a term loan facility , of which $ 940.0 million is outstanding as of december 31 , 2020. on april 9 , 2020 , the company amended the credit agreement to provide a new incremental 364-day term loan ( the “ incremental term loan ” ) in the amount of $ 300.0 million . the new incremental term loan , which was fully drawn on closing , was unsecured and set to mature on april 8 , 2021 , however , the incremental term loan was paid off in december 2020. interest is charged at rates based on libor or “ prime ” for these agreements . as of december 31 , 2020 , we had $ 695.3 million of availability on the revolving loan facility . the company is also party to an unsecured master note purchase agreement , as amended and supplemented . at december 31 , 2020 outstanding borrowings under the agreement totaled $ 425.0 million . the credit agreement and the amended master note purchase agreement contain covenants that require polaris to maintain certain financial ratios , including minimum interest coverage and maximum leverage ratios . on may 26 , 2020 , the company further amended the credit agreement and amended master note purchase agreement to temporarily decrease its minimum interest coverage ratio from not less than 3.00x to not less than 2.25x and temporarily increase its maximum leverage ratio from 3.50x to 4.75x on a rolling four quarter basis until march 31 , 2021. polaris was in compliance with all such covenants at december 31 , 2020. on january 15 , 2021 the company further amended the credit agreement and amended master note purchase agreement to revert the financial covenants to those in place prior to the 2020 amendments . as a component of the boat holdings merger agreement in 2018 , polaris has committed to make a series of deferred payments to the former owners following the closing date of the merger through july 2030. the original discounted payable was for $ 76.7 million , of which $ 66.5 million is outstanding as of december 31 , 2020. the outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets . at december 31 , 2020 and 2019 , we were in compliance with all debt covenants . our debt to total capital ratio was 56 percent and 60 percent at december 31 , 2020 and 2019 , respectively . share repurchases : our board of directors has authorized the cumulative repurchase of up to 90.5 million shares of our common stock through an authorized stock repurchase program . of that total , approximately 87.9 million shares have been repurchased cumulatively from 1996 through december 31 , 2020. we repurchased a total of 0.6 million shares of our common stock for $ 50.3 million during 2020 , which had an immaterial impact on earnings per share . we have authorization from our board of directors to repurchase up to an additional 2.6 million shares of our common stock as of december 31 , 2020. the repurchase of any or all such shares authorized remaining for repurchase will be governed by applicable sec rules . wholesale customer financing arrangements : we have arrangements with certain finance companies to provide secured floor plan financing for our dealers . these arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital . a majority of the worldwide sales of snowmobiles , orvs , motorcycles , boats and related pg & a are financed under similar arrangements whereby we receive payment within a few days of shipment of the product . the amount financed by worldwide dealers under these arrangements related to snowmobiles , orvs , motorcycles , boats and related pg & a as of december 31 , 2020 and 2019 , was approximately $ 1,064.0 million and $ 1,884.1 million , respectively . we participate in the cost of dealer financing up to certain limits . polaris acceptance , a joint venture between polaris and wells fargo commercial distribution finance corporation ( “ wfcdf ” ) , a direct subsidiary of wells fargo bank , n.a . ( “ wells fargo ” ) , which is supported by a partnership agreement between their respective wholly owned subsidiaries , finances substantially all of our u.s. sales of snowmobiles , orvs , motorcycles , and related pg & a , whereby we receive payment within a few days of shipment of the product . the partnership agreement is effective through february 2027. polaris acceptance sells a majority of its receivables portfolio ( the “ securitized receivables ” ) to a securitization facility ( “ securitization facility ” ) arranged by wells fargo , a wfcdf affiliate . the sale of receivables from polaris acceptance to the securitization facility is accounted for in polaris acceptance 's financial statements as a “ true-sale ” under asc topic 860. polaris acceptance is not responsible for any continuing servicing costs or obligations with respect to the 32 securitized receivables . the remaining portion of the receivable portfolio is recorded on polaris acceptance 's books , and is funded through a loan from an affiliate of wfcdf and through equity contributions from both partners .
| consolidated results of operations the consolidated results of operations were as follows : replace_table_token_3_th sales : sales were $ 7,027.9 million in 2020 , a four percent increase from $ 6,782.5 million in 2019. the components of the consolidated sales change were as follows : 26 replace_table_token_4_th the three percent volume increase in 2020 was primarily the result of increased orv shipments and related pg & a . product mix and price contributed a one percent increase in 2020 , primarily due to lower promotional costs for orvs . sales by geographic region were as follows : replace_table_token_5_th sales in the united states for 2020 increased four percent compared to 2019 , primarily due to increased orv wholegood shipments and higher orv pg & a sales . the united states represented 82 percent of total company sales in 2020. sales in canada for 2020 were flat compared to 2019. currency rate movements had less than a one percentage point impact on year-over-year sales . sales in canada represented six percent of total company sales in 2020. sales in other foreign countries , primarily in europe , increased one percent in 2020 compared to 2019. this increase was primarily driven by higher orv shipments . currency rate movements had less than a one percentage point impact on year-over-year sales . sales in other foreign countries represented 12 percent of total company sales in 2020. cost of sales : the following table reflects our cost of sales in dollars and as a percentage of sales : replace_table_token_6_th for 2020 , cost of sales increased four percent to $ 5,317.7 million compared to $ 5,133.7 million in 2019. the increase in cost of sales in 2020 is primarily attributed to increased purchased materials and services related to increased orv shipments and higher pg & a sales .
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based on a $ 4,025,000 investment and a $ 3.19 per share price the number of common stock equivalents eligible for voting by preferred shareholders is 1,261,755. the preferred investors purchased a total of 1,610,000 shares of series a preferred stock , and received in connection with such purchase , ( i ) a-warrants , exercisable by cash exercise only , to purchase 1,207,500 shares of common stock , and ( ii ) b-warrants , exercisable by “ cashless exercise ” , to purchase 1,207,500 shares of common stock . the warrants are exercisable for 72 months from the date of issuance and carry a black-scholes put feature in the event of a change in control . the put right is not subject to derivative accounting as all equity holders are treated the same in the event of a change in control . the company 's board of directors has the authority to cause us to issue , without any further vote or action by the shareholders , up to 3,390,000 additional shares of preferred stock , no par value per share , in one or more series , to designate the number of shares constituting any series , and to fix the rights , preferences , privileges and restrictions thereof , including dividend rights , voting rights , rights and terms of redemption , redemption price or prices and liquidation preferences of such series . the series a preferred includes a conversion right at a price that creates an embedded beneficial conversion feature . a beneficial conversion feature arises when the conversion price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible . the conversion price is ‘ in the money ' and the holder realizes a benefit to the extent of the price difference . the issuer of the convertible instrument realizes a cost based on the theory that the intrinsic value of the price difference ( i.e . , the price difference times the number of shares received upon conversion ) represents an additional financing cost . the conversion rights associated with the series a preferred issued by the company do not have a stated life and , therefore , all of the beneficial conversion feature amount of $ 2,858,887 was amortized to dividends on the same date the preferred shares were issued . the $ 2,858,887 dividend is added to the net loss to arrive at the net loss applicable to common stockholders for purposes of calculating loss per share for the year ended june 30 , 2015. f - 16 ( 13 ) employee benefit plan the company has a deferred savings plan which qualifies under internal revenue code section 401 ( k ) . the plan covers all employees of the company who have at least six months of service and who are age 20 or older . for fiscal years story_separator_special_tag overview our principal business is the manufacturing , distribution and marketing of physical medicine products . we offer a broad line of medical equipment including therapy devices , medical supplies and soft goods , treatment tables and rehabilitation equipment . our products are sold to and used primarily by physical therapists , chiropractors , sports medicine practitioners , and podiatrists . our fiscal year ends on june 30. reference to fiscal year 2015 refers to the year ended june 30 , 2015. story_separator_special_tag align= '' left '' style= '' text-indent : 36pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > pre-tax loss in fiscal year 2015 was $ 1.4 million , compared to $ 0.4 million in fiscal year 2014. the increase in pre-tax loss is due to the $ 1.0 million non-cash inventory write-off and $ 0.3 million increase in expenses associated with a terminated acquisition , as discussed above . excluding the inventory charge and terminated acquisition costs , pre-tax loss from operations in 2015 was $ 0.3 million compared to $ 0.4 million in 2014. income taxes income tax provision was $ 0.9 million in fiscal year 2015 , compared to income tax benefit of $ 0.1 million in fiscal year 2014. in 2015 , we recorded a full valuation allowance of $ 1.4 million on our net deferred tax assets . as a result of the valuation allowance , we recorded a tax expense for the fiscal year 2015 despite reporting an operating loss making the calculation of an effective tax rate incalculable . our effective tax benefit rate was 31.7 % in 2014. see note 9 to the consolidated financial statements as well as “ critical accounting policies and estimates – deferred income tax assets ” for more information regarding the valuation allowance and its impact on the effective tax rate for 2015. net loss net loss for the year was $ 2.3 million , compared to $ 0.3 million for the year ended june 30 , 2014. our 2015 results include a $ 1.4 million non-cash deferred tax asset valuation allowance , a $ 1.0 million non-cash inventory write off and $ 0.3 million increase in expenses associated with a terminated acquisition , as discussed above . 20 net loss applicable to common shareholders net loss applicable to common shareholders was $ 5.1 million for the year , compared to $ 0.3 million for the year ended june 30 , 2014. an effect of the sale of preferred stock announced on june 30 , 2015 , was the creation of a beneficial conversion feature reflecting the difference between the conversion price of the preferred stock adjusted in compliance with accounting rules and the actual trading price of the common stock on the date of the transaction into which the preferred is convertible . story_separator_special_tag the outstanding balance on our line of credit decreased $ 1.6 million to $ 1.9 million as of june 30 , 2015 , compared to $ 3.5 million as of june 30 , 2014. this reduction was made possible by the sale and leaseback of our cottonwood heights , utah facility , which generated approximately $ 2.1 million in net cash to pay down our line of credit . interest on the new line of credit is based on the prime rate plus 5 % . the $ 3 million line of credit is collateralized by accounts receivable and inventories . borrowing limitations are based on 85 % of eligible accounts receivable and $ 0.7 million of eligible inventory . the current borrowing base on the new line of credit is approximately $ 2.6 million . interest payments on the line are due monthly . all borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet . the line of credit matures on march 5 , 2016. management expects to be able to renew this credit facility when it matures with the current lender or another lender . failure to renew this credit facility could have a material adverse effect on our business operations . the terms of this new credit facility are not as favorable as our bank line of credit had been . the effective interest rate on borrowed money is approximately 10 % including interest and origination fees . the infusion of cash from the sale of preferred stock the end of june , 2015 , facilitated the line of credit being paid down to its minimum borrowing requirement of approximately $ 700,000 by the end of july 2015. we believe that amounts available under the new line of credit combined with the cash infused from the sale of preferred stock and cash generated from operating activities will continue to be sufficient to meet our annual operating requirements . all borrowings under the line of credit are presented as current liabilities in the accompanying consolidated balance sheet . debt long-term debt , excluding current installments decreased $ 0.6 million to $ 0.7 million as of june 30 , 2015 , compared to $ 1.3 million as of june 30 , 2014. this reduction was achieved through the sale of our utah facility and the subsequent payoff of the mortgage on that building . the remaining long-term debt is comprised primarily of the mortgage loan on our office and manufacturing facility in tennessee . the principal balance on the mortgage loan is approximately $ 0.7 million , of which $ 0.6 million is classified as long-term debt , with monthly principal and interest payments of $ 13,278. our mortgage loan matures in 2021. as discussed above , in conjunction with the sale and leaseback of our corporate headquarters in august 2014 , we entered into a $ 3.8 million lease for a 15-year term with an investor group . the building lease is recorded as a capital lease with the related amortization being recorded on a straight line basis over 15 years . lease payments of approximately $ 27,000 are payable monthly . total accumulated amortization related to the leased building is $ 230,939 at june 30 , 2015. future minimum gross lease payments required under the capital lease as of june 30 , 2015 are as follows : 2016 , $ 328,384 ; 2017 , $ 334,950 ; 2018 , $ 341,648 ; 2019 , $ 348,478 ; 2020 , $ 355,450 and $ 3,607,692 thereafter . included in the above lease payments is $ 1,637,238 of imputed interest . inflation our revenues and net income have not been unusually affected by inflation or price increases for raw materials and parts from vendors . 22 stock repurchase plans in 2011 , our board of directors adopted a stock repurchase plan authorizing repurchases of shares in the open market , through block trades or otherwise . decisions to repurchase shares under this plan are based upon market conditions , the level of our cash balances , general business opportunities , and other factors . the board periodically approves the dollar amounts for share repurchases under the plan . as of june 30 , 2015 , $ 448,450 remained available under the board 's authorization for purchases under the plan . there is no expiration date for the plan . no purchases were made under this plan during the fiscal quarter and year ended june 30 , 2015 or during the past three fiscal years . critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets , liabilities , net sales and expenses . management bases estimates on historical experience and other assumptions it believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies involve a high degree of judgment and complexity . see note 1 to our consolidated financial statements for fiscal year 2015 , for a complete discussion of our significant accounting policies . the following summary sets forth information regarding significant estimates and judgments used in the preparation of our consolidated financial statements . inventory reserves the nature of our business requires that we maintain sufficient inventory on hand at all times to meet the requirements of our customers . we record finished goods inventory at the lower of standard cost , which approximates actual cost ( first-in , first-out ) or market . raw materials are recorded at the lower of cost ( first-in , first-out ) or market .
| results of operations fiscal year 2015 compared to fiscal year 2014 net sales net sales in fiscal year 2015 increased $ 1.7 million or 6.1 % to $ 29.1 million , compared to $ 27.4 million in fiscal year 2014. net sales in the fourth quarter of fiscal year 2015 increased $ 0.9 million or 12 % to $ 7.9 million , compared to $ 7.1 million in the fourth quarter of 2014. the acceleration in the rate of sales growth throughout fiscal 2015 was driven by new clinic openings and increased international orders as well as strengthening demand in our core domestic market . sales of therapeutic modality products ( both proprietary and distributed ) , exercise equipment and treatment tables were the leading growth categories in 2015. the upward trend in sales indicates increased customer confidence in our markets . sales of proprietary manufactured physical medicine products represented approximately 46 % and 47 % of total physical medicine product sales in fiscal years 2015 and 2014 , respectively . distribution of products manufactured by other suppliers accounted for the balance of our physical medicine product sales in those years . in fiscal years 2015 and 2014 , sales of physical medicine products accounted for 91 % of total sales in both years . chargeable repairs , billable freight and a small amount of revenue from products outside of physical medicine accounted for the balance of revenues in both years . gross profit gross profit totaled $ 9.1 million , or 31.1 % of net sales , in fiscal year 2015 , compared to $ 10.0 million , or 36.5 % of net sales , in fiscal year 2014. we recorded a $ 952,000 non-cash charge to write off inventory based on strategic decisions made during the fourth quarter to discontinue , re-evaluate or de-emphasize some product lines . these decisions created some obsolescence and slow moving inventory that upon analysis warranted the inventory write off charge .
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the detailed discussion in the sections below focuses on the results of operations for the year ended december 31 , 2015 and 2014 and the financial condition as of december 31 , 2015 compared to the financial condition as of december 31 , 2014. as described in the notes to consolidated financial statements , we have two reportable segments : community banking and mortgage banking . the community banking segment provides consumer and business banking products and services to customers . consumer products include loan products , deposit products , and personal investment services . business banking products include loans for working capital , inventory and general corporate use , commercial real estate construction loans , and deposit accounts . the mortgage banking segment , which is conducted through waterstone mortgage corporation , consists of originating residential mortgage loans primarily for sale in the secondary market . our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses . our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses . we have provided below a discussion of the material results of operations for each segment on a separate basis for the year ended december 31 , 2015 and 2014 , which focuses on noninterest income and noninterest expenses . we have also provided a discussion of the consolidated operations of waterstone financial , which includes the consolidated operations of waterstone bank and waterstone mortgage corporation , for the same periods . - 35 - critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on our income or the carrying value of our assets . allowance for loan losses . waterstone bank establishes valuation allowances on loans deemed to be impaired . a loan is considered impaired when , based on current information and events , it is probable that waterstone bank will not be able to collect all amounts due according to the contractual terms of the loan agreement . a valuation allowance is established for an amount equal to the impairment when the carrying amount of the loan exceeds the present value of the expected future cash flows , discounted at the loan 's original effective interest rate or the fair value of the underlying collateral ( specific component ) . the company recognizes the change in present value of expected future cash flows on impaired loans attributable to the passage of time as bad debt expense . on an ongoing basis , at least quarterly for financial reporting purposes , the fair value of collateral dependent impaired loans and real estate owned is determined or reaffirmed by the following procedures : obtaining updated real estate appraisals or performing updated discounted cash flow analysis ; confirming that the physical condition of the real estate has not significantly changed since the last valuation date ; comparison of the estimated current book value to that of updated sales values experienced on similar real estate owned ; comparison of the estimated current book value to that of updated values seen on more current appraisals of similar properties ; and comparison of the estimated current book value to that of updated listed sales prices on our real estate owned and that of similar properties ( not owned by the company ) . waterstone bank also establishes valuation allowances based on an evaluation of the various risk components that are inherent in the credit portfolio ( general component ) . the risk components that are evaluated include past loan loss experience ; the level of non-performing and classified assets ; current economic conditions ; volume , growth , and composition of the loan portfolio ; adverse situations that may affect the borrower 's ability to repay ; the estimated value of any underlying collateral ; regulatory guidance ; and other relevant factors . the allowance is increased by provisions charged to earnings and recoveries of previously charged-off loans and reduced by charge-offs . charge-offs approximate the amount by which the outstanding principal balance exceeds the estimated net realizable value of the underlying collateral . the appropriateness of the allowance for loan losses is reviewed and approved quarterly by the waterstone bank board of directors . the allowance reflects management 's best estimate of the amount needed to provide for the probable loss on impaired loans and other inherent losses in the loan portfolio , and is based on a risk model developed and implemented by management and approved by the waterstone bank board of directors . actual results could differ from this estimate , and future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions . more specifically , if our future charge-off experience increases substantially from our past experience ; or if the value of underlying loan collateral , in our case mostly real estate , declines in value by a substantial amount ; or if unemployment in our primary market area increases significantly ; our allowance for loan losses may be inadequate and we will incur higher provisions for loan losses and lower net income in the future . in addition , state and federal regulators periodically review the waterstone bank allowance for loan losses . such regulators have the authority to require waterstone bank to recognize additions to the allowance at the time of their examination . income taxes . the company and its subsidiaries file consolidated federal , combined state income tax , and separate state income tax returns . the provision for income taxes is based upon income in the consolidated financial statements , rather than amounts reported on the income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for net operating loss carry forwards . story_separator_special_tag a total of $ 15.6 million of loans were transferred to real estate owned and $ 6.3 million were charged-off during the year . allowance for loan losses . the allowance for loan losses decreased $ 2.5 million , or 13.5 % , to $ 16.2 million at december 31 , 2015 from $ 18.7 million at december 31 , 2014. the decrease resulted from the charge-off of specific reserves and the improvement of key loan quality metrics decreasing the allowance related to the loans specifically reviewed . the overall decrease was primarily related to the one- to four-family category . the other remaining categories were relatively consistent with the amounts at december 31 , 2014. real estate owned . total real estate owned decreased $ 9.5 million , or 50.9 % , to $ 9.2 million at december 31 , 2015 from $ 18.7 million at december 31 , 2014. during the year ended december 31 , 2015 , $ 15.6 million was transferred from loans to real estate owned upon completion of foreclosure . during the same period , sales of real estate owned totaled $ 23.4 million . in an effort to sell older properties , list prices were dropped which resulted in write downs totaling $ 2.2 million during the year ended december 31 , 2015. deposits . deposits increased by $ 29.4 million to $ 893.4 million at december 31 , 2015 , from $ 864.0 million at december 31 , 2014 . the increase was driven by an increase in more cost effective transaction accounts partially offset by a slight decrease in time deposits . borrowings . borrowings increased $ 7.2 million to $ 441.2 million at december 31 , 2015 from $ 434.0 million at december 31 , 2014. the increase in borrowings relates to the use of short-term repurchase agreements to finance loans held for sale at our mortgage banking subsidiary . shareholders ' equity . shareholders ' equity decreased by $ 58.3 million , or 13.0 % , to $ 391.9 million at december 31 , 2015 from $ 450.2 million at december 31 , 2014. the decrease in shareholders ' equity was due to the stock repurchase program initiated during the year ended december 31 , 2015 , dividends declared , and decrease in accumulated other comprehensive income as unrealized gains on securities decreased . these decreases were partially offset by net income , vesting of esop shares , and the impact of stock compensation awards issued in 2015. comparison of community banking segment operations for the years ended december 31 , 2015 and 2014 net income from our community banking segment for the year ended december 31 , 2015 totaled $ 8.3 million compared to net income of $ 10.0 million for the year ended december 31 , 2014. net interest income decreased $ 1.9 million to $ 37.7 million for the year ended december 31 , 2015 compared to $ 39.6 million the year ended december 31 , 2014 due to a decrease in average rate driven by turnover of the loan portfolio . the provision for loan losses increased $ 850,000 compared to the prior year . compensation , payroll taxes , and other employee benefits expense increased $ 1.5 million to $ 16.5 million due to the distribution of additional equity awards in 2015. the immediate vesting of 94,100 restricted share awards amounted to $ 1.2 million in additional compensation expense . occupancy , office furniture , and equipment expense decreased slightly from the prior year . fdic insurance premium expense decreased $ 337,000 due to a decrease in the fdic assessment as a result of the bank 's improved camels ratings and continued improvement in asset quality ratios . real estate owned expense increased for the year ended december 31 , 2015 compared to prior year due to a larger amount of writedowns which reflects management 's plan to expedite the sale of older properties . other non-interest expenses decreased from the prior year . comparison of mortgage banking segment operations for the years ended december 31 , 2015 and 2014 net income from our mortgage banking segment for the year ended december 31 , 2015 totaled $ 8.3 million compared to net income of $ 2.4 million for the year ended december 31 , 2014. mortgage banking segment revenues increased $ 19.8 million , or 24.2 % , to $ 101.5 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the increase in mortgage banking revenues was attributable to an increase in sales volume along with an increase in margin . loans originated for sale in the secondary market totaled $ 2.0 billion during the year ended december 31 , 2015 , representing a $ 324.8 million , or 19.6 % , increase in originations from the year ended december 31 , 2014 which totaled $ 1.7 billion . in addition to the increases in revenue resulting from an increase in origination volume , mortgage banking revenues increased due to an increase in average sales margin across all product types and geographic markets . - 37 - loans originated for the purpose of a residential property purchase increased 14.1 % and comprised 83.7 % of production during the year ended december 31 , 2015. the mix of loan type changed slightly with the purpose of a residential property purchase and the purpose of refinance loans comprising 83.7 % and 16.3 % of all loan originations , respectively , during the year ended december 31 , 2015 compared to 87.0 % and 13.0 % in the prior year . origination volumes of conventional loans increased 25.8 % and governmental loans increased 6.6 % . the mix of loan type changed slightly with conventional loans and governmental loans comprising 66.4 % and 33.6 % of all loan originations , respectively , during the year ended december 31 , 2015. during the year ended december 31 , 2014 conventional loans and governmental loans comprised 62.6 % and 37.4 % of all loan originations , respectively .
| general . net income for the year ended december 31 , 2014 totaled $ 12.7 million , or $ 0.38 for both basic and diluted income per share , compared to net income of $ 14.7 million , or $ 0.43 for both basic and diluted loss per share , for the year ended december 31 , 2013. the year ended december 31 , 2014 generated a return on average assets of 0.71 % and a return on average equity of 2.89 % , compared to a return on average assets of 0.90 % and a return on average equity of 7.01 % for the year ended december 31 , 2013. return on average assets and return on average equity was adversely impacted by both the decrease in net income as well as the increase in average assets and equity resulting from the net proceeds from the stock offering . income before income taxes decreased $ 3.4 million to $ 19.9 million during the year ended december 31 , 2014 , compared to $ 23.3 million during the year ended december 31 , 2013. the pre-tax results of operations for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 reflect a $ 5.0 million decrease in pre-tax income from the mortgage banking segment partially offset by a $ 1.4 million increase in pre-tax income from the community banking segment . income tax expense totaled $ 7.2 million during the year ended december 31 , 2014 , compared to $ 8.6 million for the year ended december 31 , 2013 total interest income .
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additionally , the new guidance will require entities to disclose more information about their multiple-element revenue arrangements . the adoption of this asu did not result in a material change in either the units of accounting or a change in the pattern or timing of revenue recognition . additionally , the adoption of this asu did not have a material impact on the company 's consolidated financial statements . note d related party transactions story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes , included elsewhere in this annual report on form 10-k. see also forward-looking statements and item 1a . risk factors. the information below has been adjusted to reflect the impact of the restatement of our financial results which is more fully described in note b restatement of financial statements to the consolidated financial statements contained in this annual report on form 10-k and under the paragraph restatement of previously issued consolidated financial statements below and does not reflect any subsequent information or events occurring after the date of the filing of our reports originally presenting the financial information being restated or update any disclosure herein to reflect the passage of time since the date of such filings . restatement of previously issued consolidated financial statements as discussed above under item 1 , restatement of previously issued consolidated financial statements in this annual report on form 10-k , we have restated our previously issued consolidated financial statements and related disclosures for the fiscal year ended march 31 , 2010 and each of the quarterly consolidated financial statements for the periods ended june 30 , 2009 through december 31 , 2010 to account for our transactions under our orion throughput agreements , or otas , as sales-type leases instead of as operating leases . our prior method of accounting for ota transactions as operating leases deferred revenue recognition over the full term of the ota contracts , only recognizing revenue on a monthly basis as customer payments are due , while the upfront sales , general and administrative expenses related to these ota contracts were recognized immediately . generally , this change in accounting treatment has resulted in : no impact to our cash , cash equivalents , short-term investments ; or overall cash flow ; an increase in our revenue of $ 2.8 million ( 3 % ) and $ 2.7 million ( 4 % ) for our full fiscal years 2011 and 2010 , respectively ; an increase in our net income of $ 0.4 million ( 34 % ) and earnings per share of $ 0.02 ( 40 % ) for our full fiscal year 2011 and a reduction in our net loss of $ 0.7 million ( 17 % ) and loss per share of $ 0.03 ( 16 % ) for our full fiscal year 2010 ; an increase in our current assets of $ 3.8 million ( 6 % ) and total assets of $ 1.0 million ( 1 % ) and an increase in our total shareholders ' equity of $ 0.7 million ( 1 % ) for our fiscal year 2010 and an increase in our current assets of $ 2.7 million ( 4 % ) and total assets of $ 0.5 million ( 1 % ) and an increase in our total shareholders ' equity of $ 1.6 million ( 2 % ) and a decrease in our total liabilities of $ 1.1 million ( 5 % ) for our fiscal year 2011 ; and an increase in our net cash used in operating activities of $ 2.4 million ( 38 % ) , a decrease in net our cash used in investing activities of $ 2.0 million ( 26 % ) and an increase in our net cash provided by financing activities of $ 0.4 million ( 18 % ) for our fiscal year 2011 and an increase in our net cash used in operating activities of $ 2.1 million ( 24 % ) and a decrease in net our cash used in investing activities of $ 2.1 million ( 40 % ) for our fiscal year 2010 ; and an increase in our revenue , net income and earnings per share for the first three quarters of each of our fiscal years 2011 and 2010 and a decrease in revenue , net income and earnings per share for the last quarter of our fiscal year 2010. we do not plan to amend our previously filed annual report on form 10-k for the fiscal year ended march 31 , 2010 due to the restatement of our previously issued consolidated financial statements and related disclosures for the fiscal year ended march 31 , 2010 contained herein . however , we plan to amend our quarterly reports on form 10-q for the periods ended june 30 , 2009 through december 31 , 2010 to reflect the restatements described in this annual report on form 10-k. as a result of the restatement , the financial statements and related financial statement information contained in those reports should no longer be relied upon . throughout this annual report 36 on form 10-k , all amounts presented from prior periods and prior period comparisons that have been revised are labeled as restated and reflect the balances and amounts on a restated basis . overview we design , manufacture and implement energy management systems consisting primarily of high-performance , energy-efficient lighting systems , controls and related services . we currently generate the substantial majority of our revenue from sales of high intensity fluorescent , or hif , lighting systems and related services to commercial and industrial customers . we typically sell our hif lighting systems in replacement of our customers ' existing high intensity discharge , or hid , fixtures . we call this replacement process a retrofit. we frequently engage our customer 's existing electrical contractor to provide installation and project management services . story_separator_special_tag revenue and expense components revenue . we sell our energy management products and services directly to commercial and industrial customers , and indirectly to end users through our partner network and through wholesale sales to electrical contractors and value-added resellers . we currently generate the substantial majority of our revenue from sales of hif lighting systems and related services to commercial and industrial customers . while our services include comprehensive site assessment , site field verification , utility incentive and government subsidy management , engineering design , project management , installation and recycling in connection with our retrofit installations , we separately recognize service revenue only for our installation and recycling services . our service revenues are recognized when services are complete and customer acceptance has been received . in fiscal 2010 and fiscal 2011 , we increased our efforts to expand our value-added reseller channels , including through developing a partner standard operating procedural kit , providing our partners with product marketing materials and providing training to channel partners on our sales methodologies . these wholesale channels accounted for approximately 43 % of our total revenue volume in fiscal 2010 and increased to 53 % of total revenue contributed in fiscal 2011 , not taking into consideration our renewable technologies revenue generated through our orion engineered systems division . additionally , we offer our ota sales-type financing program under which we finance the customer 's purchase of our energy management systems . the ota program was established to assist customers who are interested in purchasing our energy management systems but who have capital expenditure budget limitations . our ota contracts are capital leases under gaap and we record revenue at the present value of the future payments at the time customer acceptance of the installed and operating system is complete . our ota contracts under this sales-type financing are either structured with a fixed term , typically 60 months , and a bargain purchase option at the end of term , or are one year in duration and , at the completion of the initial one-year term , provide for ( i ) one to four automatic one-year renewals at agreed upon pricing ; ( ii ) an early buyout for cash ; or ( iii ) the return of the equipment at the customer 's expense . the revenue that we are entitled to receive from the sale of our lighting fixtures under our ota financing program is fixed and is based on the cost of the lighting fixtures and applicable profit margin . our revenue from agreements entered into under this program is not dependent upon our customers ' actual energy savings . upon completion of the installation , we may choose to sell the future cash flows and residual rights to the equipment on a non-recourse basis to an unrelated third party finance company in exchange for cash and future payments . we recognize revenue from ota contracts at the net present value of the future cash flows at the completion date of the installation of the energy management systems and the customers acknowledgement that they system is operating as specified . 38 in fiscal 2010 , we recognized $ 5.5 million of revenue from 85 completed ota contracts . in fiscal 2011 , we recognized $ 10.7 million of revenue from 127 completed ota contracts . in the future , we expect an increase in the volume of otas as our customers take advantage of our value proposition without incurring any up-front capital cost . our ppa financing program provides for our customer 's purchase of electricity from our renewable energy generating assets without an upfront capital outlay . our ppa is a longer-term contract , typically in excess of 10 years , in which we receive monthly payments over the life of the contract . this program creates an ongoing recurring revenue stream , but reduces near-term revenue as the payments are recognized as revenue on a monthly basis over the life of the contract versus upfront upon product shipment or project completion . in fiscal 2010 , we did not recognize any revenue from completed ppas . in fiscal 2011 , we recognized $ 0.4 million of revenue from completed ppas . as of march 31 , 2011 , we had signed one customer to two separate ppas representing future potential discounted revenue streams of $ 3.2 million . we discount the future revenue from ppas due to the long-term nature of the contracts , typically in excess of 10 years . the timing of expected future discounted gaap revenue recognition and the resulting operating cash inflows from ppas , assuming the systems perform as designed , was as follows as of march 31 , 2011 ( in thousands ) : replace_table_token_7_th other than for ota and ppa revenue , we recognize revenue on product only sales at the time of shipment . for projects consisting of multiple elements of revenue , such as a combination of product sales and services , we recognize revenue by allocating the total contract revenue to each element based on their relative selling prices . we determine the selling price of products based upon the price charged when these products are sold separately . for services , we determine the selling price based upon management 's best estimate giving consideration to pricing practices , margin objectives , competition , scope and size of individual projects , geographies in which we offer our products and services and internal costs . we recognize revenue at the time of product shipment on product sales and on services completed prior to product shipment . we recognize revenue associated with services provided after product shipment , based on their relative selling price , when the services are completed and customer acceptance has been received . when other significant obligations or acceptance terms remain after products are delivered , revenue is recognized only after such obligations are fulfilled or acceptance by the customer has occurred .
| results of operations the following table sets forth the line items of our consolidated statements of operations on an absolute dollar basis and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods set forth below : replace_table_token_9_th nm = not meaningful ( 1 ) for fiscal 2010 , represents the impact of an accounting change from operating lease treatment to sales-type capital lease treatment for our ota finance contracts . see note b restatement of financial statements to our consolidated financial statements for detailed information regarding the impact of the restatement on fiscal 2010. consolidated fiscal 2011 compared to fiscal 2010 contracted revenue . total contracted revenue increased from $ 73.9 million for fiscal 2010 ( which included $ 10.0 million of future gross cash flow streams associated with otas and $ 1.7 million of future potential revenue streams associated with ppas ) to $ 103.9 million for fiscal 2011 ( which included $ 14.6 million of future gross cash flow streams associated with otas and $ 1.9 million of future potential revenue streams associated with ppas ) , an increase of $ 30.0 million , or 41 % . we attribute this improvement in contracted revenue to an increase in orders for renewable technologies through our orion engineered systems division and an increase in new customer ota contracts , along with increased order activity for our integrated lighting systems from an improved economic environment during the second half of fiscal 2011 . 43 revenue . product revenue increased from $ 60.9 million for fiscal 2010 to $ 86.4 million for fiscal 2011 , an increase of $ 25.5 million , or 42 % .
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in august 2016 , the fasb issued asu 2016-15 , statement of cash flows — classification of certain receipts and payments ( “ asu 2016-15 ” ) , which provides additional clarity on the classification of specific events on the statement of cash flows including debt prepayment and extinguishment costs , settlement of zero-coupon debt instruments , contingent consideration payments made after a business combination , proceeds from story_separator_special_tag the following discussion should be read in conjunction with part i , including matters set forth in the “ risk factors ” section of this annual report on form 10-k , and our financial statements and notes thereto included in part ii , item 8 of this form 10-k. except when stated otherwise , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview carvana is a leading ecommerce platform for buying used cars . we are transforming the used car buying experience by giving consumers what they want — a wide selection , great value and quality , transparent pricing and a simple , no pressure transaction . each element of our business , from inventory procurement to fulfillment and overall ease of the online transaction , has been built for this singular purpose . since the launch of our first market in january 2013 through december 31 , 2017 , we have purchased , reconditioned , sold and delivered approximately 71,900 vehicles to customers through our website , generating $ 1.4 billion in revenue . our business combines a comprehensive online sales experience with a vertically-integrated supply chain that allows us to sell high quality vehicles to our customers transparently and efficiently at a low price . using our website , customers can complete all phases of a used vehicle purchase transaction . specifically , our online sales experience allows customers to : purchase a used vehicle . as of december 31 , 2017 , we listed approximately 9,500 vehicles for sale on our website , where customers can select and purchase a vehicle , including arranging financing and signing contracts , directly from their desktop or mobile device . selling used vehicles to retail customers is the primary driver of our business . selling used vehicles generates revenue equal to the selling price of the vehicle , less an allowance for returns , and also enables multiple additional revenue streams , including vehicle service contracts ( “ vscs ” ) , gap waiver coverage and trade-ins . finance their purchase . customers can pay for their carvana vehicle using cash , our proprietary loan origination platform or financing from third parties such as banks or credit unions . customers who choose to apply for our in-house financing fill out a short application form , select from a range of financing terms we provide , and , if approved , apply the financing to their purchase in our online checkout process . we generally seek to sell the automotive finance receivables we originate to third party financing partners and earn a premium on each sale . protect their purchase . customers have the option to protect their vehicle with a carvanacare-branded vsc as part of our online checkout process . vscs provide customers with insurance against certain mechanical repairs after the expiration of their vehicle 's original manufacturer warranty . we earn a fee for selling vscs on behalf of an affiliate of drivetime and , prior to december 2016 , third parties , who are the obligors under these vscs . we generally have no contractual liability to customers for claims under these agreements . we also recently began offering gap waiver coverage to customers in most states . this product contractually obligates us to cancel the remaining principal outstanding after insurance proceeds in a total loss event . sell us their car . we allow our customers to trade-in a vehicle and apply the trade-in value to their purchase , or to sell us a vehicle independent of a purchase . using our digital appraisal tool , customers can complete a short appraisal form and receive an offer for their trade-in nearly instantaneously . we generate trade-in offers using a proprietary valuation algorithm supported by extensive used vehicle market and customer behavior data . when customers accept our offer , we take their vehicles into inventory and sell them either at auction as a wholesale sale or through our website as a retail sale . vehicles sold at auction typically do not meet the quality or condition standards required to be included in retail inventory displayed for sale on our website . 49 to enable a seamless customer experience , we have built a vertically-integrated used vehicle supply chain , supported by proprietary software systems and data . vehicle sourcing and acquisition . we acquire the majority of our used vehicle inventory from wholesale auctions . we also , to a lesser extent , acquire vehicles from consumers and directly from used vehicle suppliers , including franchise and independent dealers , leasing companies and car rental companies . using proprietary machine learning algorithms and data from a variety of internal and external sources , we evaluate tens of thousands of vehicles daily to determine their fit with consumer demand , internal profitability targets and our existing inventory mix . inspection and reconditioning . after acquiring a vehicle , we transport it to one of our inspection and reconditioning centers ( “ ircs ” ) , where it undergoes a 150-point inspection and is reconditioned to meet “ carvana certified ” standards . this process is supported by a custom used vehicle inventory management system , which tracks vehicles through each stage of the process and is seamlessly integrated with auto parts suppliers to facilitate the procurement of required parts . photography and merchandising . we photograph vehicles using our proprietary photo booths located at each of our ircs . this allows us to display interactive , 360-degree images of each vehicle on our website . story_separator_special_tag over this period , we have continually improved our market expansion playbook , which we believe provides us with the capability to accelerate this rate of market openings in the future . when we open a market , we commence advertising using a blend of brand and direct advertising channels . our advertising spend in each market is approximately proportionate to each market 's population , subject to adjustments based on specific characteristics of the market , used vehicle market seasonality and special events such as vending machine openings . this historically has led to increased market penetration over time following the market opening . beginning in the second quarter of 2017 , we increased national television advertising spend . with our growth into new markets , national television advertising is becoming more economically efficient compared to purchasing several local television advertising campaigns . market cohorts many of our markets are in a nascent stage , making company-wide measures potentially less informative than measurements of seasoned markets . more than half of our markets opened in 2017. the graphs below provide alternative metrics related to unit sales performance and customer acquisition costs , examining our progress based on when we commenced operations in the market . we measure penetration in each cohort based on our retail unit sales to customers in that cohort and an estimate of used vehicle market size in that cohort based on u.s. used vehicle sales per capita . cohorts differ based on the number and average population of markets in the cohort , the timing of market openings in the first fiscal year of the cohort and other demographic or economic differences across cohorts . however , taken as a whole , they illustrate how our penetration over time evolves as markets age . the following graphs present market penetration and customer acquisition costs by cohort as a time series by quarters in operation . markets are first grouped into cohorts based on the year in which they began local delivery operations , then data is aligned by first quarter in operation results , however we only display data for periods in which all markets were active . for example , the 2017 cohort presented below is a single quarterly data point as of december 31 , 2017 because markets that opened in the fourth quarter of 2017 have only been open for a single quarter . this data point for the 2017 cohort represents each 51 market 's results from its first quarter of operations and therefore includes data from each calendar quarter of 2017. we chose this approach because it avoids a number of base-effect distortions that can occur by including periods in which not all markets were open . 52 our markets showed continued improvement in 2017 with penetration expanding in our existing markets and our newly launched markets off to the best start in our history . these trends have been supported by growing brand recognition , increasing word of mouth referrals and internal improvements , including more extensive vehicle inventory and various mobile and desktop website enhancements . as markets mature , we generally see consistent declines in customer acquisition costs reflecting advertising expenditures being spread over an increased number of units sold . cohorts have generally followed similar patterns of increased market penetration and declining advertising expense per retail unit sold as each cohort matures , which we believe illustrates the replicability of our model as we expand into new markets . the 2013 cohort , consisting of just atlanta , our oldest and largest market , continued to show impressive growth of 44 % in 2017 , reaching market penetration of 1.54 % in the fourth quarter of 2017 compared to 1.07 % in fourth quarter of 2016. this growth helped leverage our advertising cost per unit in atlanta to $ 440 in the fourth quarter of 2017 compared to $ 551 in the fourth quarter of 2016. additionally , our other market cohorts continue to grow quickly , leverage advertising costs , and with our move towards national television advertising , new markets are launching with lower customer acquisition costs . for example , in the first quarter of operations in 2017 , advertising cost per unit was $ 3,749 , less than half of the first quarter levels in 2016 or 2015. relative to our other cohorts , the 2014 market cohort ( consisting of nashville and charlotte ) showed a slower rate of growth in 2017. we believe that this was caused by an extended marketing test we ran with nashville and charlotte receiving a mix of content that ultimately proved less effective than content we ran in other markets . by continually testing marketing channels and creative content across markets , we can optimize our marketing strategies over time . we expect to continue running these tests in the future , which could result in suboptimal conditions for a period of time in any one or more markets . in addition to sales in our markets , we sell vehicles to customers outside of our markets . retail units sold to customers outside of our markets were 8,967 , or 20.3 % , of total retail units sold in the year ended december 31 , 2017 and 3,963 , or 53 21.1 % , of total retail units sold in the year ended december 31 , 2016. sales outside of our markets in 2017 were impacted by two offsetting factors . the first was the introduction of national television advertising , which had a positive impact on out-of-market sales , other factors being equal , due to increased awareness of our brand . the second was our continued expansion to new markets , which had a negative impact , other factors being equal , since some areas that were previously out-of-market became part of our 2017 market cohort .
| results of operations years ended december 31 , 2017 2016 change 2015 change ( dollars in thousands , except per unit amounts ) net sales and operating revenues : used vehicle sales , net $ 796,915 $ 341,989 133.0 % $ 124,972 173.7 % wholesale vehicle sales 28,514 10,163 180.6 % 3,743 171.5 % other sales and revenues ( 1 ) 33,441 12,996 157.3 % 1,677 675.0 % total net sales and operating revenues $ 858,870 $ 365,148 135.2 % $ 130,392 180.0 % gross profit : used vehicle gross profit ( loss ) $ 32,806 $ 5,944 451.9 % $ ( 212
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long-lived asset testing the company estimates the depreciable lives of property , plant and equipment , and reviews long-lived assets for impairment whenever events , or changes in circumstances , indicate the carrying amount of such assets may not be recoverable . the company performs such assessments at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities , which is generally at the plant level , operating company level or the reporting unit level , dependent on the level of interdependencies in the company 's operations . impairment losses story_separator_special_tag of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto that are available elsewhere in this annual report on form 10-k. the following is a discussion and analysis of splp 's consolidated results of operations for the years ended december 31 , 2017 , 2016 and 2015 . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in `` risk factors '' in item 1a . all monetary amounts used in this discussion are in thousands except common unit , per common unit , share and per share amounts . business segments splp operates through the following segments : diversified industrial , energy , financial services , and corporate and other , which are managed separately and offer different products and services . for a more complete description of the company 's segments , see `` item 1 - business - the company '' found elsewhere in this form 10-k. recent developments below is a summary of recent developments that impacted the company . for additional information on the acquisitions described below , see note 3 - `` acquisitions '' to the splp consolidated financial statements found elsewhere in this form 10-k. 20 the company completed separate tender offers to purchase all of the outstanding shares of steel excel and hnh common stock not already owned by splp or its affiliates , issuing a total of approximately 7,900,000 splp preferred units with a liquidation value of approximately $ 198,500 as purchase consideration . on november 14 , 2017 , the company entered into a new five-year , $ 600,000 revolving credit facility . the new credit facility consolidates a number of the company 's existing credit facilities into one combined , revolving credit facility covering substantially all of the company 's subsidiaries , with the exception of webbank . on may 19 , 2017 , the company acquired an 80 % interest in basin for approximately $ 5,100. basin provides wireline services to major oil & gas exploration and production companies in the u.s. and specializes in cased-hole wireline logging and perforating services for exploration and production companies with wells in new mexico , texas , utah , arizona and colorado . on december 15 , 2017 , the company purchased 35,000 shares of steel connect , inc. ( `` stcn '' ) ( formerly moduslink global solutions , inc. ) convertible preferred stock for $ 35,000 , increasing the company 's interest in stcn 's outstanding shares to approximately 46 % . the company recorded tax benefits of approximately $ 44,681 during 2017 associated with the reversal of its deferred tax valuation allowances at certain subsidiaries . on december 22 , 2017 , the tax cuts and jobs act was enacted , which reduces the u.s. corporate income tax rate from 35 % to 21 % beginning in 2018 and imposes a transition tax on deemed repatriated earnings of our foreign subsidiaries . our financial results for 2017 included an income tax provision of approximately $ 58,717 resulting from the transition tax and the revaluation of our u.s. deferred tax assets and liabilities to reflect the recently enacted 21 % federal corporate tax rate . on february 16 , 2018 , the company completed the acquisition of dunmore corporation in the u.s. , and the share purchase of dunmore europe gmbh in germany ( collectively , `` dunmore '' ) for a purchase price of $ 66,000 , subject to a working capital adjustment and an earn-out based on future earnings during the period from january 1 , 2018 through december 31 , 2019. in no case shall the purchase price , including the potential earn-out , exceed $ 80,000. dunmore is a global provider of specialty coated , laminated and metallized films for the aircraft , spacecraft , photovoltaic , graphic arts , packaging , insulation , surfacing and fashion industries . story_separator_special_tag rahway facility . the higher interest expense in 2017 was primarily due to higher borrowing levels incurred to finance the diversified industrial segment 's acquisitions made during 2016. the decrease in other income was due to the non-recurrence of the gain on sale of api 's security holographics business , which was sold in the second quarter of 2016. the decrease in equity method investment income from the 2016 period was due to the financial results of sli before it was acquired on june 1 , 2016 , and became a consolidated subsidiary . energy in 2017 , net revenue increased $ 41,466 , or 44.1 % , when compared to 2016 . the increase in net revenue reflects incremental sales of approximately $ 10,767 from the acquisition of basin in may 2017. in addition , the demand for services continued to improve in-line with the increase in the north american oil & gas drilling rig count . story_separator_special_tag the following table summarizes activity in webbank 's allowance for loan and lease losses for the periods indicated : replace_table_token_11_th the distribution of webbank 's allowance for losses on loans at the dates indicated is summarized as follows : as of december 31 , 2017 2016 2015 2014 2013 amount % of loans in each category of total loans amount % of loans in each category of total loans amount % of loans in each category of total loans amount % of loans in each category of total loans amount % of loans in each category of total loans commercial real estate - owner occupied $ 6 0.1 % $ 22 0.4 % $ 39 0.7 % $ 64 1.4 % $ 77 6.1 % commercial real estate - other 7 0.1 % 7 0.2 % 9 0.1 % 12 0.2 % 28 0.3 % commercial and industrial 2,800 30.8 % 880 32.6 % 582 29.1 % 481 63.9 % 319 60.9 % other consumer loans 2,424 19.3 % 574 14.7 % — — % — — — — % loans held for sale — 49.7 % — 52.1 % — 70.1 % — 34.5 % — 32.7 % total loans $ 5,237 100.0 % $ 1,483 100.0 % $ 630 100.0 % $ 557 100.0 % $ 424 100.0 % corporate and other segment operating loss declined $ 11,104 in 2017 , as compared to 2016 , primarily due to higher income of $ 29,983 from equity method and other investments held at fair value , partially offset by higher sg & a of $ 11,922 and higher interest expense of $ 6,493 , primarily due to interest expense recorded on the splp preferred units issued in 2017. the higher sg & a was primarily due to non-cash incentive unit expense of $ 9,021 recorded in 2017. there was no incentive unit expense recorded in 2016 . 27 comparison of the years ended december 31 , 2016 and 2015 replace_table_token_12_th revenue revenue in 2016 increased $ 198,490 , or 20.6 % , when compared to 2015. excluding growth from the acquisitions of sli ( including eme ) , jps and api of 24.7 % and other activity of 0.6 % , primarily due to higher silver prices , revenues declined 4.7 % . the revenue decrease of 4.7 % was primarily due to decreases in the energy and diversified industrial segments , partially offset by an increase in the financial services segment . cost of goods sold cost of goods sold in 2016 increased $ 145,529 , or 21.7 % , when compared to 2015 primarily due to an increase in the diversified industrial segment , which increased due to the acquisitions of sli ( including eme ) , jps and api , as well as from higher duties paid on certain imports , amortization related to the fair value adjustment to acquisition-date inventories associated with the sli ( including eme ) acquisition , and certain inventory write-downs due to the planned closure of two facilities within the diversified industrial segment . this increase was partially offset by a decrease in the energy segment due to lower revenue . selling , general and administrative expenses sg & a in 2016 increased $ 52,099 , or 22.6 % , when compared to 2015 primarily due to the acquisitions of sli ( including eme ) , jps and api and higher personnel costs at webbank to support the increase in their business . these sg & a increases were partially offset by a net decrease in the energy segment due to the receipt of a litigation settlement in 2016 , net of higher corporate overhead and legal fees , as well as a decrease in the corporate and other segment due to lower corporate employee costs and lower professional fees . interest expense interest expense for the years ended december 31 , 2016 and 2015 was $ 11,052 and $ 8,862 , respectively . the higher interest expense was primarily due to higher borrowing levels in 2016 , primarily to fund the 2016 acquisitions discussed above . goodwill impairment charges the company recognized goodwill impairment charges of $ 24,254 and $ 19,571 in 2016 and 2015 , respectively . the 2016 impairment charge related to the diversified industrial segment and resulted from a decline in market conditions and lower demand for certain product lines in the performance materials business . the 2015 impairment charge related to the energy segment and resulted from the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the energy segment . asset impairment charges 28 the asset impairment charges in 2016 are primarily due to the planned closure of two facilities within the diversified industrial segment , and an other-than-temporary decline in the fair value of certain marketable securities and other investments . the asset impairment charges in 2015 primarily relate to other-than-temporary impairments recorded on certain marketable securities and the impairment of a building from the corporate and other segment . all other income , net all other income , net decreased $ 45,753 in 2016 , when compared to 2015 , due to lower gains from investment activity , higher finance interest expense and higher provisions for loan losses recorded in the 2016 period . the lower gains on investment activity recorded in the 2016 period was primarily due to lower investment income recorded by steel excel , the non-recurrence of a gain on the sale of an available-for-sale security recorded in 2015 of approximately $ 25,400 and a gain on our investment in cosine recorded in 2015 of approximately $ 6,900 resulting from the re-measurement of our investment upon the acquisition of a majority interest in cosine in january 2015. income taxes for the year ended december 31 , 2016 , a tax provision of $ 23,952 from continuing operations was recorded .
| results of operations comparison of the years ended december 31 , 2017 and 2016 replace_table_token_4_th revenue revenue in 2017 increased $ 208,478 , or 17.9 % , when compared to 2016 . excluding growth from the acquisitions of sli ( including eme ) , hazen and amp in the diversified industrial segment , and basin in the energy segment totaling 12.9 % and a negative foreign exchange impact of ( 0.8 ) % , revenue increased by 5.7 % . the net revenue increase of 5.7 % was due to increases across all of our segments . cost of goods sold cost of goods sold in 2017 increased $ 142,914 , or 17.5 % , when compared to 2016 primarily due to the impact of our recent acquisitions and higher sales volume discussed above . cost of goods sold in 2016 was negatively impacted by higher duties 21 paid on certain imports , amortization related to the fair value adjustment to acquisition-date inventories associated with the sli ( including eme ) acquisition and certain inventory write-downs due to the planned closure of two facilities from the diversified industrial segment . selling , general and administrative expenses selling , general and administrative expenses ( `` sg & a '' ) in 2017 increased $ 55,421 , or 19.6 % , when compared to 2016 primarily due to the company 's recent acquisitions , higher personnel costs at webbank to support the increase in their business , as well as pension obligations and severance charges recorded as a result of the planned closure of api 's rahway facility . the increase in the corporate and other segment was primarily due to higher non-cash incentive unit expense recorded in 2017. no incentive unit expense was recorded in 2016. interest expense interest expense for the years ended december 31 , 2017 and 2016 was $ 22,804 and $ 11,052 , respectively .
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these risks include , but are not limited to , those discussed in item 1a , “ risk factors ” in this form 10-k. the following discussion and analysis should be read in conjunction with the forward-looking statements section and item 1a , “ risk factors ” each included in this form 10-k. the md & a includes discussion of financial performance within each of our three segments . we have chosen to specifically include reported ebitda ( defined as segment net revenue less segment operating expense , plus or minus segment equity investment income or loss , plus gain on litigation settlement and for the real estate segment , plus gain on sale of real property ) and net debt ( defined as long-term debt plus long-term debt due within one year less cash and cash equivalents ) , in the following discussion because we consider these measurements to be significant indications of our financial performance and available capital resources . reported ebitda and net debt are not measures of financial performance or liquidity under generally accepted accounting principles ( “ gaap ” ) . we utilize reported ebitda in evaluating our performance and in allocating resources to our segments . refer to the end of the results of operations section for a reconciliation of reported ebitda to net income attributable to vail resorts , inc. we also believe that net debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs . refer to the end of the results of operations section for a reconciliation of net debt to long-term debt . items excluded from reported ebitda and net debt are significant components in understanding and assessing financial performance or liquidity . reported ebitda and net debt should not be considered in isolation or as an alternative to , or substitute for , net income , net change in cash and cash equivalents or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity . because reported ebitda and net debt are not measurements determined in accordance with gaap and are thus susceptible to varying calculations , reported ebitda and net debt , as presented herein , may not be comparable to other similarly titled measures of other companies . overview our operations are grouped into three integrated and interdependent segments : mountain , lodging and real estate . resort is the combination of the mountain and lodging segments . the mountain , lodging and real estate segments represented approximately 82 % , 17 % and 1 % , respectively , of our net revenue for fiscal 2016. whistler blackcomb acquisition on august 5 , 2016 , we entered into an arrangement agreement ( the “ whistler agreement ” ) to acquire all of the outstanding common shares of whistler blackcomb holdings , inc. ( “ whistler blackcomb ” ) . whistler blackcomb owns a 75 % interest in each of whistler mountain resort limited partnership and blackcomb skiing enterprises limited partnership , which together operate whistler blackcomb resort , a year round mountain resort with a comprehensive offering of recreational activities , including both snow sports and summer activities . whistler blackcomb shareholders will receive total consideration consisting of ( i ) c $ 17.50 per share in cash , and ( ii ) 0.0998 shares ( the “ consideration shares ” ) , subject to a currency exchange rate adjustment to be determined based on the applicable exchange rate as of the sixth business day prior to the closing date . the estimated total consideration to be paid to whistler blackcomb shareholders is approximately $ 1.1 billion as of august 5 , 2016 , based on the closing currency exchange rate and price of vail resorts common stock as of that day . completion of this acquisition is subject to certain closing conditions , including the approval by whistler blackcomb shareholders and the british columbia supreme court , and regulatory approvals , as well as other customary closing conditions . for additional information , see the notes to consolidated financial statements . 36 mountain segment during fiscal 2016 , the mountain segment was comprised of the operations of nine mountain resort properties including vail , breckenridge , keystone and beaver creek mountain resorts in colorado ( “ colorado ” resorts ) ; park city mountain resort in utah ( comprised of the former park city mountain resort acquired in september 2014 and the former canyons resort in park city , utah ) ; heavenly , northstar and kirkwood mountain resorts in the lake tahoe area of california and nevada ( “ tahoe ” resorts ) ; perisher ski resort in new south wales , australia ( “ perisher , ” acquired in june 2015 ) ; and the urban ski areas of wilmot mountain in wisconsin ( acquired in january 2016 ) , afton alps in minnesota and mount brighton in michigan ( “ urban ” ski areas ) ; as well as ancillary services , primarily including ski school , dining and retail/rental operations , and for perisher , including lodging and transportation operations . our mountain resorts located in the u.s. were open for business for the 2015/2016 ski season primarily from mid-november through mid-april , which is the peak operating season for the mountain segment . our single largest source of mountain segment revenue is the sale of lift tickets ( including season passes ) , which represented approximately 50 % , 49 % and 46 % of mountain segment net revenue for fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . lift revenue is driven by volume and pricing . pricing is impacted by both absolute pricing , as well as the demographic mix of guests , which impacts the price points at which various products are purchased . story_separator_special_tag recent trends , risks and uncertainties we have identified the following important factors ( as well as uncertainties associated with such factors ) that could impact our future financial performance : the timing and amount of snowfall can have an impact on mountain and lodging revenue particularly with regard to skier visits and the duration and frequency of guest visitation . to help mitigate this impact , we sell a variety of season pass products prior to the beginning of the ski season resulting in a more stabilized stream of lift revenue . additionally , our season pass products provide a compelling value proposition to our guests , which in turn creates a guest commitment predominantly prior to the start of the ski season . in march 2016 , we began our pre-season pass sales program for the 2016/2017 u.s. ski season . through september 18 , 2016 , pre-season pass sales for the upcoming 2016/2017 u.s. ski season have increased approximately 24 % in units and increased approximately 29 % in sales dollars , compared to the prior year period ended september 20 , 2015. we can not predict if this favorable trend will continue through the fall 2016 u.s pass sales campaign , nor can we predict the overall impact that season pass sales will have on lift revenue for the 2016/2017 u.s. ski season . in fiscal 2016 , our lift revenue was favorably impacted by non-season pass price increases at our mountain resorts that were implemented for the 2015/2016 u.s. ski season . non-season pass prices for the 2016/2017 u.s. ski season have not yet been finalized ; and , as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2016 results for our mountain and lodging segments showed strong improvement over fiscal 2015 largely due to strong pass sales growth for the 2015/2016 u.s. ski season , an increase in overall visitation at our colorado , park city and tahoe resorts , and improved ancillary guest spend in our ski school , dining and retail/rental operations . we can not predict whether our colorado , tahoe and park city resorts will experience normal snowfall conditions for the upcoming 2016/2017 u.s. ski season nor can we estimate the impact there may be to advance bookings , guest travel , season pass sales , lift revenue ( excluding season passes ) , retail/rental sales or other ancillary services revenue next ski season as a result of past snowfall conditions . key u.s. economic indicators have remained steady in 2016 , including strong consumer confidence and declines in the unemployment rate . however , the growth in the u.s. economy may be impacted by economic challenges in the u.s. or declining or slowing growth in economies outside of the u.s. , accompanied by devaluation of currencies and lower commodity prices . given these economic uncertainties , we can not predict what the impact will be on overall travel and leisure spending or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2016/2017 u.s. ski season . we expect the whistler blackcomb transaction to close in fall 2016. the transaction has been unanimously approved by the board of directors of whistler blackcomb , and shareholders representing 25 % of whistler blackcomb 's common shares have entered into voting support agreements in connection with the transaction . the transaction has also been unanimously approved by our board of directors . the whistler agreement provides for customary representations , warranties and covenants , and provides for the payment of fees upon the termination of the whistler agreement under certain circumstances , including whistler blackcomb obtaining a superior proposal and failure to obtain certain regulatory approvals . we also expect that whistler blackcomb will significantly contribute to our results of operations ; however ; we can not predict whether we will realize all of the synergies expected from the operations of whistler blackcomb nor can we predict all the resources required to integrate whistler blackcomb operations and the ultimate impact whistler blackcomb will have on our future results of operations . 38 we intend to finance the cash portion of the consideration for the whistler blackcomb transaction of approximately $ 513 million , subject to adjustment for currency exchange rates , with a combination of cash and cash equivalents on hand , available revolving borrowing capacity under the seventh amended and restated credit agreement , dated as of may 1 , 2015 , among vail holdings , inc. , as the borrower , bank of america , n.a. , as administrative agent , and the lenders party thereto ( the “ credit agreement ” ) , and an incremental term loan facility to be incurred through an amendment to the credit agreement . we have received an executed commitment letter from u.s. bank , national association ( “ u.s . bank ” ) and wells fargo bank , national association ( “ wells fargo ” ) whereby u.s. bank and wells fargo have committed to provide a $ 360 million incremental term loan . additionally , we intend to assume or refinance whistler blackcomb 's existing c $ 300 million revolving credit facility as part of the transaction . as of june 30 , 2016 , whistler blackcomb 's credit facility had debt outstanding of c $ 185.8 million , or $ 143.8 million . in addition , whistler blackcomb 's credit facility contains a change in control provision pursuant to which the lenders can elect to require repayment of the entire outstanding balance upon closing . we intend to obtain a waiver of the change in control provision in order to maintain the existing facility or to refinance whistler blackcomb 's existing credit facility if a waiver can not be obtained .
| results of operations summary shown below is a summary of operating results for fiscal 2016 , fiscal 2015 and fiscal 2014 ( in thousands ) : replace_table_token_4_th 40 mountain segment mountain segment operating results for fiscal 2016 , fiscal 2015 and fiscal 2014 are presented by category as follows ( in thousands , except etp ) : replace_table_token_5_th mountain reported ebitda includes $ 13.4 million , $ 11.8 million and $ 10.3 million of stock-based compensation expense for fiscal 2015 , fiscal 2014 and fiscal 2013 , respectively . fiscal 2016 compared to fiscal 2015 fiscal 2016 results reflect an increase in mountain reported ebitda of $ 80.3 million , or 23.3 % , compared to fiscal 2015. this increase was primarily due to strong u.s. pass sales growth for the 2015/2016 u.s. ski season ; a strong rebound at our tahoe resorts ; continued growth at our colorado resorts and park city ; strong ancillary guest spending for ski school , dining and retail/rental operations ; as well as the addition of a full year of perisher results ( acquired in june 2015 ) . our tahoe resorts saw a significant increase in skier visitation during the 2015/2016 u.s. ski season , primarily as a result of improved weather conditions and snowfall in the tahoe region compared to the same period in the prior year . our colorado resorts and park city realized strong increases in skier visitation during fiscal 2016 compared to the same period in the prior year . we believe the increase at park city is due in part to the significant capital improvements we made at the resort , including connecting park city mountain resort and canyons into the largest resort in the u.s. , and our marketing efforts surrounding the investments and connection .
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we develop , manufacture and market products for a broad range of food animals including poultry , swine , beef and dairy cattle and aquaculture . our products help prevent , control and treat diseases , enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition . in addition to animal health and mineral nutrition products , we manufacture and market specific ingredients for use in the personal care , automotive , industrial chemical and chemical catalyst industries . we sell more than 1,400 product presentations in over 65 countries to approximately 3,000 customers . factors affecting our performance industry growth according to vetnosis , a research and consulting firm specializing in global animal health and veterinary medicine , the global livestock animal health sector represented approximately $ 19.8 billion of sales in 2015. the market grew at a compound annual growth rate of 3.3 % between 2010 and 2015 and the market is projected to grow at a compound annual growth rate of approximately 5.0 % per year between 2015 and 2020. we believe global population growth , the growth of the global middle class and the productivity improvements needed due to limitations of arable land and water supplies have supported and will continue to support this growth . regulatory developments our business depends heavily on a healthy and growing livestock industry . some in the public perceive risks to human health related to the consumption of food derived from animals that utilize certain of our products , including certain of our mfa products . in particular , there is increased focus , primarily in the united states , on the use of medically important antibacterials , as defined by the fda . medically important antibacterials include classes that are prescribed in animal and human health and are listed in the appendix of the fda-cvm guidance for industry ( gfi ) # 152. our products that contain virginiamycin , oxytetracycline or neomycin have previously been classified by the fda as medically important antibacterials . this may lead to a decline in the demand for and production of food products derived from animals that utilize our products and , in turn , demand for our products . livestock producers may experience decreased demand for their products or reputational harm as a result of evolving consumer views of nutrition and health-related concerns , animal rights , and other concerns . any reputational harm to the livestock industry may also extend to companies in related industries , including us . in addition , campaigns by interest groups , activists and others with respect to perceived risks associated with the use of our products in animals , including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production , whether or not scientifically-supported , could affect public perceptions and reduce the use of our products . those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations . our sales in the united states of products that have been classified by the fda as medically important antibacterials were approximately $ 37 million for the year ended june 30 , 2016 . 55 our business is subject to product registration and authorization regulations . changes in the regulations could have a material impact on our business . in april 2016 , the fda began initial steps to withdraw approval of mecadox ( carbadox ) , due to concerns that certain residues from the product may persist in tissues for longer than previously determined . this initial action by the fda does not prohibit the sale or use of mecadox in the united states . mecadox has been approved and sold in the united states for more than 40 years and is a widely used treatment for controlling bacterial diseases including salmonella and swine dysentery . mecadox is not used in human medicine and the class of drug is not considered a medically important antimicrobial . the approved mecadox label requires a 42-day withdrawal period pre-harvesting , and to date we have not seen any hazardous residues of carbadox being detected from pig meat treated in accordance with the approved label . we have complete confidence in the safety of mecadox . in response to fda inquiries several years ago , we began rigorous new studies of the continued safety of the product when used in accordance with the label . our studies were completed in july 2016 , and we submitted our data , analyses and information to the fda that we believe support the continued safe use of mecadox . the timing of the fda 's response to our submission is not subject to a predetermined deadline . our sales of mecadox in the united states were approximately $ 15 million for the year ended june 30 , 2016. should we be unable to successfully defend the safety of the product , the loss of mecadox sales would have a negative impact to the results of our operations . competition the animal health industry is highly competitive . we believe many of our competitors are conducting r & d activities in areas served by our products and in areas in which we are developing products . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . in addition to competition from established participants , there could be new entrants to the animal health medicines and vaccines industry in the future . principal methods of competition vary depending on the region , species , product category or individual products , including reliability , reputation , quality , price , service and promotion to veterinary professionals and livestock producers . foreign exchange we conduct operations in many areas of the world , involving transactions denominated in a variety of currencies . story_separator_special_tag — 5,350 — * ( 5,350 ) * foreign currency ( gains ) losses , net ( 7,609 ) ( 5,400 ) 1,753 ( 2,209 ) * ( 7,153 ) * loss on extinguishment of debt — — 22,771 — * ( 22,771 ) * adjusted ebitda $ 114,060 $ 110,019 $ 90,597 $ 4,041 4 % $ 19,422 21 % comparison of fiscal years ended june 30 , 2016 and 2015 our results for the fiscal year ended june 30 , 2015 included $ 8.0 million of revenue and income from milestone payments for licensing of vaccine delivery technology . for a better understanding of underlying trends , we also present comparisons with 2015 that exclude the prior year milestone payments . net sales net sales of $ 751.5 million for the year ended june 30 , 2016 increased $ 2.9 million , or less than 1 % , as compared to the year ended june 30 , 2015. animal health grew $ 15.3 million , while mineral nutrition and performance products declined $ 10.4 million and $ 2.0 million , respectively . excluding the prior year $ 8.0 million of vaccine licensing milestone revenue , net sales increased $ 10.9 million , or 1 % . animal health net sales of $ 486.1 million for the year ended june 30 , 2016 grew $ 15.3 million , or 3 % . the growth was primarily due to volume increases across all product groups within the segment . nutritional specialty products grew $ 12.4 million , or 15 % , primarily due to u.s. and e.u . volume growth of our products for the dairy and poultry industries . mfas and other grew $ 4.2 million , or 1 % , primarily due to volume growth in international markets , which offset declines in domestic volumes . vaccines declined $ 1.2 million , or 2 % , due to the $ 8.0 million in vaccine licensing milestone revenue recorded in the prior year . excluding the prior year $ 8.0 million in vaccine licensing milestone revenue , vaccines grew $ 6.8 million , or 15 % , principally from volume growth , including sales of mvp products . excluding the prior year $ 8.0 million of vaccine licensing milestone revenue , net sales grew $ 23.3 million , or 5 % . 60 mineral nutrition net sales of $ 216.7 million decreased $ 10.4 million , or 5 % , for the year ended june 30 , 2016. the decrease is due to lower average selling prices due to underlying raw material commodity price declines . increased volumes from improved demand for trace mineral products partially offset the lower average selling prices . performance products net sales of $ 48.7 million decreased $ 2.0 million , or 4 % , for the year ended june 30 , 2016 , due to lower average selling prices of copper-based products and personal care ingredients and lower volumes of chemical catalyst products . gross profit gross profit of $ 239.0 million for the year ended june 30 , 2016 increased $ 5.8 million , or 2 % , as compared to the year ended june 30 , 2015. gross profit increased to 31.8 % of net sales for the year ended june 30 , 2016 as compared to 31.2 % for the year ended june 30 , 2015. animal health gross profit increased $ 6.8 million due to volume growth , lower unit costs from improved operating efficiencies and favorable currency movements . current year animal health gross profit was reduced by $ 2.6 million of acquisition-related cost of goods sold , unfavorable vaccine manufacturing costs related to production interruptions , $ 1.2 million of acquisition-related intangible amortization and $ 1.1 million of increased depreciation expense due to recent capital expenditures . excluding the prior year $ 8.0 million of vaccine licensing milestone revenue and gross profit and excluding the current year $ 2.6 million of acquisition-related cost of goods sold , animal health gross profit increased $ 17.4 million , or 9 % . mineral nutrition gross profit increased $ 0.3 million due to lower material costs , partially offset by lower average selling price . performance products gross profit decreased $ 1.3 million due to lower average selling prices of copper-based products and personal care ingredients , partially offset by lower material costs . excluding the prior year $ 8.0 million of vaccine licensing milestone revenue and gross profit , the current year $ 2.6 million of acquisition-related cost of goods sold and acquisition-related amortization for each year , gross profit increased $ 17.6 million , or 8 % . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses of $ 153.3 million for the year ended june 30 , 2016 increased $ 7.7 million , or 5 % , as compared to the year ended june 30 , 2015. animal health accounted for $ 4.9 million of the increase , driven by increased acquisition-related accrued compensation and increased sales force and product development costs . performance products account for $ 0.6 of the increase due to higher environmental remediation costs .
| summary results of operations replace_table_token_5_th certain amounts and percentages may reflect rounding adjustments . * calculation not meaningful changes in net sales from period to period primarily result from changes in volumes and average selling prices . although a portion of our net sales is denominated in various currencies , the selling prices of the majority of our sales outside the united states are referenced in u.s. dollars , and as a result , our revenues have not been significantly directly affected by currency movements . our effective income tax rate has varied significantly from period to period and from the federal statutory rate , due to the mix of income tax provisions on profitable foreign jurisdictions ; the effect of the release of the valuation allowance against domestic deferred income taxes during fiscal year 2016 ; minimal income tax provision or benefit being recorded on domestic pre-tax income or losses prior to fiscal year 2016 ; and the effect of discrete items . accordingly , we expect our normalized effective tax rate in the future periods to approximate 30 % . we intend to continue to reinvest indefinitely the undistributed earnings of our foreign subsidiaries . 58 see “ notes to consolidated financial statements—income taxes ” for additional information . net sales , adjusted ebitda and reconciliation of gaap net income to adjusted ebitda we report net sales and adjusted ebitda by segment to understand the operating performance of each segment . this enables us to monitor changes in net sales , costs and other actionable operating metrics at the segment level . see “ —general description of non-gaap financial measures ” for descriptions of ebitda and adjusted ebitda .
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new hampshire on may 2 , 2016 , `` an act relative to net metering '' became law , which raises the cap on net energy metering tariffs available to eligible customer generators from 50 mw to 100 mw and requires the nhpuc to initiate a proceeding to develop alternative net energy metering tariffs . we do not believe that this law will have a material financial impact on the company . 41 critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and , at times , difficult , subjective or complex judgments . changes in these estimates , assumptions and judgments , in and of themselves , could materially impact our financial position , results of operations or cash flows . our management discusses with the audit committee of our board of trustees significant matters relating to critical accounting policies . our critical accounting policies are discussed below . see the combined notes to our financial statements for further information concerning the accounting policies , estimates and assumptions used in the preparation of our financial statements . regulatory accounting : our regulated companies are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for rate-regulated operations , which considers the effect of regulation on the timing of the recognition of certain revenues and expenses . the regulated companies ' financial statements reflect the effects of the rate-making process . the application of accounting guidance for rate-regulated enterprises results in recording regulatory assets and liabilities . regulatory assets represent the deferral of incurred costs that are probable of future recovery in customer rates . regulatory assets are amortized as the incurred costs are recovered through customer rates . in some cases , we record regulatory assets before approval for recovery has been received from the applicable regulatory commission . we must use judgment to conclude that costs deferred as regulatory assets are probable of future recovery . we base our conclusion on certain factors , including , but not limited to , regulatory precedent . regulatory liabilities represent revenues received from customers to fund expected costs that have not yet been incurred or probable future refunds to customers . we use our best judgment when recording regulatory assets and liabilities ; however , regulatory commissions can reach different conclusions about the recovery of costs , and those conclusions could have a material impact on our financial statements . we believe it is probable that each of the regulated companies will recover the regulatory assets that have been recorded . if we determine that we can no longer apply the accounting guidance applicable to rate-regulated enterprises to our operations , or that we can not conclude it is probable that costs will be recovered from customers in future rates , the costs would be charged to earnings in the period in which the determination is made . unbilled revenues : the determination of retail energy sales to residential , commercial and industrial customers is based on the reading of meters , which occurs regularly throughout the month . billed revenues are based on these meter readings , and the majority of our recorded annual revenues is based on actual billings . because customers are billed throughout the month based on pre-determined cycles rather than on a calendar month basis , an estimate of electricity or natural gas delivered to customers for which the customers have not yet been billed is calculated as of the balance sheet date . unbilled revenues represent an estimate of electricity or natural gas delivered to customers but not yet billed . unbilled revenues are included in operating revenues on the statement of income and are assets on the balance sheet that are reclassified to accounts receivable in the following month as customers are billed . such estimates are subject to adjustment when actual meter readings become available or when there is a change in our estimates . the regulated companies estimate unbilled sales volumes monthly by first allocating billed sales volumes to the current calendar month based on the daily load ( for electric distribution companies ) or the daily send-out ( for natural gas distribution companies ) for each billing cycle . the billed sales volumes are then subtracted from total month load or send-out , net of delivery losses , to estimate unbilled sales volumes . unbilled revenues are estimated by first allocating unbilled sales volumes to the respective customer classes , then applying an estimated rate by customer class to those sales volumes . the estimate of unbilled revenues can significantly impact the amount of revenues recorded at nstar electric , psnh and yankee gas because they do not have a revenue decoupling mechanism . cl & p , wmeco and nstar gas record a regulatory deferral to reflect the actual allowed amount of revenue associated with their respective decoupled distribution rate design . pension and pbop : we sponsor pension and pbop plans to provide retirement benefits to our employees . for each of these plans , several significant assumptions are used to determine the projected benefit obligation , funded status and net periodic benefit cost . these assumptions include the expected long-term rate of return on plan assets , discount rate , compensation/progression rate and mortality and retirement assumptions . we evaluate these assumptions at least annually and adjust them as necessary . changes in these assumptions could have a material impact on our financial position , results of operations or cash flows . expected long-term rate of return on plan assets : in developing this assumption , we consider historical and expected returns , as well as input from our consultants . our expected long-term rate of return on assets is based on assumptions regarding target asset allocations and corresponding expected rates of return for each asset class . we routinely review the actual asset allocations and periodically rebalance the investments to the targeted asset allocations when appropriate . story_separator_special_tag we contributed $ 146.2 million to the pension plan in 2016. we currently estimate contributing approximately $ 175 million to the pension plan in 2017. for the pbop plan , it is our policy to fund the pbop plan annually through tax deductible contributions to external trusts . we contributed $ 12.5 million to the pbop plan in 2016. we currently estimate contributing $ 7.6 million to the pbop plan in 2017. sensitivity analysis : the following represents the hypothetical increase to the pension plan 's ( excluding the serp plans ) and pbop plan 's reported annual cost as a result of a change in the following assumptions by 50 basis points : replace_table_token_28_th goodwill : we have recorded approximately $ 3.5 billion of goodwill associated with previous mergers and acquisitions . we have identified our reporting units for purposes of allocating and testing goodwill as electric distribution , electric transmission and natural gas distribution . these reporting units are consistent with our operating segments underlying our reportable segments . electric distribution and electric transmission reporting units include carrying values for the respective components of cl & p , nstar electric , psnh and wmeco . the natural gas distribution reporting unit includes the carrying values of nstar gas and yankee gas . as of december 31 , 2016 , goodwill was allocated to the reporting units as follows : $ 2.5 billion to electric distribution , $ 0.6 billion to electric transmission , and $ 0.4 billion to natural gas distribution . 43 we are required to test goodwill balances for impairment at least annually by considering the fair values of the reporting units , which requires us to use estimates and judgments . we have selected october 1st of each year as the annual goodwill impairment testing date . goodwill impairment is deemed to exist if the carrying amount of a reporting unit exceeds its estimated fair value and if the implied fair value of goodwill based on the estimated fair values of the reporting units ' assets and liabilities is less than the carrying amount of the goodwill . if goodwill were deemed to be impaired , it would be written down in the current period to the extent of the impairment . we performed an impairment test of goodwill as of october 1 , 2016 for the electric distribution , electric transmission and natural gas distribution reporting units . this evaluation required the consideration of several factors that impact the fair value of the reporting units , including conditions and assumptions that affect the future cash flows of the reporting units . key considerations include discount rates , utility sector market performance and merger transaction multiples , and internal estimates of future cash flows and net income . the 2016 goodwill impairment test resulted in a conclusion that goodwill is not impaired and no reporting unit is at risk of a goodwill impairment . income taxes : income tax expense is estimated for each of the jurisdictions in which we operate and is recorded each quarter using an estimated annualized effective tax rate . this process to record income tax expense involves estimating current and deferred income tax expense or benefit and the impact of temporary differences resulting from differing treatment of items for financial reporting and income tax return reporting purposes . such differences are the result of timing of the deduction for expenses , as well as any impact of permanent differences , non-tax deductible expenses , or other items that directly impact income tax expense as a result of regulatory activity ( flow-through items ) . the temporary differences and flow-through items result in deferred tax assets and liabilities that are included in the balance sheets . we also account for uncertainty in income taxes , which applies to all income tax positions previously filed in a tax return and income tax positions expected to be taken in a future tax return that have been reflected on our balance sheets . the determination of whether a tax position meets the recognition threshold under applicable accounting guidance is based on facts and circumstances available to us . once a tax position meets the recognition threshold , the tax benefit is measured using a cumulative probability assessment . assigning probabilities in measuring a recognized tax position and evaluating new information or events in subsequent periods requires significant judgment and could change previous conclusions used to measure the tax position estimate . new information or events may include tax examinations or appeals ( including information gained from those examinations ) , developments in case law , settlements of tax positions , changes in tax law and regulations , rulings by taxing authorities and statute of limitation expirations . such information or events may have a significant impact on our financial position , results of operations and cash flows . accounting for environmental reserves : environmental reserves are accrued when assessments indicate it is probable that a liability has been incurred and an amount can be reasonably estimated . adjustments made to estimates of environmental liabilities could have an adverse impact on earnings . we estimate these liabilities based on findings through various phases of the assessment , considering the most likely action plan from a variety of available remediation options ( ranging from no action required to full site remediation and long-term monitoring ) , current site information from our site assessments , remediation estimates from third party engineering and remediation contractors , and our prior experience in remediating contaminated sites . if a most likely action plan can not yet be determined , we estimate the liability based on the low end of a range of possible action plans . a significant portion of our environmental sites and reserve amounts relate to former mgp sites that were operated several decades ago and manufactured gas from coal and other processes , which resulted in certain by-products remaining in the environment that may pose a potential risk to human health and the environment , for which we may have potential liability .
| earnings summary cl & p 's earnings increased $ 34.9 million in 2016 , as compared to 2015 , due primarily to an increase in transmission earnings driven by a higher transmission rate base , as well as the absence in 2016 of the 2015 ferc roe complaint proceedings reserve charge , higher distribution revenues as a result of higher rate base and the absence of a required roe reduction , as stipulated in the pura 2014 rate case decision , and lower operations and maintenance expense . these favorable earnings impacts were partially offset by higher property and other tax expense , a higher effective tax rate and higher depreciation expense . liquidity cash totaled $ 6.6 million as of december 31 , 2016 , compared with $ 1.1 million as of december 31 , 2015. eversource parent has a $ 1.45 billion commercial paper program allowing eversource parent to issue commercial paper as a form of short-term debt , with intercompany loans to certain subsidiaries , including cl & p . the weighted-average interest rate on the commercial paper borrowings as of december 31 , 2016 and 2015 was 0.88 percent and 0.72 percent , respectively . as of december 31 , 2016 and 2015 , there were intercompany loans from eversource parent to cl & p of $ 80.1 million and $ 277.4 million , respectively . eversource parent , and certain of its subsidiaries , including cl & p , are parties to a five -year $ 1.45 billion revolving credit facility . effective september 26 , 2016 , the revolving credit facility 's termination date was extended for one additional year to september 4 , 2021. there were no borrowings outstanding on the revolving credit facility as of december 31 , 2016 or 2015 .
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our chief executive officer and our chief financial officer have evaluated our disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended ) prior to the filing of this annual report . based on that evaluation , they have concluded that , as of the end of the period covered by this annual report , our disclosure controls and procedures were , in design and operation , effective at a reasonable assurance level . ( b ) changes in internal control over financial reporting . there have not been any changes story_separator_special_tag forward-looking statements the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs , and involve risks and uncertainties . actual events or results may differ materially . our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks , uncertainties and other factors . we discuss many of these risks , uncertainties and other factors in this annual report on form 10-k in greater detail under the heading item 1arisk factors. we caution investors that our business and financial performance are subject to substantial risks and uncertainties . overview we are a clinical-stage pharmaceutical company developing novel therapeutics for chronic urological conditions marked by inflammation and pain . our lead drug candidate , rosiptor , is in phase 3 development ( leadership 301 trial ) for the treatment of patients with interstitial cystitis/bladder pain syndrome ( ic/bps ) , a condition for which there are currently few fda approved and or effective treatment options . we are focused on leveraging our library of novel compounds that activate ship1 ( sh2-containing inositol-5'-phosphatase 1 ) to develop therapeutics for application in inflammation , inflammatory pain , and blood cancers . rosiptor is a first-in-class , once-daily , oral treatment being studied for its effects on inflammation and inflammatory pain . rosiptor has a novel mechanism of action , activating ship1 , an enzyme that serves to down-regulate inflammation through its role in the pi3k signaling pathway . rosiptor has been generally well tolerated in multiple completed clinical studies , with more than 395 subjects dosed . we retain full worldwide rights of rosiptor and hold patents with terms through 2024 in europe and 2028 in the united states with the possibility of further patent term extension avenues available to us . ic/bps is a debilitating condition marked by chronic bladder pain and urinary symptoms . patients may experience recurring pain , pressure , and or discomfort perceived to be related to the urinary bladder as well as urinary frequency , urgency , and or nocturia . the pain often worsens upon bladder filling and may be relieved upon bladder emptying . many patients living with ic/bps report that it takes a physical , emotional , and psychological toll , greatly impacting employment and social and intimate relationships . there are currently few fda approved and or effective treatment options for ic/bps . only about 1 million of the 5.5 million adults in the united states with symptoms of ic/bps have been diagnosed or are receiving treatment . 65 in 2015 , we completed and reported results from our leadership 201 trial , a multicenter , randomized , double-blind , placebo-controlled , phase 2 clinical trial investigating the ability of 200 mg oral , once daily rosiptor to reduce average daily bladder pain and urinary symptoms in 69 female patients with ic/bps . although we did not achieve statistical significance in the primary endpoint , the results demonstrated a positive trend and statistically significant changes on secondary endpoints . the leadership 301 trial is a three-arm , multicenter , randomized , double-blind , placebo-controlled phase 3 clinical trial assessing the effect of once-daily rosiptor 100 mg and 200 mg on bladder pain and urinary symptoms in female and male subjects with ic/bps . the primary endpoint of the leadership 301 trial is the change from baseline at week 12 in maximum daily bladder pain based on an 11-point numeric rating scale ( nrs ) compared to placebo , in female subjects , recorded by electronic diary . additional endpoints include urinary symptoms as well as an evaluation of overall improvement with therapy . the leadership 301 trial has a 52-week extension period , affording all participating subjects the opportunity for treatment with rosiptor . a total of 341 females and 92 males were enrolled in the trial and were randomized to receive one of two oral doses of once-daily rosiptor , 100 mg or 200 mg. subjects were enrolled at clinical research centers in the united states , canada , and europe . top-line data is anticipated in the third quarter of 2018. we commenced operations in canada in december 2003. aquinox pharmaceuticals ( canada ) inc. , a corporation formed under the canada business corporations act , is a wholly owned subsidiary of aquinox pharmaceuticals , inc. , a delaware corporation formed in may 2007. we currently have operations in vancouver , british columbia and san bruno , california . since commencing operations , we have dedicated a significant portion of our resources to development efforts for our clinical-stage product candidate rosiptor . we anticipate that we will continue to incur significant operating expenses related to research and development as we continue to advance rosiptor and other clinical and preclinical programs . we have funded our operations primarily through the sale of common stock and preferred stock . as of december 31 , 2017 , we had $ 108.1 million in cash , cash equivalents and short-term investments in liquid , high-quality securities . since inception , we have incurred significant operating losses . story_separator_special_tag 69 cash flows the following table summarizes our cash flows for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_7_th net cash used in operating activities net cash used in operating activities for the year ended december 31 , 2017 increased compared to the year ended december 31 , 2016 due to higher operating expenses as described above . net cash used in operating activities for the year ended december 31 , 2016 increased compared to the year ended december 31 , 2015 due to higher operating expenses as described above . net cash provided by ( used in ) investing activities net cash provided by investing activities for the year ended december 31 , 2017 resulted from the maturity of short and long-term investments . net cash used in investing activities for the year ended december 31 , 2016 resulted from the investment of the cash proceeds received from the public offering of common shares in september 2016. net cash used in investing activities for the year ended december 31 , 2015 resulted from the investment of the cash proceeds received from the public offering of common shares in september 2015. net cash used in investing activities for 2016 and 2015 included the purchase and sale of short and long-term investments as we invested the proceeds from our financing activities into liquid , high quality securities in accordance to our investment policy , which focuses on the preservation of principal and maintenance of liquidity . net cash provided by financing activities net cash provided by financing activities for the year ended december 31 , 2017 resulted from the proceeds from the exercise of stock options of $ 0.4 million . net cash provided by financing activities for the year ended december 31 , 2016 resulted from the public offering of common shares in september 2016 for gross proceeds of $ 75.4 million , before underwriting discounts and commissions and offering expenses of $ 4.7 million , and proceeds from the exercise of stock options of $ 0.4 million . net cash provided by financing activities for the year ended december 31 , 2015 resulted from the public offering of common shares in september 2015 for gross proceeds of $ 98.0 million , before underwriting discounts and commissions and offering expense of $ 6.2 million , and proceeds from the exercise of stock options of $ 1.1 million . operating and capital expenditure requirements we have not generated product revenue or 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 as we continue our development of rosiptor in ic/bps , as well as other clinical and preclinical activities . we believe that our existing capital resources will be sufficient to fund our operations for at least the next 12 months and we anticipate that we will need to raise substantial financing in the future to fund our operations . in order to meet these additional cash requirements , we may seek to sell additional equity or convertible debt securities that may 70 result in dilution to our stockholders . if we raise additional funds through the issuance of convertible debt 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 . our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business , results of operations , financial condition , cash flows and future prospects . our future capital requirements will depend on many factors , including : our phase 3 leadership 301 trial of rosiptor in ic/bps and any other future clinical trials ; the number and characteristics of any future product candidates we develop or may acquire ; the scope , progress , results and costs of researching and developing our product candidates or any future product candidates , and conducting preclinical studies and clinical trials ; the timing of , and the costs involved in , obtaining regulatory approvals for rosiptor or any future product candidates ; the cost of manufacturing rosiptor and our future product candidates and any products that may achieve regulatory approval ; the cost of commercialization activities if rosiptor or any future product candidates are approved for sale , including marketing , sales and distribution costs ; the timing , receipt and amount of sales of , or royalties on , future approved products , if any ; our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; any product liability or other lawsuits related to our products ; the expenses needed to attract and retain skilled personnel ; the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation . please see item 1a of this annual report titled risk factors for additional risks associated with our substantial capital requirements . contractual obligations and commitments the following is a summary of our long-term contractual cash obligations as of december 31 , 2017 : replace_table_token_8_th 1. we have a lease agreement for approximately 10,946 square feet of office space in canada which was effective on november 1 , 2016 and expires october 31 , 2021 , with the option to extend the lease to october 31 , 2026. on december 22 , 2016 , we took over a lease agreement for an additional 2,500 square feet of office space in canada . the lease for the additional 2,500 square feet expires june 30 , 2019. the dollar amounts shown in these columns reflect the u.s. dollar equivalent of the obligations .
| results of operations revenue to date , we have not generated any revenue . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sale of products developed under licenses of our intellectual property . 66 operating expenses the following table summarizes our operating expenses for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_4_th research and development expenses we are currently developing rosiptor as a treatment for ic/bps in our leadership 301 trial . the leadership 301 trial is a three-arm , multicenter , randomized , double-blind , placebo-controlled phase 3 clinical trial assessing the effect of once-daily rosiptor 100 mg and 200 mg on bladder pain and urinary symptoms in female and male subjects with ic/bps . the primary endpoint of the leadership 301 trial is the change from baseline at week 12 in maximum daily bladder pain based on an 11-point numeric rating scale ( nrs ) compared to placebo , in female subjects , recorded by electronic diary . additional endpoints include urinary symptoms as well as an evaluation of overall improvement with therapy . the leadership 301 trial has a 52-week extension period , affording all participating subjects the opportunity for treatment with rosiptor . a total of 341 females and 92 males are enrolled in the trial and are randomized to receive one of two oral doses of once-daily rosiptor , 100 mg or 200 mg. subjects were enrolled at clinical research centers in the united states , canada , and europe . top-line data is anticipated in the third quarter of 2018. we continue to engage with the fda and other regulatory authorities to discuss the safety and efficacy trials and analyses required for approval of rosiptor in ic/bps in the united states , europe , and other targeted countries .
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the company includes interest and penalties in interest income and general and administrative expenses , respectively , in its statement of operations . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information included elsewhere in this report . overview contango is a houston , texas based , independent natural gas and oil company . the company 's core business is to explore , develop , produce and acquire natural gas and oil properties offshore in the shallow waters of the gulf of mexico . coi , our wholly-owned subsidiary , acts as operator on our offshore properties . contango has additional onshore investments in i ) alta resources investments , llc , whose primary area of focus is the liquids-rich kaybob duvernay in alberta , canada ; ii ) exaro energy iii llc , which is primarily focused on the development of proved natural gas reserves in the jonah field in wyoming ; and iii ) the tuscaloosa marine shale where we own approximately 24,000 acres . revenues and profitability . our revenues , profitability and future growth depend substantially on prevailing prices for natural gas and oil and on our ability to find , develop and acquire natural gas and oil reserves that are economically recoverable . reserve replacement . generally , producing properties offshore in the gulf of mexico have high initial production rates , followed by steep declines . we must locate and develop or acquire new natural gas and oil reserves to replace those being depleted by production . substantial capital expenditures are required to find , develop and acquire natural gas and oil reserves . the company did not replace any offshore reserves during the fiscal year ended june 30 , 2013 or 2012. during fiscal year 2013 , the company drilled two dry holes at ship shoal 134 ( `` eagle '' ) and south timbalier 75 ( `` fang '' ) . during fiscal year 2012 , the company did not drill any wells . our permits to spud eagle and fang were approved in september 2011 and march 2012 , respectively , but a lack of rig availability prevented us from drilling these wells during fiscal year 2012. while waiting for drilling rigs to become available , we spent most of fiscal year 2012 generating new prospects . in june 2012 and march 2013 , the company successfully acquired nine lease blocks at two gulf of mexico lease sales . our plan is to promptly apply for permits to drill these prospects in 2013 , 2014 and 2015. we therefore do not believe there will be a material impact on future sales or revenues or income from continuing operations . use of estimates . the preparation of our financial statements requires the use of 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 periods . actual results could differ from those estimates . significant estimates with regard to these financial statements include estimates of remaining proved natural gas and oil reserves , the timing and costs of our future drilling , development and abandonment activities , and income taxes . related party transactions . the company relies on jex and rex to generate its offshore and onshore domestic natural gas and oil prospects . in addition to generating new prospects , jex occasionally evaluates offshore and onshore exploration prospects generated by third-party independent companies for us to purchase . see note 13 - related party transactions for a detailed description of our transactions with jex and rex . see “ risk factors ” on page 13 for a more detailed discussion of a number of other factors that affect our business , financial condition and results of operations . impact of deepwater horizon incident and federal deepwater moratorium we believe that the deepwater horizon incident will have a significant and lasting effect on the u.s. offshore energy industry , and will result in a number of fundamental changes , including heightened regulatory scrutiny , more stringent operating and safety standards , changes in equipment requirements and the availability and cost of insurance , as well as increased politicization of the industry . a significant delay of planned exploratory activities will reduce our longer term ability to replace reserves , resulting in a negative impact on production , including a reduction in operating results and cash flows as we deplete our reserves . there may be other impacts of which we are not aware at this time . the potential for removal of the liability cap for claims of damages from oil spills , and or the enactment of onerous rules and regulations regarding activities in the gulf of mexico could significantly alter our industry . such rules could effectively limit which companies can operate in the gulf of mexico . small and medium-sized oil and gas companies may not be able to obtain insurance coverage at economically appropriate levels or meet financial responsibility requirements and would be forced to exit operations in the gulf of mexico . potentially less attractive economics for offshore exploration and development programs going forward will require companies retaining operations in the gulf of mexico to review their 34 business models . we have drilled , and believe we can continue to drill , safely in the gulf of mexico . however , exploration and production companies will be able to continue doing business in the gulf of mexico only to the extent it remains economically viable . delays and volatility are inherent in our business . we have maintained a capital structure with a strong liquidity position allowing us to manage during periods of uncertainty . we believe we are well-positioned to respond to the increasingly complex regulatory framework for the gulf of mexico . story_separator_special_tag cash used in financing activities for the fiscal year ended june 30 , 2013 were approximately $ 35.5 million , compared to $ 20.2 million used in financing activities for the same period in 2012. this increase in cash used is attributable to paying a $ 30.5 million dividend to shareholders in december 2012 and purchasing $ 5 million of common stock under our publicly announced share repurchase programs . cash used in financing activities for the year ended june 30 , 2012 were approximately $ 20.2 million , compared to $ 9.8 million used in financing activities for the same period in 2011. during the fiscal year ended june 30 , 2012 , the company invested significantly more to repurchase shares of its common stock pursuant to its share repurchase program . income taxes . during the year ended june 30 , 2013 we paid $ 2.4 million in income taxes and received a federal refund of $ 4.9 million for prior year tax over-payments . during the year ended 2012 and 2011 , we paid approximately $ 50.7 million and $ 31.9 million , respectively , in federal and state income taxes , net of refunds received . capital budget . for fiscal year 2014 , our capital expenditure budget calls for us to invest approximately $ 35.0 million from cash flow from operations and cash on hand as follows : we have budgeted to invest approximately $ 12.5 million to drill , complete and begin production on our south timbalier 17 well . we have budgeted to invest approximately $ 22.5 million to drill our ship shoal 255 prospect . should we be successful , we will have the opportunity to spend significantly more capital to complete development and bring the discovery to producing status . the company often reviews acquisitions and prospects presented to us by third parties and may decide to invest in one or more of these opportunities . there can be no assurance that we will invest , or that any investment entered into will be successful . these potential investments are not part of our current capital budget and would require us to invest additional capital . natural gas and oil prices continue to be volatile and our resources may be insufficient to fund any of these opportunities . on april 30 , 2013 , the company announced that it had entered into a merger agreement with crimson for an all-stock transaction pursuant to which crimson would become a wholly-owned subsidiary of the company . should the merger be approved by the company 's shareholders , we will have the opportunity to spend significantly more capital to develop crimson 's assets . see note 16 - merger with crimson exploration , inc. for more information on the merger . discontinued operations . the company , since its inception in september 1999 , has raised money from various property sales . these sales brought forward future revenues and cash flows , but our longer term liquidity could be impaired to the extent our exploration efforts are not successful in generating new discoveries , production , revenues and cash flows . further , as a result of these property sales the company 's ability to collateralize bank borrowings is reduced which increases our dependence on more expensive mezzanine debt and potential equity sales . the availability of such funds will depend upon prevailing market conditions and other factors over which we have no control , as well as our financial condition and results of operations . the table below sets forth the proceeds received from natural gas and oil property sales for the year ended june 30 , 2012 and 2011 , the impact of these sales on our developed reserve quantities , and a measure of our developed reserves held at the end of each such fiscal year . see the reserve activity reported in the supplemental oil and gas disclosures on pages f-23 through f-26 for a more detailed discussion regarding our standardized measure . the company did not have any property sales for the fiscal year ended june 30 , 2013. replace_table_token_17_th 40 for fiscal year 2012 and 2011 , the company realized approximately $ ( 0.4 ) million and $ 6.7 million in operating cash flows from discontinued operations , approximately $ 10,000 and $ 10.9 million in investing cash flows from discontinued operations and approximately $ 0.4 million and $ ( 17.5 ) million in financing cash flows from discontinued operations . off balance sheet arrangements none . contractual obligations the following table summarizes our known contractual obligations as of june 30 , 2013 : replace_table_token_18_th in addition , the company pays a commitment fee of 0.125 % on the unused borrowing capacity of our $ 40 million credit facility with amegy bank ( see “ credit facility ” below ) . we have also committed to invest up to an additional $ 20.6 million in exaro energy . credit facility on october 2010 , the company completed the arrangement of a $ 40 million secured revolving credit agreement with amegy bank ( the “ credit agreement ” ) . the credit agreement is supported by a hydrocarbon borrowing base and is available to fund the company 's exploration and development activities , as well as repurchase shares of common stock of the company and to fund working capital as needed . the credit agreement is secured by substantially all of the assets of the company , including our natural gas and oil properties . borrowings under the credit agreement bear interest at libor plus 2.5 % , subject to a libor floor of 0.75 % . the principal is due october 1 , 2014 , and may be prepaid at any time with no prepayment penalty . an arrangement fee of $ 300,000 was paid in connection with the facility and effective november 1 , 2011 , a commitment fee of 0.125 % is owed on unused borrowing capacity . the credit agreement contains customary covenants including limitations on our current ratio and additional indebtedness .
| results of operations the table below sets forth our average net daily production data in mmcfed from our offshore wells for each of the periods indicated : replace_table_token_14_th dutch and mary rose wells production at our dutch and mary rose wells has been fairly consistent over the past year . as of june 30 , 2013 , the ten dutch and mary rose wells were flowing approximately 54.4 mmcfed , net to contango . ship shoal 263 well production at this well has been slowly decreasing since 2011 due to overheating , scaling problems , and water production . the well has also been shut-in several times for production logging and chemical treatment . we believe that this well may be fully depleted in the next twelve months . the well reached payout during fiscal year 2012. we will continue producing this well as long as it is economical . as of june 30 , 2013 , the well was flowing at approximately 0.7 mmcfed , net to contango . during the fiscal year ended june 30 , 2013 , due to the decline in production from this well , our reservoir engineer revised his estimated net proved natural gas and oil reserves from this well . as a result , the net book value of our ship shoal 263 well exceeded the future undiscounted cash flows associated with its reserves . accordingly , the company recognized an impairment expense of approximately $ 12.0 million for the fiscal year ended june 30 , 2013. vermilion 170 well in january 2013 , we identified sustained casing pressure between the production tubing and the production casing at our vermilion 170 well . diagnostic tests revealed that the production tubing had parted downhole requiring a workover of the well . well production was shut-in and the original tubing and completion assembly were successfully removed .
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amortization expense related to these assets was $ 31,146 in fiscal 2015 , $ 20,011 in fiscal 2014 , and $ 7,830 in fiscal 2013 . we expect amortization expense related to these assets to be as follows : replace_table_token_34_th deferred charges and other non-current assets consist of the following : story_separator_special_tag ( dollar amounts in thousands except share and per share data or unless otherwise indicated ) forward-looking information is subject to risk and uncertainty this annual report on form 10-k contains `` forward-looking statements '' as defined in the private securities litigation reform act of 1995 ( the `` reform act '' ) . forward-looking statements speak only as of the date they are made and give our current expectations or forecasts of future events . words such as `` may , '' `` will , '' `` expected , '' `` intend , '' `` estimate , '' `` anticipate , '' `` believe , '' `` project , '' or `` continue , '' and similar expressions are used to identify forward-looking statements within the meaning of the reform act . these forward-looking statements are based on management 's current expectations and assumptions regarding our business and performance , the economy and other future conditions and forecasts of future events , circumstances and results . consequently , no forward-looking statements can be guaranteed . actual results may vary materially . we undertake no obligation to update any forward-looking statement , whether as a result of new information , future events or otherwise . we caution you not to place undue reliance on any forward-looking statements . numerous risks , uncertainties and other factors could cause our actual results to differ materially from expectations described in such forward-looking statements , including the following : general economic and business conditions in the united states and our other markets , including conditions affecting employment levels , consumer confidence and spending ; our ability to operate successfully as a standalone business ; our ability to retain and hire key personnel and maintain and grow our relationships with customers , suppliers and other business partners ; our ability to adapt our products to changes in technology , the marketplace and customer preferences ; our ability to maintain and enhance brand recognition and reputation ; reductions or unexpected changes in demand for ammunition , firearms or other outdoor sports and recreation products ; risks associated with our sales to significant retail customers , including unexpected cancellations , delays and other changes to purchase orders ; supplier capacity constraints , production disruptions or quality or price issues affecting our operating costs ; seasonality and weather conditions in our markets ; our competitive environment ; risks associated with compliance and diversification into international and commercial markets ; the supply , availability and costs of raw materials and components ; increases in commodity , energy and production costs ; changes in laws , rules and regulations relating to our business , such as federal and state firearms and ammunition regulations ; our ability to execute our long-term growth strategy ; our ability to take advantage of growth opportunities in international and commercial markets ; foreign currency exchange rates and fluctuations in those rates ; the outcome of contingencies , including with respect to litigation and other proceedings relating to intellectual property , product liability , warranty liability , personal injury and environmental remediation ; risks associated with cybersecurity and other industrial and physical security threats ; risks associated with pension asset returns and assumptions regarding future returns , discount rates and service costs ; capital market volatility and the availability of financing ; changes to accounting standards or policies ; and changes in tax rules or pronouncements . 30 you should also understand that it is not possible to predict or identify all such factors and you should not consider the list above to be a complete statement of all potential risks and uncertainties . new factors may emerge or changes to the foregoing factors may occur that would impact our business . additional information regarding these factors is contained in item 1a of this report and may also be contained in our filings with the securities and exchange commission on forms 10-q and 8-k. all such risk factors are difficult to predict , contain material uncertainties that may affect actual results , and may be beyond our control . executive summary we are a leading global designer , manufacturer and marketer of consumer products in the growing outdoor sports and recreation markets . we serve these markets through the diverse portfolio of over 30 well-recognized brands that provide consumers with a range of affordable , performance-driven , high-quality and innovative products , including sporting ammunition and firearms , outdoor accessories , outdoor sports optics , golf rangefinders and performance eyewear . we serve a broad range of end consumers , including outdoor enthusiasts , hunters and recreational shooters , athletes , as well as law enforcement and military professionals . our products are sold through a wide variety of mass , specialty and independent retailers , such as walmart , cabela 's , gander mountain , bass pro shops , dick 's sporting goods , sportsman 's warehouse and recreational equipment , inc. we have a scalable , integrated portfolio of brands that allows us to leverage our deep customer knowledge , product development and innovation , supply chain and distribution , and sales and marketing functions across product categories to better serve our retail partners and end users . as of march 31 , 2015 , we operated in two business segments . these operating segments are defined based on the reporting and review process used by the chief operating decision maker , vista outdoor 's chief executive officer . as of march 31 , 2015 , vista outdoor 's two operating segments were : shooting sports , which generated 65 % of our sales in fiscal 2015 . shooting sports products include pistol , rifle , rimfire and shotshell ammunition and primers , centerfire rifles , rimfire rifles , shotguns and range systems . story_separator_special_tag we re-evaluate our estimates on an on-going basis . our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe the following are our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated and combined financial statements . revenue recognition revenue recognition methodology—sales , net of estimates for discounts , returns , rebates , allowances , and excise taxes are recognized when persuasive evidence of an arrangement exists , all risks of ownership have been transferred , and payment is reasonably assured . 32 allowance for doubtful accounts we maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our trade customers to make required payments . we provide an allowance for specific customer accounts where collection is doubtful and also provide an allowance for customer deductions based on historical collection and write-off experience . additional allowances would be required if the financial conditions of our customers deteriorated . inventories our inventories are valued at the lower of cost or market . we evaluate the quantities of inventory held against past and future demand and market conditions to determine excess or slow moving inventory . for those product classes of inventory identified , we estimate their market value based on current and projected selling prices . if the projected market value is less than cost , we provide an allowance to reflect the lower value of that inventory . this methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold . the projected market value can decrease due to consumer preferences , legislation , or loss of key contracts among other events . employee benefit plans defined benefit pension plans . prior to february 9 , 2015 , our eligible u.s. employees and retirees participated in a defined benefit pension plan provided by orbital atk . these plans were accounted for as multiemployer benefit plans in our financial statements , and the portion of our liability with this u.s. plan was not reflected in our balance sheets . on the distribution date , we assumed the benefit obligation attributable to our employees for this plan , and this is reflected in our consolidated and combined balance sheet as of year end . prior to february 9 , 2015 , our consolidated and combined statements of comprehensive income include expense allocations for these benefits . these expenses were funded through intercompany transactions with orbital atk which are reflected within parent 's equity in our consolidated and combined financial statements . subsequent to february 9 , 2015 , vista outdoor established a noncontributory defined benefit pension plan ( the `` plan '' ) which covers substantially all employees hired prior to january 1 , 2007 and retained similar provisions as those that existed within the orbital atk plans . eligible non-union employees hired on or after january 1 , 2007 and certain union employees are not covered by a defined benefit plan , but substantially all of such employees receive an employer contribution through a defined contribution plan ( as described in more detail below ) . on january 31 , 2013 , the orbital atk plans were amended to freeze the current pension formula benefits effective june 30 , 2013 and to implement a new cash balance formula applicable to pay and service starting july 1 , 2013. this amendment was carried over into the plan . the cash balance formula provides each affected employee with pay credits based on the sum of that employee 's age plus years of pension service as of december 31 of each calendar year , plus 4 % annual interest credits . prior to the effective date of the amendment , the orbital atk plans provided either pension benefits based on employee annual pay levels and years of credited service or based on stated amounts for each year of credited service . vista outdoor funds the plan in accordance with federal requirements calculated using appropriate actuarial methods . plan assets for vista outdoor are held in a trust and are invested in a diversified portfolio of equity investments , fixed income investments , real estate , timber , energy investments , hedge funds , private equity , and cash . for certain plan assets where the fair market value is not readily determinable , estimates of the fair value are determined using the best available information including the most recent audited financial statements . we also sponsor a nonqualified defined benefit supplemental executive retirement plan which we provide certain executives and highly compensated employees the opportunity to receive pension benefits in excess of those payable through our tax-qualified pension plans . b enefits under the nonqualified defined benefit supplemental executive retirement plan will generally be based on the same benefit formulas and provisions as those applicable under the plan . we recorded pension expense for the plan and the nonqualified defined benefit supplemental executive retirement plan of $ 4,732 in fiscal 2015 , a decrease of $ 1,204 from $ 5,936 of pension expense recorded in fiscal 2014 . the expense related to these plans is calculated based upon a number of actuarial assumptions , including the expected long-term rate of return on plan assets , the discount rate , and the rate of compensation increase . 33 the following table sets forth our assumptions used in determining pension expense for fiscal 2015 and projections for fiscal 2016 : replace_table_token_3_th in developing the expected long-term rate of return assumption , we consider input from our actuaries and other advisors , annualized returns of various major indices over a long-term time horizon and the historical investment returns .
| results of operations the following information should be read in conjunction with our consolidated and combined financial statements . the key performance indicators that our management uses in managing the business are sales , gross profit and cash flows . segment total net sales , cost of sales and gross profit exclude intercompany sales and profit . fiscal 2015 sales the following is a summary of each operating segment 's sales : replace_table_token_4_th the overall fluctuation in net sales was driven by the changes within the operating segments as described below . shooting sports . the decrease in sales was primarily caused by reduced volume of .223/5.56 ammunition ( which is primarily sourced from orbital atk ) , primers and firearms as a result of softening market demand , partially offset by an increase in pistol and rimfire ammunition due to additional capacity and by an increase of $ 15,100 as result of the savage arms acquisition during fiscal 2014 . 37 outdoor products . the increase in sales was primarily driven by an increase of $ 335,700 as result of the acquisition of bushnell during fiscal 2014 , partially offset by softening in the tactical accessories and reloading business . cost of goods sold and gross profit the following is a summary of each operating segment 's cost of goods sold and gross profit : replace_table_token_5_th replace_table_token_6_th the overall fluctuation in cost of sales and gross profit was driven by the changes within the operating segments as described below . shooting sports . the decrease in gross profit was primarily caused by reduced sales volumes , product mix and targeted promotional activity in response to current market conditions , partially offset by a $ 5,700 increase due to the savage arms acquisition in fiscal 2014. outdoor products .
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executive summary flotek is a global diversified , technology-driven company that develops and supplies oilfield products , services and equipment to the oil , gas and mining industries , and high value compounds to companies that make cleaning products , cosmetics , food and beverages , and other products that are sold in consumer and industrial markets . the company 's oilfield businesses include specialty chemicals and logistics , down-hole drilling tools and production-related tools . flotek 's technologies enable customers to drill wells more efficiently , increase well production and decrease well operating costs . the company also provides automated bulk material handling , loading facilities and blending capabilities . the company sources citrus oil domestically and internationally and is one of the largest processors of citrus oil in the world . products produced from processed citrus oil include ( 1 ) high value compounds used as additives by companies in the flavors and fragrances markets and ( 2 ) environmentally friendly chemicals for use in numerous industries around the world , specifically the o & g industry . flotek operates in over 20 domestic and international markets , including the gulf coast , southwest , rocky mountains , northeastern and mid-continental regions of the u.s. , canada , mexico , central america , south america , europe , africa , middle east , australia and asia-pacific . customers include major integrated o & g companies , oilfield services companies , independent o & g companies , pressure-pumping service companies , national and state-owned oil companies , and international supply chain management companies . the company also serves customers who purchase non-energy-related citrus oil and related products , including household and commercial cleaning product companies , fragrance and cosmetic companies , and food manufacturing companies . the operations of the company are categorized into four reportable segments : energy chemical technologies , consumer and industrial chemical technologies , drilling technologies and production technologies ( previously referred to as artificial lift technologies ) . energy chemical technologies designs , develops , manufactures , packages and markets specialty chemicals used in o & g well drilling , cementing , completion , stimulation and production . in addition , the company 's chemistries are used in specialized enhanced and improved oil recovery markets ( `` eor '' or `` ior '' ) . activities in this segment also include construction and management of automated material handling facilities and management of loading facilities and blending operations for oilfield services companies . consumer and industrial chemical technologies designs , develops and manufactures products that are sold to companies in the flavor and fragrance industries and specialty chemical industry . these technologies are used by beverage and food companies , fragrance companies , and companies providing household and industrial cleaning products . drilling technologies rents , sells , inspects , manufactures and markets down-hole drilling equipment used in energy , mining , water well and industrial drilling activities . production technologies assembles and markets production-related equipment , including the petrovalve product line of rod pump components , electric submersible pumps , gas separators , valves and services that support natural gas and oil production activities . market conditions the company 's success is sensitive to a number of factors , which include , but are not limited to , drilling activity , customer demand for its advanced technology products , market prices for raw materials and governmental actions . drilling activity levels are influenced by a number of factors , including the number of rigs in operation , the geographical areas of rig activity , and drill rig efficiency ( rig days required per well ) . additional factors that influence the level of drilling activity include : historical , current , and anticipated future o & g prices , 20 federal , state and local governmental actions that may encourage or discourage drilling activity , customers ' strategies relative to capital funds allocations , weather conditions , and technological changes to drilling methods and economics . historical north american drilling activity is reflected in “ table a ” below : customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of : chemistries that improve the economics of their o & g operations , drilling products that improve drilling operations and efficiencies , chemistries that are economically viable , socially responsible and ecologically sound , and production technologies that improve production and production efficiencies in maturing wells . market prices for citrus oils can be influenced by : historical , current , and anticipated future production levels of the global citrus ( primarily orange ) crop , weather related risks , health and condition of citrus trees ( e.g. , disease and pests ) , and international competition and pricing pressures resulting from natural and artificial pricing influences . governmental actions may restrict the future use of hazardous chemicals , including but not limited to , the following industrial applications : o & g drilling and completion operations , o & g production operations , and non-o & g industrial solvents . replace_table_token_4_th source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; rig counts are the annual average of the reported weekly rig count activity . well count : baker hughes , inc. ( www.bakerhughes.com ) ; well counts are the annual average of the reported quarterly wells/rig activity . during year ended 2014 , total north american active drilling rig count saw an increase when compared to the comparable periods of 2013 but a decrease compared to 2012. the increase in 2014 was primarily in horizontal rig types and rigs drilling in oil fields . while the u.s. drilling activity decreased by ( 8.2 ) % from 2012 to 2013 , it increased by 5.7 % in 2014 compared to 2013. however , the number of wells drilled per rig per quarter in 2014 has decreased to 5.20 from 5.23 for the same period in 2013 . story_separator_special_tag depreciation and amortization expense not included in gross margin , for the year ended december 31 , 2014 increased by $ 2.5 million , or 33.9 % from the prior corresponding period . this increase was primarily attributable to the depreciation and amortization of assets recognized as part of the acquisition of florida chemical in the second quarter of 2013 and the acquisition of eoga in the first quarter of 2014. research and innovation ( `` r & i '' ) expense for the year ended december 31 , 2014 increased $ 1.2 million or 32.6 % for the year ended december 31 , 2014 from the prior corresponding period . the increase in r & i is primarily attributable to new product innovation and flotek 's commitment to remaining responsive to customer needs , increased demand and continued growth of our existing product lines . interest and other expense increased $ 0.2 million , or 12.8 % for the year ended december 31 , 2014 compared to the prior corresponding period . the company recorded an income tax provision of $ 25.3 million , yielding an effective tax rate of 32.0 % for the year ended december 31 , 2014 compared to an income tax provision of $ 20.8 million yielding an effective tax rate of 36.5 % in the prior corresponding period . the change in the effective tax rate from 2013 to 2014 was primarily due to changes in state apportionment factors including the effect on state deferred tax assets and liabilities . 23 results for 2013 compared to 2012—consolidated consolidated revenue for the year ended december 31 , 2013 increased $ 58.2 million , or 18.6 % , from the prior corresponding period . the increase in revenue was primarily due to the acquisition of florida chemical , which contributed incremental revenue of $ 50.9 million during 2013. excluding the impact of the acquisition , 2013 revenues increased $ 7.3 million or 2.3 % when compared with 2012 , while the total average north american drilling rig count decreased by 7.4 % . revenue increases in the energy chemical technologies and production technologies segments were partially offset by revenue declines in the drilling technologies segment . consolidated gross margin for the year ended december 31 , 2013 increased $ 15.9 million , or 12.1 % , from the prior corresponding period . the increase in gross margin was primarily due to the increase in revenue . the gross margin percentage decline was primarily attributable to portfolio mix resulting from the inclusion of florida chemical in 2013 results and proportionately higher sales of non-proprietary products in the energy chemical technologies segment and increasing costs of actuated tools in the drilling technologies segment . this decrease was partially offset by supply chain benefits from the florida chemical acquisition and proportionately higher sales of technology tools in the drilling technologies segment . selling , general and administrative ( “ sg & a ” ) expenses are not directly attributable to products sold or services provided . sg & a costs for the year ended december 31 , 2013 increased by $ 11.8 million , or 17.7 % from the prior corresponding period . excluding incremental sg & a costs of $ 4.9 million associated with the florida chemical business acquired , sg & a costs increased $ 6.9 million primarily due to costs incurred in 2013 related to executive severance ( $ 1.0 million ) , implementation of the company 's new erp system ( $ 0.8 million ) , and expenses related to the pursuit of acquisitions and major initiatives in international markets ( $ 1.7 million ) . excluding these items and the incremental sg & a costs of the florida chemical business , sg & a costs increased $ 3.4 million or 5.1 % primarily due to increases in headcount , general insurance , and travel related costs . sg & a costs as a percentage of revenue decreased from 21.2 % to 21.1 % for the year ended december 31 , 2013 compared to the prior corresponding period . depreciation and amortization expense not included in gross margin , for the year ended december 31 , 2013 increased by $ 2.9 million or 64.9 % from the prior corresponding period . this increase was primarily attributable to incremental depreciation and amortization of assets recognized as part of the acquisition of florida chemical . r & i expense for the year ended december 31 , 2013 increased $ 0.6 million or 17.9 % from the prior corresponding period . the increase in r & i is primarily attributable to new product innovation , and flotek 's commitment to remaining responsive to increased demand and continued growth of our product lines . interest and other expense for the year ended december 31 , 2013 decreased by $ 14.0 million , or 88.8 % from the prior corresponding period . the decline in interest expense was primarily due to the repayment of the company 's convertible notes of $ 50.3 million at the end of the fourth quarter of 2012 and $ 5.2 million during the first quarter of 2013. the company recorded an income tax provision of $ 20.8 million yielding an effective tax rate of 36.5 % for the year ended december 31 , 2013 , compared to an income tax benefit of $ 4.3 million reflecting an effective tax rate of ( 9.5 ) % for the prior corresponding period . the company 's effective tax rate in 2012 was affected primarily by an $ 18.6 million decrease in the valuation allowance against a deferred tax asset . additionally , fluctuations in effective tax rates have historically been impacted by non-cash changes in the fair value of the company 's warrant liability and permanent tax differences . results by segment replace_table_token_6_th results for 2014 compared to 2013 —energy chemical technologies energy chemical technologies revenue for the year ended december 31 , 2014 increased $ 67.8 million , or 33.8 % , from the prior corresponding period .
| results for 2014 compared to 2013 —drilling technologies drilling technologies revenue for the year ended december 31 , 2014 increased $ 0.9 million , or 0.8 % from the prior corresponding period primarily due to an increase in actuated tool rentals . rental revenue for the year ended december 31 , 2014 increased by $ 3.7 million , or 6.0 % from the prior corresponding period . leading the increase was motor rentals which rose 52.9 % along with growth of 96.5 % in stemulator ® tool activity . this was partially offset by a decrease of 32.0 % in other tool rental types and flat activity for teledrift ® year over year . product sales revenue for the year ended december 31 , 2014 decreased by $ 2.5 million , or 6.8 % , from the prior corresponding period , primarily due to decreased domestic float and motor product sales revenue and decreased international drill pipe sales . service revenue for the year ended december 31 , 2014 decreased $ 0.3 million , or 2.0 % , from the prior corresponding period primarily related to decreased rig service jobs and inspections . drilling technologies gross margin for the year ended december 31 , 2014 increased $ 2.5 million , or 5.8 % , from the prior corresponding period and increased to 40.3 % as a percentage of revenue compared to 38.4 % from year end 2013. this was primarily due to increased material margins on the actuated tool rentals as a direct result of repair cost decreases and direct expense controls put in place during 2014. drilling technologies income from operations for the year ended december 31 , 2014 increased by $ 0.7 million or 3.9 % from the prior corresponding period . income from operations as a percentage of revenue increased to 16.8 % for the year ended december 31 , 2014 from 16.3 % in the prior corresponding period .
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the guidance may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new and existing arrangements with remaining performance obligations as of the effective date , with a cumulative catch-up adjustment recorded to retained earnings at the effective date for existing story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained under the caption `` selected consolidated financial data '' contained elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could vary materially from those indicated , implied , or suggested by these forward-looking statements as a result of many factors , including those discussed under `` risk factors '' and elsewhere in this annual report on form 10-k. overview about us . we manage , value , and sell inventory and equipment for business and government clients by operating a network of leading ecommerce marketplaces that enable buyers and sellers to transact in an efficient , automated environment offering over 500 product categories . our marketplaces provide professional buyers access to a global , organized supply of new , surplus , and scrap assets presented with digital images and other relevant product information . additionally , we enable corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management , valuation , and sale of surplus assets . our broad range of services include program management , valuation , asset management , reconciliation , return to vendor ( `` rtv '' ) and returns management authorization ( `` rma '' ) , refurbishment and recycling , fulfillment , marketing and sales , warehousing and transportation , buyer support , and compliance and risk mitigation . we organize the products on our marketplaces into categories across major industry verticals such as consumer electronics , general merchandise , apparel , scientific equipment , aerospace parts and equipment , technology hardware , energy equipment , industrial capital assets , fleet and transportation equipment and specialty equipment . our network of marketplaces includes : www.liquidation.com , www.govliquidation.com , www.govdeals.com , www.networkintl.com , www.secondipity.com , www.go-dove.com , www.unclesamsretailoutlet.com , www.irondirect.com , and www.auctiondeals.com . we have over 10,000 sellers , including fortune 1000 and global 500 organizations as well as federal , state , and local government agencies . we have three reportable segments , retail supply chain group ( rscg ) , capital assets group ( cag ) , and govdeals . see note 16 in the notes to the consolidated financial statements for segment information . we believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers . this flow of goods in turn attracts an increasing number of professional buyers to our marketplaces . during fiscal year 2017 , the number of registered buyers grew from approximately 2,986,000 to approximately 3,171,000 , or 6.2 % . during the past three fiscal years , we have conducted over 1,671,000 online transactions generating approximately $ 2.1 billion in gross merchandise volume or gmv . we believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtual cycle for our buyers and sellers our revenue . substantially all of our revenue is earned through the following transaction models . purchase model . under our purchase transaction model , we recognize revenue from the resale of inventory that we purchased from sellers . we consider these sellers to be our vendors . we pay our vendors either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale , in some cases , after deducting a required return to us that we have negotiated with the seller . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . also included in the proceeds paid by buyers are transaction fees charged to the buyers , referred to as buyer premiums . revenue from our purchase transaction model accounted for approximately 69.8 % , 73.8 % , and 79.3 % of our total revenue for the fiscal years ended september 30 , 2017 , 2016 and 2015 , respectively . included in these amounts is revenue earned from the sale of property obtained via the scrap contract , where the price we pay dod for the property is based on a revenue share model , and which accounted for approximately 11.1 % , 10.2 % , and 15.3 % , of our total revenue for the fiscal years ended september 30 , 2017 , 2016 , and 2015 , respectively . the merchandise sold under our purchase transaction model accounted for approximately 28.6 % , 36.4 % , and 40.3 % , of our gmv for the fiscal years ended september 30 , 2017 , 2016 and 2015 , respectively . the revenue from our purchase transaction model is recognized within the revenue line item on the consolidated statements of operations . consignment model—fee revenue . under our consignment transaction model , we enable our sellers to sell goods they own in our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales . this commission fee revenue , which we refer to as seller commissions , represents a percentage of the sales price the buyer pays upon completion of a transaction . we vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction . for example , we generally increase the percentage amount of the commission if we take possession , handle , ship , or provide enhanced product information for the merchandise . story_separator_special_tag pricing declines negatively affected revenue under the surplus contract beginning in the quarter ended june 30 , 2017 , and we anticipate service fee revenue will continue to decline over several quarters due to anticipated additional pricing declines . revenue under the surplus contract was negatively affected for the twelve months ended september 30 , 2017 , as a result of an approximate $ 2.0 million decrease in service revenues due to lower pricing compared to the pricing in effect through the quarter ended march 31 , 2017. applying the additional lower pricing declines currently planned , revenue under the surplus contract would have been lower by approximately $ 5.0 million for the twelve months ended september 30 , 2017. assuming the dod exercises the next renewal option under the surplus contract , we anticipate that the results of the second quarter of fiscal year 2018 will fully reflect the impact of the new reduced service fees . resale of surplus property that we purchased , as well as services we provided to the dod under the surplus contract accounted for 27.6 % , 31.0 % , and 24.7 % , of our revenue and 9.4 % , 12.7 % , and 12.3 % , of our gmv for the fiscal years ended september 30 , 2017 , 2016 and 2015 , respectively . this contract is included within our cag segment . the dod has broad discretion to determine what property will be made available for sale to us under the surplus contract and may retrieve or restrict property previously sold to us for national security , public safety , or other reasons or if the property is otherwise needed to support the mission of the dod . scrap contract . on april 8 , 2016 , the dla awarded us the second scrap contract . under the second scrap contract , we acquire scrap property from the dla and pay the dla a revenue-sharing payment equal to 64.5 % of the gross resale proceeds . the scrap contract is a competitive-bid contract under which we acquire , manage and sell substantially all scrap property of the dod turned into the dla . scrap property generally consists of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . we bear all of the costs for the sorting , merchandising and sale of the property . the second scrap contract has a 36-month base term , commencing in the first quarter of fiscal year 2017 , with two 12-month extension options exercisable by the dla . transactions under this contract follow the purchase transaction model described above . under the first scrap contract , we acquired scrap property at a per pound price and disbursed to the dla a percentage of the profits , most recently 65 % of the amount realized from the sale of the inventory , after deduction for allowable expenses . we refer to these disbursement payments to the dod as profit-sharing distributions . we recognized as revenue the gross proceeds from these sales . the dod reimbursed us for certain direct expenses deemed to be payable by the dod rather than by us . during fiscal year 2015 , if our buyer base met certain small business criteria as defined in the contract , we received an additional incentive payment which was withheld from payments to the dla . the prior scrap contract expired on september 30 , 2016. resale of scrap property that we purchased under the scrap contract accounted for 11.1 % , 10.2 % , and 15.3 % , of our revenue and 4.7 % , 5.0 % , and 7.6 % , of our gmv for the fiscal years ended september 30 , 2017 , 2016 and 2015 , respectively . this contract is included within our cag segment . our commercial agreements we have a vendor contract with amazon.com , inc. under which we acquire and sell commercial merchandise . the property we purchased under this contract represented approximately 21.8 % , 12.1 % , and 6.9 % of cost of goods sold for the fiscal years ended september 30 , 2017 , 2016 and 2015 , respectively . this contract is included within our rscg segment . we have various vendor contracts with wal-mart stores , inc. , under which we purchase certain consumer products from wal-mart that have been removed from the sales stream of its retail operations . all of these agreements have customary commercial terms , which generally expire within a year and allow both parties to terminate for convenience with reasonable notice . we also had a long-term contract with wal-mart that was terminated effective december 8 , 2014. as part of a final settlement of claims wal-mart paid us $ 7.5 million in february 2015. on september 30 , 2015 , we sold certain assets related to the jacobs trading company to a buyer , tanager acquisitions , llc . in connection with the disposition , the buyer assumed certain liabilities related to the jacobs trading company . the buyer issued to us a promissory note in the amount of $ 12.3 million . the divestiture of the jacobs trading company resulted in an $ 8.0 million loss . the sale generated a tax loss that resulted in a $ 30.9 million cash benefit from prior year income taxes . we received $ 30.1 million of the cash benefit in march 2016 , and additional $ 0.7 million of the cash benefit during the three months ended june 30 , 2017. we expect to receive the remaining $ 0.1 million in fiscal year 2018. during fiscal year 2017 , we had over 600 corporate sellers who each sold in excess of $ 10,000 of surplus and salvage assets in our marketplaces . our agreements with these sellers are generally terminable at will by either party .
| consolidated results total revenue . total consolidated revenue decreased $ 46.4 million , or 14.7 % , to $ 270.0 million for the year ended september 30 , 2017 , from $ 316.5 million for the year ended september 30 , 2016 , due to a $ 46.6 million decrease in revenue from our cag segment , and a $ 4.7 million decrease in revenue primarily related to exiting certain truckcenter operations , partially offset by a $ 4.1 million increase in revenue from our govdeals segment , and a $ 0.8 million increase in revenue from our rscg segment . total consolidated gmv decreased $ 12.7 million , or 2.0 % , to $ 629.3 million for the year ended september 30 , 2017 , from $ 642.1 million for the year ended september 30 , 2016 , due to a $ 53.9 million decrease in gmv from our cag segment , and a $ 9.9 million decrease in gmv related to exiting certain truckcenter operations , partially offset by a $ 39.5 million increase in gmv from our govdeals segment , and an $ 11.5 million increase in gmv related to our rscg segment . cost of goods sold . cost of goods sold decreased $ 16.9 million , or 11.8 % , to $ 126.2 million , for the year ended september 30 , 2017 , from $ 143.1 million for the year ended september 30 , 2016. a decrease of approximately $ 17.3 million is attributed to a decrease in transactions within our cag segment , a $ 2.2 million decrease in cost of goods sold related to exiting certain truckcenter operations , partially offset by a $ 0.7 million increase from our rscg segment , and a $ 0.3 million increase from our govdeals segment .
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( 6 ) income taxes the provision for income taxes includes the following components ( in thousands ) : replace_table_token_43_th 82 skywest , inc. and subsidiaries notes to consolidated financial statements ( continued ) december 31 , 2011 ( 6 ) income taxes ( continued ) the following is a reconciliation between the statutory federal income tax rate of 35 % and the effective rate which is derived by dividing the provision ( benefit ) story_separator_special_tag the following discussion and analysis presents factors that had a material effect on our results of operations during the years ended december 31 , 2011 , 2010 and 2009. also discussed is our financial position as of december 31 , 2011 and 2010. you should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this report or incorporated herein by reference . this discussion and analysis contains forward-looking statements . please refer to the sections of this report entitled `` cautionary statement concerning forward-looking statements '' and `` item 1a . risk factors '' for discussion of some of the uncertainties , risks and assumptions associated with these statements . overview through skywest airlines and expressjet , we operate the largest regional airline in the united states . as of december 31 , 2011 , skywest airlines and expressjet offered scheduled passenger and air freight service with approximately 4,000 total daily departures to destinations in the united states , canada , mexico and the caribbean . as of december 31 , 2011 , we operated a combined fleet of 732 aircraft consisting of the following : replace_table_token_9_th for the year ended december 31 , 2011 , approximately 65.2 % of our aggregate capacity was operated under the united express agreements and the continental express agreement , approximately 33.6 % was operated under the delta connection agreements , approximately 0.9 % was operated under the alaska capacity purchase agreement , approximately 0.1 % was operated under the us airways code-share agreement and approximately 0.2 % was operated under a code-share agreement with airtran . skywest airlines has been a code-share partner with delta in salt lake city and united in los angeles since 1987 and 1997 , respectively . in 1998 , skywest airlines expanded its relationship with united to provide service in portland , seattle/tacoma , san francisco and additional los angeles markets . in 2004 , skywest airlines expanded its united express operations to provide service in chicago . in may 2011 , skywest airlines entered into a capacity purchase agreement with alaska . in addition , during november 2011 skywest airlines entered into a code share agreement with us airways . as of december 31 , 2011 , skywest airlines operated as a delta connection carrier in salt lake city and minneapolis , a united express carrier in los angeles , san francisco , denver , houston , chicago and the pacific northwest , an alaska carrier in seattle/ tacoma and portland and a us airways carrier in phoenix . on november 17 , 2011 , atlantic southeast and expressjet delaware consolidated their operations under a single operating certificate , and on december 31 , 2011 , atlantic southeast and expressjet delaware completed the expressjet combination . at the time of the expressjet combination , atlantic southeast had been a code-share partner with delta in atlanta since 1984 and united since 41 february 2010. upon the completion of the expressjet combination on december 31 , 2011 , expressjet operated as a delta connection carrier in atlanta and cincinnati and a united express carrier in chicago ( o'hare ) , washington , d.c. ( dulles international airport ) , cleveland , newark and houston . historically , multiple contractual relationships have enabled us to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of contract flying and our controlled or `` pro-rate '' flying . for the year ended december 31 , 2011 , contract flying revenue and pro-rate revenue represented approximately 91 % and 9 % , respectively , of our total passenger revenues . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on the completed block hours , flight departures and other operating measures . on pro-rate flights , we control scheduling , ticketing , pricing and seat inventories and receive a pro-rated portion of passenger fares . for the year ended december 31 , 2011 , essentially all of our brasilia turboprops flown for delta were flown under pro-rate arrangements , while approximately 61 % the asms flown by our brasilia turboprops in the united system were flown under contractual arrangements , with the remaining 39 % of the asms flown by our brasilias in the united system were flown under pro-rate arrangements . for the year ended december 31 , 2011 , approximately 90 % of the asms flown by our crj200s in the united system were flown under contractual arrangements , with the remaining 10 % of the asms flown under pro-rate arrangements . story_separator_special_tag engines on our crj700s operated under the skywest airlines united express agreement . under the terms of the vendor agreement , we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us , subject to certain specified exclusions . thus , under the third-party vendor agreement , we expense the engine maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in the agreement . aircraft leases the majority of skywest airlines ' aircraft are leased from third parties , while expressjet 's aircraft flying for delta are primarily debt-financed on a long-term basis and the majority of expressjet 's aircraft are leased from continental for a nominal amount . story_separator_special_tag under the skywest airlines and expressjet delta connection agreements and the continental cpa , we are reimbursed for our engine overhaul expenses as incurred . we also record those engine overhaul reimbursements as operating revenue . the following table summarizes the amount of fuel and engine overhaul reimbursements included in our passenger revenues for the periods indicated ( dollar amounts in thousands ) . replace_table_token_12_th passenger revenues . passenger revenues increased $ 860.5 million , or 31.6 % , during the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. the increase in passenger revenues was primarily due to the expansion of our operations following the completion of the expressjet merger . our passenger revenues , excluding fuel and engine overhaul reimbursements from major partners , increased $ 559.5 million , or 23.7 % , during the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. the increase in passenger revenues , excluding fuel and engine overhaul reimbursements , was primarily due to an increase in block hours of 45.4 % during the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. the block hour increase was primarily due to the expansion of our operations following the completion of the expressjet merger . the increase in passenger revenues , excluding fuel and engine overhaul reimbursements , was less than the increase in block hours primarily due to differences between the continental express agreement and our other code-share agreements . under the continental express agreement , continental pays for more costs directly ( such as station rents and aircraft ownership ) and as such , there are no associated reimbursements recognized as revenue on costs paid directly by continental . under our other code-share agreements , the majority of those costs are paid by skywest and expressjet and the reimbursements received from their major partners are included in revenue . as such we do not expect the expressjet operations to increase revenue at the same rate as the projected increase in block hours . in addition , the delta connection agreements also provide that , beginning with the fifth anniversary of the execution of the agreements ( september 8 , 2010 ) , delta has the right to require that certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers within the delta connection program . during the fourth quarter of 2010 , skywest airlines and atlantic southeast reached an agreement with delta on contractual rates satisfying the second-lowest rate provision and agreed on rates through december 31 , 2015. delta additionally waived its right to require that the contractual rates payable under the delta connection agreements shall not exceed the second lowest of all carriers within the delta connection program through december 31 , 2015. as a result of the negotiated adjustment of the contractual rates under the delta connection agreements , our passenger revenues for the year ended december 31 , 2011 were approximately $ 21.7 million lower than they would have been under the rates that existed prior to the adjustment . additionally , skywest airlines and atlantic southeast finalized certain contractual rates from september 8 , 2008 through december 31 , 2010 with delta . as a result , we recorded $ 10.3 million in additional revenue as a result of the finalization of contractual rates during the quarter ended december 31 , 2010. under the terms 47 of the skywest airlines and expressjet delta connection agreements , delta has agreed to compensate skywest airlines and expressjet for initiatives that directly result in pass through cost savings . delta agreed to share such savings with skywest airlines and expressjet on an equal basis for a twelve-month period . during the three months ended december 31 , 2010 , delta paid , and skywest airlines and atlantic southeast recognized , approximately $ 6.9 million in cost savings revenue . we did not receive similar payments during the year ended december 31 , 2011. in addition , under our expressjet delta connection agreement and our skywest airlines and expressjet united express agreements we are paid an incentive compensation upon the achievement of certain performance criteria . our passenger revenues for the year ended december 31 , 2011 were $ 18.9 million lower compared to the year ended december 31 , 2010 , due primarily to our receipt of lower incentive payments . ground handling and other . total ground handling and other revenues increased $ 29.3 million , or 71.6 % , during the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. revenue attributed to ground handling services for our aircraft is reflected in our consolidated statements of operations under the heading `` passenger revenues '' and revenue attributed to handling third party aircraft is reflected in our consolidated statements of operations under the heading `` ground handling and other . '' the increase in ground handling and other revenues was primarily related to the expansion of our operations following the completion of the expressjet merger and aircraft rental revenue received from other airlines . during the year ended december 31 , 2010 , we obtained leases for four crj900s and subleased those aircraft to air mekong . individual expense components attributable to our operations are expressed in the following table on the basis of cents per asm . asm is a common metric used in the airline industry to measure an airline 's passenger capacity . asms reflect both the number of aircraft in an airline 's fleet and the seat capacity for the aircraft in the fleet . as the size of our fleet is the underlying driver of our operating costs , the primary basis for our presentation of the following information on a cost per asm basis is to discuss significant changes in our costs not proportionate to the relative changes in our fleet size ( dollar amounts in thousands ) . replace_table_token_13_th fuel .
| financial highlights we had revenues of $ 3.7 billion for the year ended december 31 , 2011 , a 32.2 % increase , compared to revenues of $ 2.8 billion for the year ended december 31 , 2010. we had a net loss of $ 27.3 million , or $ 0.52 per diluted share , for the year ended december 31 , 2011 , a decrease of 128.4 % , compared to net income of $ 96.4 million , or $ 1.70 per diluted share , for the year ended december 31 , 2010. the significant items affecting our financial performance during the year ended december 31 , 2011 are summarized below : on november 12 , 2010 , we completed the expressjet merger , which has substantially affected all aspects of our operations . among other effects , the expressjet merger added 242 erj145 aircraft to our fleet . the completion of the expressjet merger is the most significant factor that affects the comparability of our financial and operating results between the year ended december 31 , 2011 and the year ended december 31 , 2010. the delta connection agreements provide that , beginning with the fifth anniversary of the execution of the agreements ( september 8 , 2010 ) , delta has the right to require that certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers within the delta connection program .
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the forward-looking statements contained in this form 10-k involve known and unknown risks , uncertainties and situations that may cause our or our industry 's actual results , level of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these statements . these forward-looking statements are made in reliance upon the safe harbor provision of the private securities litigation reform act of 1995. these factors include those listed in part i , item 1a under the caption entitled “ risk factors ” in this form 10-k and those discussed elsewhere in this form 10-k. unless the context otherwise requires , references in this form 10-k to “ copart , ” the “ company , ” “ we , ” “ us , ” or “ our ” refer to copart , inc. we encourage investors to review these factors carefully together with the other matters referred to herein , as well as in the other documents we file with the securities and exchange commission ( the sec ) . we may from time to time make additional written and oral forward-looking statements , including statements contained in our filings with the sec . we do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us . all references to numbered notes are to specific notes to our consolidated financial statements included in this annual report on form 10-k and which descriptions are incorporated into the applicable response by reference . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operation ( “ md & a ” ) have the same meanings as in such notes . overview we are a leading provider of online auctions and vehicle remarketing services with operations in the united states ( u.s. ) , canada , the united kingdom ( u.k. ) , the republic of ireland , brazil , germany , the united arab emirates ( u.a.e . ) , oman , bahrain , india , and spain . we provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our virtual bidding third generation internet auction-style sales technology , which we refer to as vb3 . vehicle sellers consist primarily of insurance companies , but also include banks , finance companies , charities , fleet operators , dealers and vehicles sourced directly from individual owners . we sell the vehicles principally to licensed vehicle dismantlers , rebuilders , repair licensees , used vehicle dealers and exporters and , at certain locations , to the general public . the majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies , or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made . we offer vehicle sellers a full range of services that expedite each stage of the vehicle sales process , minimize administrative and processing costs , and maximize the ultimate sales price . in the u.s. , canada , the republic of ireland , brazil , the u.a.e. , oman , bahrain , india , and spain , we sell vehicles primarily as an agent and derive revenue primarily from fees paid by vehicle sellers and vehicle buyers as well as related fees for services , such as towing and storage . in the u.k. , we operate both as an agent and on a principal basis , purchasing the salvage vehicles outright from the insurance companies and reselling the vehicles for our own account . in germany and spain , we also derive revenue from sales listing fees for listing vehicles on behalf of many insurance companies . we monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate our financial and operating performance . such indicators include : service and vehicle sales revenue : our revenue consists of sales transaction fees charged to vehicle sellers and vehicle buyers , transportation revenue , purchased vehicle revenue , and other remarketing services . revenues from sellers are generally generated either on a fixed fee contract basis , where our fees are fixed based on the sale of each vehicle regardless of the selling price of the vehicle or under our percentage incentive program , which we refer to as pip , where our fees are generally based on a predetermined percentage of the vehicle sales price . under the consignment or fixed fee program , we generally charge an additional fee for title processing and special preparation . we may also charge additional fees for the cost of transporting the vehicle to our facility , storage of the vehicle , and other incidental costs not included in the consignment fee . under the 31 consignment program , only the fees associated with vehicle processing are recorded in revenue , not the actual sales price ( gross proceeds ) . sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles , storage , loading , and annual registration . transportation revenue includes charges to sellers for towing vehicles under certain contracts and towing charges assessed to buyers for delivering vehicles . purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own , and is primarily generated in the u.k. we have certain contracts with insurance companies in which we act as a principal , purchasing vehicles and reselling them for our own account . we also purchase vehicles in the open market , primarily from individuals , and resell them for our own account . our revenue is impacted by several factors , including total loss frequency and the average vehicle auction selling price , as a significant amount of our service revenue is associated in some manner to the ultimate selling price of the vehicle . story_separator_special_tag united states cycle express , llc ( 1 ) acquisition june 2017 united states manama , bahrain greenfield may 2015 bahrain muscat , oman greenfield june 2015 oman moncton , new brunswick greenfield july 2015 canada sonepat , india ( new delhi ) greenfield october 2015 india castledermot , republic of ireland greenfield april 2016 republic of ireland algete , spain ( madrid ) greenfield july 2016 spain bad fallingbostel , germany ( hanover ) greenfield september 2016 germany newbury , united kingdom greenfield september 2016 united kingdom betim , minas gerais greenfield april 2017 brazil ( 1 ) cycle express , llc conducts business primarily as national powersport auctions ( npa ) , a leading non-salvage auction platform for motorcycles , snowmobiles , watercraft and other powersports vehicles . npa currently operates facilities in atlanta , georgia ; cincinnati , ohio ; dallas , texas ; philadelphia , pennsylvania ; and san diego , california . the period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions , new openings , weather and product introductions during such periods . in particular , we have certain contracts inherited through our u.k. acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . it has been our practice and remains our intention , where possible , to migrate these contracts to the agency model in future periods . changes in the amount of revenue derived in a period from principal transactions relative to total revenue will impact revenue growth and margin percentages . in addition to growth through business acquisitions , we seek to increase revenues and profitability by , among other things , ( i ) acquiring and developing additional vehicle storage facilities in key markets ; ( ii ) pursuing national and regional vehicle seller agreements ; ( iii ) increasing our service offerings to sellers and members ; and ( iv ) expanding the application of vb3 into new markets . in addition , we implement our pricing structure and auction procedures , and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures , integrating our management information systems , and redeploying personnel , when necessary . 33 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the u.s. of $ 5.6 million . excluding the beneficial impact of $ 10.4 million due to changes in foreign currency exchange rates , primarily from changes in the british pound to u.s. dollar exchange rate , the increase in international of $ 1.4 million was primarily the result of increased volume . the increase in the u.s. was primarily the result of higher average purchase prices , which we believe is due to higher commodity prices and a change in the mix of vehicles sold ; partially offset by a shift in volume for certain sellers from principal to agency business . the decrease in cost of vehicle sales for fiscal 2016 of $ 4.5 million , or 3.3 % as compared to fiscal 2015 was the result of ( i ) an increase in the u.s. of $ 3.6 million and ( ii ) an increase in international of $ 0.9 million . the increase in the u.s. was primarily the result of increased volume , partially offset by lower average purchase prices , which we believe was due to lower commodity prices and a change in the mix of vehicles sold . the increase in international was primarily the result of increased volume , partially offset by the beneficial impact of $ 5.6 million due to changes in foreign currency exchange rates , primarily from changes in the british pound and the brazilian real to u.s. dollar exchange rates , and lower average purchases prices driven by increased open market purchase activity from the general public . the following table presents a comparison of general and administrative expenses for fiscal 2017 , 2016 and 2015 : replace_table_token_10_th 36 general and administrative expenses . the increase in general and administrative expenses for fiscal 2017 of $ 13.2 million , or 9.6 % as compared to fiscal 2016 came primarily from an increase in the u.s. of $ 12.1 million , and an increase in international of $ 1.2 million . excluding depreciation and amortization , the increase in the u.s. of $ 10.3 million resulted primarily from the impact of payroll taxes from the exercise of employee stock options , an increase in professional services expenses , acquisition-related expenses , and charges related to sales tax and franchise tax adjustments . the increase in depreciation and amortization expenses for fiscal 2017 as compared to fiscal 2016 came primarily from depreciating certain technology assets placed into service in the u.s. see notes to consolidated financial statements , note 2 — acquisitions . the decrease in general and administrative expenses for fiscal 2016 of $ 0.9 million , or 0.6 % as compared to fiscal 2015 came primarily from a decrease in the u.s. of $ 1.8 million , partially offset by an increase in international of $ 1.0 million as we continue to expand in these markets . the decrease in the u.s. of $ 5.6 million , excluding depreciation and amortization , resulted from decreased expenditures on technology development ; partially offset by the overall growth in labor costs and professional services associated with domestic expansion and increased stock-based payment compensation . the increase in depreciation and amortization expenses came primarily from depreciating certain technology assets placed into service in the u.s. the following table summarizes impairment , total other expenses and income taxes for fiscal 2017 , 2016 and 2015 : replace_table_token_11_th impairment . during fiscal 2017 , we recognized a $ 19.4 million charge primarily related to fully impairing costs previously capitalized in connection with the development of business operating software . other ( expense ) income .
| results of operations the following table shows certain data from our consolidated statements of income expressed as a percentage of total service revenues and vehicle sales for fiscal 2017 , 2016 and 2015 : replace_table_token_5_th comparison of fiscal years ended july 31 , 2017 , 2016 and 2015 the following table presents a comparison of service revenues for fiscal 2017 , 2016 and 2015 : replace_table_token_6_th service revenues . the increase in service revenues for fiscal 2017 of $ 181.9 million , or 16.5 % as compared to fiscal 2016 came from ( i ) an increase in the u.s. of $ 170.4 million and ( ii ) an increase in international of $ 11.4 million . the increase in the u.s. was driven primarily by increased volume and a marginal increase in revenue per car due to higher average auction selling prices , which we believe was due to higher commodity prices . the increase in volume in the u.s. was derived from ( i ) growth in the number of units sold from new and expanded contracts with insurance companies , and ( ii ) growth from existing suppliers , driven by what we believe was an increase in salvage frequency . excluding a detrimental impact of $ 16.4 million due to changes in foreign currency exchange rates , primarily from changes in the british pound to u.s. dollar exchange rate , the increase in international of $ 27.8 million was driven primarily by increased volume and an increase in revenue per car . the increase in service revenues for fiscal 2016 of $ 119.0 million , or 12.1 % as compared to fiscal 2015 came from ( i ) growth in the u.s. of $ 110.4 million and ( ii ) growth in international of $ 8.6 million .
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on december 19 , 2019 , cool technologies issued 1,128,687 shares of common stock story_separator_special_tag our management 's discussion and analysis contains not only statements that are historical facts , but also statements that are forward-looking . forward-looking statements are , by their very nature , uncertain and risky . these risks and uncertainties include international , national and local general economic and market conditions ; demographic changes and pandemics ; our ability to sustain , manage , or forecast growth ; our ability to successfully make and integrate acquisitions ; raw material costs and availability ; new product development and introduction ; existing government regulations and changes in , or the failure to comply with , government regulations ; adverse publicity ; competition ; the loss of significant customers or suppliers ; fluctuations and difficulty in forecasting operating results ; changes in business strategy or development plans ; business disruptions ; the ability to attract and retain qualified personnel ; the ability to protect technology ; and other risks that might be detailed from time to time in our filings with the sec . because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . the following discussion and analysis of financial condition and results of operations of the company is based upon , and should be read in conjunction with , the audited consolidated financial statements and related notes elsewhere in this annual report on form 10-k. plan of operation we have not generated any revenues to date . we generated our first mobile generation order during the quarter ended june 30 , 2014 and received a partial deposit in advance of completing the sale . on june 9 , 2017 , the company received a purchase order for 10 mg systems from craftsmen industries . as craftsmen builds custom vehicles designed to the individual specifications of their customers whose businesses and technical requirements vary widely , it is impossible to estimate when the order will be fulfilled . a 50 % down payment will be received from craftsmen at the time of customer acceptance . 26 we believe the benefits of our mobile power generation systems are quickly realized once potential customers see it in operation . public demonstrations of the mg systems began in april 2017. an inspection and performance demonstration for mexican government officials and business leaders occurred in may 2018. feedback from initial viewers resulted in more government officials and fruit growers coming to see a third demonstration in march 2019. even more officials and growers followed -- flying to st. louis for a review in may 2019. in november 2017 , the company received a purchase commitment for 234 mg systems from a mexican producers ' union . that was followed by a purchase commitment for 24 to 50 mg units from a second mexican producers ' union in december 2017. on april 9 , 2018 , the first mexican producers ' union executed a purchase order with the company for 10 ford f350s with mg80 kva systems installed . on may 7 , 2019 , turkish technology company belirti teknoloji , a.s. delivered a purchase order for six hundred mg80 , mg125 and mg200 mobile generation systems . as of the may 1 , 2020 , the company does not have the funds available to fulfill the orders . craftsmen industries was selected to produce the first systems due to its engineering capabilities and extensive facilities . in january 2019 , it began production on the initial vehicles and completed an initial production run vehicle two months later . in the meantime , we primarily incur expenses to commercialize our products , which include costs for research and development , professional fees and general operations . management is pursuing various financing alternatives , based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our ip , with aon risk services central , inc. we see this as the best path forward for non-dilutive funding . the funding will be used to support completion of the initial phases of our business plan , which is to license our thermal technologies and applications ; to license or sell a mobile electric power system ; and to license our submersible motor dry pit technologies and or to bring to market our technologies and applications through key distribution partners . as of the filing date , it is uncertain whether covid 19 will have a significant impact on production and distribution of company products . significant developments amendment of series b preferred stock on october 31 , 2016 , the company filed an amended and restated series b preferred stock certificate of designation ( which was originally filed with the secretary of state of nevada on april 19 , 2016 , and amended on august 12 , 2016 ) to designate 3,636,360 shares as series b preferred stock and to provide for supermajority 66 2/3 % voting rights for the series b preferred stock . the series b preferred stock will not bear dividends , will not be entitled to receive any distributions in the event of any liquidation , dissolution or winding up of the company , and will have no other preferences , rights , restrictions , or qualifications , except as otherwise provided by law or the articles of incorporation of the company . the holders of class b stock shall have the right , at such holder 's option , at any time to convert such shares into common stock , in a conversion ratio of one share of common stock for each share of class b stock . story_separator_special_tag national union of producers in mexico for the state of veracruz in december 2017 , the company received a purchase commitment for 24 to 50 mg units from the national union of producers in mexico for the state of veracruz . depending on the respective numbers of mg55 and mg80 kva systems ordered , the company expects the value of the commitment to range between $ 1,200,000 and $ 3,750,000. the union represents farmers who grow labor and energy intensive crops such as sugar cane , tobacco , bananas , coffee , rice and vanilla . it expects that the mg systems will increase yields , exports and income for its members and their communities . according to the contract , the company will deliver an mg 80 retro-fitted onto a ford f-350 truck within 60 business days . then , to ensure the system fully addresses the application requirements , cooltech , as a best practice of six sigma quality , will gather data and performance feedback . when cooltech is satisfied that optimal performance has been achieved , the union will release the balance of the order and production begins . on february 23 , 2018 , veracruz signed an agreement to amend their previous purchase agreement . it eliminates the 60 business day deadline for the truck to be shipped to mexico . under the new agreement , representatives from veracruz will come to colorado for an inspection and live performance demonstration . if approved , the generator-equipped trucks will go into production as specified in the original purchase agreement . a representative of the national union of jatropha producers approved the generator-equipped truck . it will go into production as the company secures final funding . payment terms require 50 % down and 50 % at time of shipment , each payable with a bank letter of credit . product delivery will be considered fob ( freight on board ) from cool technologies ' shipping dock . the value of the purchase commitment is expected to commitment to range between $ 1.2m and $ 3.9m usd . panasonic system communications company of north america . in january 2018 , the company announced that its mobile generation systems will incorporate panasonic toughpad tablets to run cooltech 's software . 29 the association between the two companies dates back to april 2017 when cool technologies demonstrated its mobile generation ( mg ) system at craftsman industries in st. louis . in attendance was the executive director of product planning strategy and innovation at the silicon valley center of panasonic corporation of north america . he received a demonstration of the mg technology as well as an overview of cooltech 's thermal dispersion technologies . that led to several conversations and meetings regarding the ways in which the two companies could pursue joint initiatives and opportunities . the first initiative resulted in cooltech 's use of the panasonic toughpad tablet to provide a rugged touchscreen interface for field technicians to control and calibrate the mobile generation systems . the toughpad will be deployed in the trucks ' cabs . aon risk services central , inc and lee and hayes , pllc in january 18 , 2018 , the company entered into an agreement with aon risk services central , inc. and lee and hayes , pllc , through its operating unit , 601west , which provides intellectual property ( “ ip ” ) analytics , to assess the value of the company 's ip . as set forth in the agreement , the assessment will be founded on historically demonstrated or contractually committed profit-earning capacities of our ip and may be used to obtain financing , including but not limited to , non-dilutive financing . since then significant progress has been achieved , although at a pace much slower than anticipated . live mg80 demonstration in fort collins , colorado on may 4 , 2018 , nine representatives from mexico 's farming , banking , and government sectors flew to fort collins , colorado for a live demonstration of cooltech 's generator-equipped truck . the demonstration showcased the capabilities and ease of operation of the system . the company demonstrated how an operator is able to control the generator from the comfort and safety of the truck 's cab using a panasonic toughpad . the company also used the electricity from the truck to power a screw compressor , an industrial fan , and an industrial load bank . additional capabilities , such as purifying water and using batteries and solar power to make operations more sustainable and environmentally friendly were discussed with the attendees . a representative of the national union of jatropha producers approved the generator-equipped truck . cooltech plans to put this into production as soon as final funding is secured . purchase and delivery of truck to craftsman industries on july 15 , 2018 , the company purchased a ford f-450 chassis cab truck . subsequently , a metal flatbed was manufactured and installed . the truck was delivered to craftsmen on september 15 th . it will be used for the installation and refinement of the mg 80 kva system . a second f-450 will be used for the mg 125 kva system . order of parts and components during the week of october 7 , 2018 , the company placed orders for system controllers , 80 and 125 kva generators , voltage regulators , panasonic toughpads , power take-offs ( pto ) and split shaft ptos . calstart , inc. cooltech joined calstart , inc. ( “ calstart ” ) a non-profit , clean transportation technology coalition in november 2018. the coalition works with member companies and agencies to foster a high-tech clean-transportation industry by accelerating the adoption of emerging technologies and helping build markets . since then , the company has been in contact with 4 utilities , 3 telecoms , 2 truck upfitters and 3 hybrid truck manufacturers .
| results of operations the following table sets forth , for the periods indicated , consolidated statements of operations data . the table and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto , appearing elsewhere in this report . replace_table_token_3_th 34 revenues during the years ended december 31 , 2019 and 2018 , and since inception , we have not generated any revenues . we generated our first mobile generation order during the quarter ended june 30 , 2014 and received a partial deposit in advance of completing the sale with companies controlled by the individual who is a 5 % owner of upt and a shareholder of our company . the order is in the production queue along with other existing orders . operating expenses operating expenses decreased during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , due to reductions in consulting costs , professional fees , research and development as well as general and administrative . during the year ended december 31 , 2019 , payroll and related expenses increased by $ 65,320 due to bonuses awarded for new company patents . the decrease in professional fees was due primarily to the reduced requirements for accounting and legal . the decrease in research and development was due to the focus on commercialization of the company 's mg system . the decrease in general and administrative costs was due to limited funds . other income and expense interest expenses during the years ended december 31 , 2019 and 2018 related primarily to our debt .
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the 2003 share incentive plan contains provisions for equitable adjustment of the 2003 benefits in the event of a merger , consolidation , reorganization , recapitalization , stock dividend , stock split , reverse stock split , spinoff , combination of shares , exchange of shares , dividends in kind or other like change in capital structure or distribution ( other than normal cash dividends ) to stockholders of the company . the 2003 share incentive plan terminated with respect to additional grants on april 21 , 2013 . ( 2 ) on july 14 , 2010 the board adopted the 2010 share incentive plan . officers , key employees and non-employee directors of , and consultants to , the company or any of its subsidiaries and affiliates are eligible to participate in the 2010 share incentive plan . the 2010 share incentive plan provides for the grant of stock options , stock appreciation rights , stock awards , and performance awards and stock units ( the 2010 benefits ) . the maximum number of shares of common stock available for issuance under the 2010 share incentive plan was initially 15,000,000 shares . on july 6 , 2011 and august 29 , 2012 , the 2010 share incentive plan was amended by our board to increase the maximum number of shares of common stock that may be granted to 27,000,000 and 30,000,000 shares , respectively . on november 8 , 2013 , the board approved an amendment to provide that effective and following november 8 , 2013 , the maximum aggregate number of shares available for issuance will be 20,000,000 shares . additionally , commencing on the first business day in 2014 and on the first business day of each calendar year thereafter , the maximum aggregate number of shares available for issuance shall be replenished such that , as of such first business day , the maximum aggregate number of shares available for issuance shall be 20,000,000 shares . current and future non-employees directors are automatically granted a 10 year nonqualified stock option to purchase 300,000 shares of common stock ( or 400,000 in the case of the chairman of the board ) on january 1st of each year that will vest in four equal quarterly installments . the 2010 share incentive plan was administered by the stock option committee through august 2012 , by the stock option committee , from august 2012 through november 2012 , by the executive committee of the board and since november 2012 by the board of directors , which determines the option price , term and provisions of each option . the 2010 share incentive plan terminates which respect to additional grants on july 14 , 2020. the board may amend , suspend or terminate the 2010 share incentive plan at any time . 40 ( 3 ) on september 19 , 2012 , the company granted to robert a. berman , dr. amit kumar and john roop options story_separator_special_tag results of operations . general in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . story_separator_special_tag stock . loss on extinguishment of debt of approximately $ 344,000 in fiscal year 2013 related to the conversion of $ 325,000 principal amount of convertible debentures due january 2015 into shares of our common stock . interest expense interest expense increased by approximately $ 154,000 to approximately $ 1,264,000 in fiscal year 2014 , from approximately $ 1,110,000 in fiscal 2013. interest expense in fiscal years 2014 and 2013 includes approximately $ 642,000 and $ 294,000 , respectively , of amortization of debt discount and deferred financing costs on convertible debentures , approximately $ 386,000 and $ -0- , respectively , of amortized interest on our patent acquisition obligation and approximately $ 174,000 and $ -0- , respectively , of accrued interest on the convertible debenture due november 2016 and approximately $ 62,000 and $ 99,000 , respectively , of common stock issued to pay interest on the convertible debentures due january 2016 and the convertible debentures due september 2016. during fiscal year 2013 , the convertible debentures due september 2016 were converted into shares of common stock . the conversion of these debentures resulted in a charge to interest expense of approximately $ 717,000 during fiscal year 2013. there was no charge to interest expense related to the conversion of debentures in the current fiscal period . change in fair value of derivative liability the change in value of derivative liability was a loss in the fiscal year 2014 of approximately $ 593,000 , compared to a gain in fiscal year 2013 of approximately $ 475,000. the derivative liability is related to the convertible debentures due january 2015 and the convertible debentures due november 2016 , and is changed each reporting period based upon the market price of common stock and the time remaining to the maturity of the debentures . as of october 31 , 2014 , the company no longer has any convertible debentures . dividend income dividend income of approximately $ 48,000 received in the fiscal year 2014 was related to the videocon gdr 's . there was no dividend income received in the fiscal year 2013 . 23 interest income interest income increased to approximately $ 9,000 in fiscal year 2014 compared to approximately $ -0- the fiscal year 2013 , due to the increase of short-term investments during the current period . liquidity and capital resources our primary sources of liquidity are cash , cash equivalents and short term investments on hand generated from our operating activities and proceeds from previous financing . story_separator_special_tag the exercise price of the warrants is subject to customary adjustment in the case of stock splits , stock dividends , combinations of shares and similar recapitalization transactions . under certain circumstances , the company has the right to call for cancellation all or any portion of each warrant for which a notice of exercise has not yet been delivered for consideration equal to $ .001 per share . the offering was effected as a takedown off the company 's shelf registration statement on form s-3 , which became effective on april 25 , 2014 , pursuant to a prospectus supplement filed with the sec . 24 off-balance sheet arrangements we have no variable interest entities or other off-balance sheet obligation arrangements . critical accounting policies the company 's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . in preparing these financial statements , we make assumptions , judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis , we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that , of the significant accounting policies discussed in note 3 to our consolidated financial statements , the following accounting policies require our most difficult , subjective or complex judgments : · revenue recognition ; · investment securities ; · stock-based compensation ; and · convertible debentures revenue recognition revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) all obligations have been substantially performed pursuant to the terms of the arrangement , ( iii ) amounts are fixed or determinable , and ( iv ) the collectability of amounts is reasonably assured . patent monetization and patent assertion in general , revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by our operating subsidiaries . these rights typically include some combination of the following : ( i ) the grant of a non-exclusive , retroactive and future license to manufacture and or sell products covered by patented technologies owned or controlled by our operating subsidiaries , ( ii ) a covenant-not-to-sue , ( iii ) the release of the licensee from certain claims , and ( iv ) the dismissal of any pending litigation . the intellectual property rights granted are perpetual in nature , extending until the expiration of the related patents . pursuant to the terms of these agreements , our operating subsidiaries have no further obligation with respect to the grant of the non-exclusive retroactive and future licenses , covenants-not-to-sue , releases , and other deliverables , including no express or implied obligation on our operating subsidiaries ' part to maintain or upgrade the technology , or provide future support or services . generally , the agreements provide for the grant of the licenses , covenants-not-to-sue , releases , and other significant deliverables upon execution of the agreement . as such , the earnings process is complete and revenue is recognized upon the execution of the agreement , when collectability is reasonably assured , and when all other revenue recognition criteria have been met . display technology development and license fees we assessed the revenue guidance of accounting standards codification ( asc ) 605-25 multiple-element arrangements ( asc 605-25 ) to determine whether multiple deliverables in our arrangements with auo represent separate units of accounting . under the auo license agreements , we received initial development and license fees of $ 3 million , of aggregate development and license fees of up to $ 10 million . the additional $ 7 million in development and license fees were to be payable upon completion of certain conditions for the respective technologies . we determined that the transfer of the licensed patents and technology and the effort involved in completion of the conditions for the respective technologies represent a single unit of accounting for each technology . accordingly , using a proportional performance method , during the third quarter of fiscal year 2011 we began recognizing the $ 3 million initial development and license fees over the estimated periods that we expected to complete the conditions for the respective technologies . each of the license agreements also provided for the basis for royalty payments on future production , if any , by auo to the company , which we have determined represent separate units of accounting . we did not recognize any portion of the $ 7 million of additional development and license fees or any royalty income under the auo license agreements . development and license fee payments received from auo which are in excess of the amounts recognized as revenue ( approximately $ 1,187,000 as of october 31 , 2013 ) are recorded as non-refundable deferred revenue on the october 31 , 2013 consolidated balance sheet . as a result of the auo/e ink lawsuit described above , we did not record any display technology development and license fee revenue during the period from the fourth quarter of fiscal 2012 through the second quarter of this fiscal year due to uncertainty as to our remaining performance obligations , if any . based on our assessment performed for the third quarter of fiscal 2014 , we determined that we have no further performance obligations under the auo license agreements and accordingly we recognized display technology development and license fee revenue of approximately $ 1,187,000 , representing the balance of the initial $ 3 million payment received from auo .
| results of operations fiscal year ended october 31 , 2014 compared with fiscal year ended october 31 , 2013 revenue from patent assertion activities in fiscal year 2014 , we recorded revenue from patent assertion activities of $ 2,480,000 , from 27 license agreements in connection with our j-channel window frame construction and key based web conferencing encryption patent portfolios . in fiscal year 2013 , we recorded revenue from patent assertion activities of approximately $ 389,000 , from 4 license agreements in connection with our j-channel window frame construction and loyalty conversion systems patent portfolios . the license agreements provided for one-time , non-recurring , lump sum payments in exchange for non-exclusive retroactive and future licenses , or covenants not to sue . accordingly , the earning process from these licenses was complete and 100 % of the revenue was recognized upon execution of the license agreements . display technology development and license fees based on our assessment during fiscal 2014 that we have no further performance obligations under the auo license agreements , we recorded approximately $ 1,187,000 of display technology development and license fees revenue , representing the balance of the initial $ 3 million payment received from auo in fiscal year 2011. we did not record any display technology development and license fees during the fiscal year ended 2013. on december 29 , 2014 , we settled our lawsuit against auo and received gross proceeds of $ 9 million . inventor royalties and contingent legal fees inventor royalties and contingent legal fees increased by approximately $ 1,205,000 in fiscal year 2014 , to approximately $ 1,413,000 , from approximately $ 208,000 in fiscal year 2013. the increase was due to the increase in revenue from patent assertion activities . inventor royalties and contingent legal fees are expensed in the period that the related revenues are recognized .
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in the company 's key markets , the company 's primary subsidiary , city national , generally ranks in the top three relative to deposit market share and the top two relative to branch share ( charleston/huntington msa , beckley/lewisburg counties , staunton msa and winchester , va/wv eastern panhandle counties ) . in addition to its branch network , city national 's delivery channels include automated-teller-machines ( `` atms '' ) , interactive-teller-machines ( `` itms '' ) , mobile banking , debit cards , interactive voice response systems , and internet technology . the company 's business activities are currently limited to one reportable business segment , which is community banking . in january 2015 , the company sold its insurance operations , cityinsurance , to the hilb group effective january 1 , 2015. as a result of this sale , the company recognized a one-time after tax gain of $ 5.8 million in the first quarter of 2015. on november 6 , 2015 , the company purchased three branch locations from american founders bank , inc. ( “ afb ” ) located in lexington , kentucky . the company acquired approximately $ 119 million in performing loans and assumed deposit liabilities of approximately $ 145 million . the company paid afb a deposit premium of 5.5 % on non-time deposits and 1.0 % on premium loan balances acquired . critical accounting policies the accounting policies of the company conform to u.s. generally accepted accounting principles and require management to make estimates and develop assumptions that affect the amounts reported in the financial statements and related footnotes . these estimates and assumptions are based on information available to management as of the date of the financial statements . actual results could differ significantly from management 's estimates . as this information changes , management 's estimates and assumptions used to prepare the company 's financial statements and related disclosures may also change . the most significant accounting policies followed by the company are presented in note one of the notes to consolidated financial statements included herein . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified : ( i ) the determination of the allowance for loan losses and ( ii ) income taxes to be the accounting areas that require the most subjective or complex judgments and , as such , could be most subject to revision as new information becomes available . the allowance and provision for loan losses section of this annual report on form 10-k provides management 's analysis of the company 's allowance for loan losses and related provision . the allowance for loan losses is maintained at a level that represents management 's best estimate of probable losses in the loan portfolio . management 's determination of the appropriateness of the allowance for loan losses is based upon an evaluation of individual credits in the loan portfolio , historical loan loss experience , current economic conditions , and other relevant factors . this determination is inherently subjective , as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change . the allowance for loan losses related to loans considered to be impaired is generally evaluated based on the discounted cash flows using the impaired loan 's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans . the allowance not specifically allocated to individual credits is generally determined by analyzing potential exposure and other qualitative factors that could negatively impact the overall credit risk of the loan portfolio . loans not individually evaluated for impairment are grouped by pools with similar risk characteristics and the related historical loss rates are adjusted to reflect current inherent risk factors , such as unemployment , overall economic conditions , concentrations of credit , loan growth , classified and impaired loan trends , staffing , adherence to lending policies , and loss trends . the income taxes section of this annual report on form 10-k provides management 's analysis of the company 's income taxes . the company is subject to federal and state income taxes in the jurisdictions in which it conducts business . in computing the provision for income taxes , management must make judgments regarding interpretation of laws in those jurisdictions . because the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations , amounts reported in the financial statements could be changed at a later date upon final determinations by taxing 24 authorities . on a quarterly basis , the company estimates its annual effective tax rate for the year and uses that rate to provide for income taxes on a year-to-date basis . the company 's unrecognized tax benefits could change over the next twelve months as a result of various factors . the company is currently open to audit under the statute of limitations by the internal revenue service and various state taxing authorities for the years ended december 31 , 2014 through 2016. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the company 's net interest income increased from $ 118.9 million for the year ended december 31 , 2016 to $ 126.1 million for the year ended december 31 , 2017. the company 's tax equivalent net interest income increased $ 7.8 million , or 6.5 % , from $ 119.8 million in 2016 to $ 127.6 million in 2017 . this increase was due primarily to higher average balances on commercial loans ( $ 132.0 million ) which increased interest income by $ 5.1 million , and residential real estate loans ( $ 33.5 million ) which increased interest income by $ 1.3 million as compared to the year ended december 31 , 2016 . story_separator_special_tag the following table reconciles fully taxable equivalent net interest income and fully taxable equivalent net interest income excluding accretion with net interest income as derived from the company 's financial statements ( in thousands ) : table four non-gaap financial measures ( in thousands ) replace_table_token_9_th non-interest income and non-interest expense 2017 vs. 2016 selected income statement fluctuations are summarized in the following table ( dollars in millions ) : 30 replace_table_token_10_th during the years ended december 31 , 2017 and 2016 , the company realized investment gains of $ 4.5 million and $ 3.5 million , respectively , from the sale of pools of trust preferred securities , which represented a partial recovery of impairment charges previously recognized . exclusive of these gains , non-interest income increased $ 3.8 million to $ 59.1 million for the year ended december 31 , 2017 as compared to $ 55.3 million for the year ended december 31 , 2016. this is primarily due to increases in service charges of $ 1.9 million , or 7.0 % , bank owned life insurance of $ 0.9 million , or 26.6 % ( primarily due to death benefit proceeds ) , trust revenues of $ 0.7 million , or 12.5 % , and bankcard revenue of $ 0.6 million , or 3.7 % . non-interest expenses decreased $ 0.2 million from $ 96.2 million for the year ended december 31 , 2016 to $ 96.0 million for the year ended december 31 , 2017 . this is primarily due to decreases in occupancy related expenses of $ 0.6 million , or 5.6 % , bankcard expenses of $ 0.5 million , or 12.0 % , and fdic insurance of $ 0.3 million , or 16.9 % . these decreases were partially offset by increases in equipment and software related expenses of $ 0.5 million , or 7.2 % , advertising of $ 0.3 million , or 11.8 % , salaries and employee benefits of $ 0.2 million , or 0.3 % , telecommunciation expenses of $ 0.2 million , or 9.7 % , and repossessed asset losses , net of expenses , of $ 0.2 million or 17.4 % . 2016 vs. 2015 selected income statement fluctuations are summarized in the following table ( dollars in millions ) : replace_table_token_11_th during the years ended december 31 , 2016 and 2015 , the company realized investment gains of $ 3.5 million and $ 2.1 million , respectively , from the call or sale of trust preferred securities , which represented a partial recovery of impairment charges previously recognized . during the year ended december 31 , 2015 , the company sold its insurance operations , cityinsurance , which resulted in the recognition of a pre-tax gain of $ 11.1 million . exclusive of these gains , non-interest income increased $ 1.3 million to $ 55.3 million for the year ended december 31 , 2016 as compared to $ 54.0 million for the year ended december 31 , 2015. this is primarily due to increases in bankcard revenue of $ 0.6 million , or 3.9 % , trust revenues of $ 0.4 million , or 8.8 % , and service charges of $ 0.4 million , or 1.5 % . non-interest expenses increased $ 3.2 million from the year ended december 31 , 2015 to the year ended december 31 , 2016. during 2015 , the company recognized $ 0.6 million of acquisition and integration expenses associated with the acquisition of three branches in lexington , kentucky . excluding acquisition related expenses , non-interest expenses increased $ 3.8 million from $ 92.4 million for the year ended december 31 , 2015 to $ 96.2 million for the year ended december 31 , 2016. this increase was largely due to an increase in salaries and employee benefits ( $ 2.1 million ) due to salary adjustments and increased health insurance costs . in addition , non-interest expenses increased $ 1.7 million due to the annual operating costs of the three branches acquired in november 2015 and from an increase of $ 0.5 million in bankcard expenses due to increased transaction volumes . 31 income taxes the company recorded income tax expense of $ 36.4 million , $ 25.1 million and $ 28.4 million in 2017 , 2016 and 2015 , respectively . the company 's effective tax rates for 2017 , 2016 and 2015 were 40.2 % , 32.5 % and 34.4 % , respectively . a reconciliation of the effective tax rate to the statutory rate is included in note twelve of the notes to consolidated financial statements . on december 22 , 2017 , the president signed the tax cut and jobs act ( `` tcja '' ) into law . among other things , the tcja reduced the corporate income tax rate from 35 % to 21 % , effective january 1 , 2018. this change required management to remeasure its deferred tax assets and liabilities at the new income tax rate . the provisional amount recorded as a result of the remeasurement was $ 7.1 million . management continues to evaluate the tcja and refine calculations which could potentially impact the measurement of these balances . in addition , during the years ended december 31 , 2017 , 2016 and 2015 , the company reduced income tax expense by $ 0.3 million , $ 0.5 million and $ 0.6 million , respectively due to the recognition of previously unrecognized tax positions resulting from the close of the statute of limitations for previous tax years . also , as a result of differences between the book and tax basis of the assets that were sold in conjunction with the sale of cityinsurance , the company 's income tax expense increased by $ 1.1 million during the year ended december 31 , 2015. exclusive of these items , the company 's tax rate from operations was 32.7 % , 33.2 % and 33.6 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively .
| financial summary the company 's financial performance over the previous three years is summarized in the following table : replace_table_token_4_th * roa ( return on average assets ) is a measure of the effectiveness of asset utilization . roe ( return on average equity ) is a measure of the return on shareholders ' investment . roatce ( return on average tangible common equity ) is a measure of the return on shareholders ' equity less intangible assets . the company 's tax equivalent net interest income increased $ 7.8 million , or 6.5 % , from $ 119.8 million in 2016 to $ 127.6 million in 2017 ( see net interest income ) . the company 's provision for loan losses decreased $ 1.4 million from $ 4.4 million in 2016 to $ 3.0 million in 2017 ( see allowance and provision for loan losses ) . non-interest income increased $ 4.8 million and non-interest expense decreased $ 0.2 million ( see non-interest income and expense ) . as a result of a reduction in the corporate income tax rate effective january 1 , 2018 , the company reassessed its deferred tax assets and liabilities , which resulted in additional deferred income taxes of $ 7.1 million ( see income taxes ) . as a result , the company 's net income increased $ 2.2 million from $ 52.1 million in 2016 to $ 54.3 million in 2017 and the company achieved a return on assets of 1.33 % , a return on tangible equity of 13.1 % and an efficiency ratio of 51.5 % . balance sheet analysis selected balance sheet fluctuations are summarized in the following table ( in millions ) : replace_table_token_5_th investment securities increased $ 89 million , or 16.6 % , from $ 540 million at december 31 , 2016 , to $ 629 million at december 31 , 2017 .
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during 2017 , the company paid an aggregate of $ 2.4 story_separator_special_tag we believe the following discussion and analysis provides information that is relevant to an assessment and understanding of our consolidated results of operations and financial condition . the discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto appearing elsewhere in this form 10-k. this management 's discussion and analysis will help you understand : the impact of forward-looking statements ; key transactions and events during 2016 and 2015 ; our financial structure , including our historical financial presentation ; our results of operations for the previous three years , as well as certain projections for the future ; certain aspects of our relationships with our subsidiaries ; our liquidity and capital resources ; the impact of recently issued accounting standards on our financial statements ; and our critical accounting policies and estimates . forward-looking information we have made forward-looking statements in this report on form 10-k. these statements are subject to risks and uncertainties , and there can be no guarantee that these statements will prove to be correct . forward-looking statements include assumptions as to how we may perform in the future . when we use words like “ seek , ” “ strive , ” “ believe , ” “ expect , ” “ anticipate , ” “ predict , ” “ potential , ” “ continue , ” “ will , ” “ may , ” “ could , ” “ intend , ” “ plan , ” “ target , ” “ project ” and “ estimate ” or similar expressions , we are making forward-looking statements . you should understand that the following important factors , in addition to the risk factors set forth above or elsewhere in this report on form 10-k , could cause our results to differ materially from those expressed in our forward-looking statements . these factors include : our ability to retain and expand relationships with existing clients and attract and implement new clients ; our reliance on the fees generated by the transaction volume , product sales and technology and agency projects and support of our clients ; our reliance on our clients ' projections or transaction volume or product sales ; our dependency upon our agreements with international business machines corporation ( “ ibm ” ) and ricoh ; our dependency upon our agreements with our major clients ; our client mix , their business volumes and the seasonality of their business ; our ability to finalize pending client and customer contracts ; the impact of strategic alliances and acquisitions ; trends in e-commerce , outsourcing , government regulation , both foreign and domestic , and the market for our services ; whether we can continue and manage growth ; increased competition ; our ability to generate more revenue and achieve sustainable profitability ; effects of changes in profit margins ; the customer and supplier concentration of our business ; our reliance on third-party providers and other subcontracted services ; the unknown effects of possible system failures and rapid changes in technology ; foreign currency risks and other risks of operating in foreign countries ; potential litigation ; our dependency upon key personnel ; our ability to attract and retain seasonal and temporary workers ; 26 the impact of new accounting standards and changes in existing accounting rules or the interpretations of those rules ; our ability to raise additional capital or obtain additional financing ; our ability , and the ability of our subsidiaries , to borrow under current financing arrangements and maintain compliance with debt covenants ; our relationship with , and our guarantees of , certain of the liabilities and indebtedness of our subsidiaries ; and taxation on the sale of our products and provision of our services . we have based these statements on our current expectations about future events . although we believe the expectations reflected in our forward-looking statements are reasonable , we can not guarantee these expectations will actually be achieved . in addition , some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate . therefore , actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements . we undertake no obligation to update publicly any forward-looking statement for any reason , even if new information becomes available or other events occur in the future . there may be additional risks we do not currently view as material or that are not presently known . in evaluating these statements , you should consider various factors , including the risks set forth in the section entitled “ risk factors. ” key transactions and events we were impacted by the following key transactions and events in 2015 and 2016 that affect comparability of our results to 2017 and other periods : year ended december 31 , 2016 : acquired the outstanding capital stock of conexus limited ( “ conexus ” ) on june 8 , 2016. the results of operations of conexus have been included in our consolidated financial statements since the acquisition date . year ended december 31 , 2015 : acquired the outstanding capital stock of moda superbe limited ( “ moda ” ) on june 11 , 2015. the results of operations of moda have been included in our consolidated financial statements since the acquisition date . completed an asset purchase agreement with crossview , inc. ( “ crossview ” ) and its shareholders on august 5 , 2015. the results of operations of crossview have been included in our consolidated financial statements since the acquisition date . overview we derive our revenues from providing a broad range of services using three different seller services financial models : 1 ) the service fee model , 2 ) the agent ( or flash ) model and 3 ) the retail model . service fee model . we refer to our standard seller services financial model as the service fee model . story_separator_special_tag we focus our sales efforts on larger contracts with brand-name companies within four primary target markets , health and beauty , home goods and collectibles , fashion and consumer packaged goods , which , by nature , require a longer duration to close but also have the potential to be higher quality and longer duration engagements . through recent acquisitions , we have expanded our service offering capabilities and added new client relationships , which we currently expect to enhance our growth opportunities . currently , we are targeting growth within our retail model to be through relationships with clients under which we can record service fee revenue ( product revenue net of cost of product revenue ) in our consolidated statement of operations as opposed to product revenue as generated in the agent or flash model above . these relationships are often driven by the sales and marketing efforts of the manufacturers and third party sales partners . in addition , as a result of certain operational restructuring of its business , our primary client relationship operating in the retail model , ricoh , has implemented , and will continue to implement , certain changes in the sale and distribution of ricoh products . the changes have resulted , and are expected to continue to result , in reduced product revenues and profitability under our retail model . we continue to monitor and control our costs to focus on profitability . while we are targeting our new service fee contracts to yield incremental gross profit , we also expect to incur incremental investments in technology development , operational and support management and sales and marketing expenses to help generate growth . our expenses comprise primarily four categories : 1 ) cost of service fee revenue , 2 ) cost of product revenue , 3 ) cost of pass-through revenue and 4 ) selling , general and administrative expenses . cost of service fee revenue – consists primarily of compensation and related expenses for our web-enabled customer contact center services , international fulfillment and distribution services and professional , digital agency and technology services , and other fixed and variable expenses directly related to providing services under the terms of fee based contracts , including certain occupancy and information technology costs and depreciation and amortization expenses . cost of product revenue – consists of the purchase price of product sold and freight costs , which are reduced by certain reimbursable expenses . these reimbursable expenses include pass-through customer marketing programs , direct costs incurred in passing on any price decreases offered by vendors to cover price protection and certain special bids , the cost of products provided to replace defective product returned by customers and certain other expenses as defined under the distributor agreements . cost of pass-through revenue – the related reimbursable costs for pass-through expenditures are reflected as cost of pass-through revenue . 28 selling , general and administrative expenses – consist of expenses such as compensation and related expenses for sales and marketing staff , distributi on costs ( excluding freight ) applicable to the supplies distributors business and the retail model , executive , management and administrative personnel and other overhead costs , including certain occupancy and information technology costs and depreciation a nd amortization expenses and acquisition related costs . monitoring and controlling our available cash balances and our expenses continues to be a primary focus . our cash and liquidity positions are important components of our financing of both current operations and our targeted growth . 2018 update – subsequent to december 31 , 2017 , the company continued with its reorganization efforts to migrate from its current operating segments into two new operating segments , professional services and pfs operations . as a result , we expect to report a change in our operating segments during 2018. story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future , which is generally 21 % . however , we are still analyzing certain aspects of the tax reform act and refining our calculations , which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts . the provisional amount related to the remeasurement of our deferred tax balance was $ 12.1 million that was mostly offset by a change in the valuation allowance except for a $ 0.6 million benefit that was recorded to our income statement related to tax amortization of goodwill . the one-time transition tax is based on our total post-1986 earnings and profits ( e & p ) that we previously deferred from us income taxes . we have not yet completed our calculation of the total post-1986 e & p for these foreign subsidiaries . however , based on our estimate we believe there is a net deficit e & p and , therefore , have not recorded any liabilities related to this tax . the preliminary net tax effects recorded may differ in the future due to changes in the interpretations of the tax reform act , legislative action , and changes to estimates we have utilized to calculate the tax impact . we expect to finalize the tax analysis related to the tax reform act with the filing of our tax return and record any differences between the final and provisional amounts in the 2018 fourth quarter at that time , if any . year ended december 31 , 2016 compared to year ended december 31 , 2015 service fee revenue .
| results of operations the following table discloses certain financial information for the periods presented , expressed in terms of dollars , dollar change , percentage change and as a percentage of total revenue ( in millions ) . replace_table_token_3_th ( 1 ) represents the percent of service fee revenue . ( 2 ) represents the percent of product revenue , net . ( 3 ) represents the percent of pass-through revenue . year ended december 31 , 2017 compared to year ended december 31 , 2016 service fee revenue . service fee revenue increased $ 7.4 million , or 3.3 % , in 2017 as compared to 2016. the increase in service fee revenue in 2017 as compared to 2016 was primarily due to the impact of expanded and new client relationships , partially offset by the conclusion or reduction of operations of certain client programs during 2017. the change in service fee revenue , excluding pass-through revenue , is shown below ( $ millions ) : replace_table_token_4_th when considering client relationships , we define an existing client to be a client from whom we earned revenue in both the current and prior year ; we define a new client to be a client from whom we only earned revenue in the current year ; and we define a terminated client as a client from whom we only earned revenue in the prior year . 29 product revenue , net . product revenue decreased $ 8.0 million , or 16.5 % , in 2017 as compared to 2016. this reduction in revenue was primaril y due to the operational restructuring by ricoh of its business , including discontinuance of certain product lines , which has resulted , and is expected to continue to result , in lower product revenue from the sale of ricoh products . cost of service fee revenue .
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during 2016 , the company restructured its plan for an internally developed erp system in order to leverage current third-party software available and scale conversion based on the company 's evolving erp needs . as a result , the company recorded a charge of $ 6.1 million , included in general and administrative expenses , related to this in-process internally developed software . the company recorded $ 2.1 million of other intangible assets in 2015 as a result of the acquisition of its canadian distribution business ( see note 18 for further description ) . the company determined that the estimated useful life of the contractual relationship asset is 5 years and is amortizing the asset over its estimated life , based on the expected cash flows of the assets , accordingly . the company adopted asu 2016-19 on january 1 , 2017 and , as a result , reclassified $ 4.1 million of gross internal-use software costs , net of accumulated amortization of $ 2.6 million , from property and equipment to other intangible assets as of december 31 , 2016. other intangible assets consist of the following : replace_table_token_24_th amortization expense was approximately $ 1.2 million and $ 1.2 million for the years ended december 31 , 2017 and 2016 , respectively . amortization expense is recorded in general and administration expenses in the consolidated statements of operations . amortization expense expected for the next five years and thereafter is as follows : 72 replace_table_token_25_th as of december 31 , 2017 , the weighted average amortization periods of the company 's customer and contractual relationships intangible assets and internal use software intangible assets are approximately 3 years and 4 years , respectively . note 9 . accrued expenses and other current liabilities accrued expenses and other current liabilities related to continuing operations consist of the following : replace_table_token_26_th product warranty costs the company provides a four -year warranty on its pdms sold in the united states and a five -year warranty on its pdms sold in canada and may replace any omnipod that does not function in accordance with product specifications . the company estimates its warranty at the time the product is shipped based on historical experience and the estimated cost to service the claims . warranty expense is recorded in cost of goods sold on the statement of operations . cost to service the claims reflects the current product cost . as these estimates are based on historical experience , and the company story_separator_special_tag executive level overview we are primarily engaged in the development , manufacturing and sale of our proprietary omnipod system , an innovative , discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes . the omnipod system features a small , lightweight , self-adhesive disposable tubeless omnipod device , which is worn on the body for approximately three days at a time , and its wireless companion , the handheld pdm . conventional insulin pumps require people with insulin-dependent diabetes to learn to use , manage and wear a number of cumbersome components , including up to 42 inches of tubing . in contrast , the omnipod system features only two discreet , easy-to-use devices that eliminate the need for a bulky pump and tubing , provides for virtually pain-free automated cannula insertion , communicates wirelessly and integrates a blood glucose meter . we believe that the omnipod system 's unique proprietary design and features allow people with insulin-dependent diabetes to manage their diabetes with unprecedented freedom , comfort , convenience , and ease . we began commercial sale of the omnipod system in the united states in 2005. we sell the omnipod system in the united states through direct sales to customers or through our distribution partners . the omnipod system is currently available in multiple countries in europe , as well as canada and israel . in addition to the diabetes market space , we have partnered with pharmaceutical and biotechnology companies that utilize a customized form of the omnipod system to deliver a drug over a specified interval of time , at a certain administered volume . the majority of our drug delivery revenue currently consists of sales of amgen 's neulasta onpro kit . we are constructing a highly-automated manufacturing facility in acton , massachusetts , with planned production out of the facility beginning in early 2019. the facility will also serve as our global headquarters . we expect that the new facility will allow us to lower our manufacturing costs , increase supply redundancy , add capacity closer to our largest customer base and support growth . we expect capital expenditures for the construction of the acton facility and related equipment purchases will approach $ 200 million when production begins in 2019 and will be funded by our cash flows from operations and proceeds from our senior convertible debt offerings . we announced on july 20 , 2017 our plans to assume , on july 1 , 2018 , all commercial activities ( including , among other things , distribution , sales , marketing , training and support ) of our omnipod system across europe following the expiration of our distribution agreement with our european distributor on june 30 , 2018. once we assume commercial activities following the expiration of the current distribution agreement , we expect our revenue and gross margins to increase , as average customer pricing in europe is higher than the current distributor pricing to our european distributor . throughout 2018 , we expect to incur increased operating expenses as we invest in our european operations . once european operations are established , excluding nonrecurring transition-related costs , we expect that the assumption of direct distribution will be accretive to our consolidated results of operations . story_separator_special_tag the results for 2015 were also partially impacted by unfavorable distributor ordering patterns in the first quarter of 2015 which stabilized thereafter . our international omnipod revenue increased to $ 71.9 million , up $ 31.6 million , or 78 % , primarily due to growth in distributor sales from continued adoption in existing markets and to a lesser extent from entry into new markets . the results for 2015 included lower international omnipod sales which partially resulted from unfavorable distributor ordering patterns in the first and second quarters of 2015 , which stabilized thereafter . our drug delivery revenue increased to $ 65.3 million , up $ 31.4 million due to strong growth in demand for our primary drug delivery device following regulatory approval in december 2014. cost of revenue cost of revenue increased to $ 155.9 million , up $ 25.3 million , or 19 % , in 2016 compared to 2015 , primarily due to an increase in sales volumes , partially offset by $ 11.5 million of costs incurred during 2015 that were considered non-recurring in nature , along with supply chain operation efficiency and effectiveness improvements made in 2016. gross margin gross margin increased to 57.5 % , up approximately 7 points , in 2016 compared to 2015 , primarily due to $ 11.5 million of costs incurred in 2015 that were considered non-recurring in nature , along with supply chain operation efficiencies and effectiveness improvements made in 2016. research and development research and development expenses increased to $ 55.7 million , up $ 12.5 million , or 29 % , in 2016 compared to 2015 , primarily due to an increase in expenses related to our development projects , including our mobile application development which involves interaction with continuous glucose monitoring technology , artificial pancreas program , development efforts with eli lilly and company for the use of concentrated insulin for patients with higher insulin-resistance and other omnipod product improvement initiatives . sales and marketing sales and marketing expenses increased to $ 94.5 million , up $ 16.1 million , or 21 % , for 2016 compared to 2015 , primarily due to an increase of $ 16.0 million in personnel-related expenses , including increased incentive compensation costs resulting from growth in the business , as well as costs associated with the expansion in 2015 of our sales force and customer support personnel . general and administrative general and administrative expenses increased to $ 71.6 million , up $ 11.2 million , or 19 % , for 2016 compared to 2015 . this increase includes a charge of $ 6.1 million related to in-process internally developed software recorded in the fourth quarter of 2016 due to a change in our longer-term enterprise resource planning system requirements . in addition , the increase was also due to a $ 4.6 million increase that was primarily attributable to personnel-related costs on higher incentive compensation associated with growth in our business , as well as additional staff to support our growth expectations and fees paid for external consultants . interest expense and other , net interest expense and other income , net increased to $ 16.1 million , up $ 3.5 million , or 27 % for 2016 compared to 2015 , due to $ 3.0 million of net additional interest expense associated with the issuance of the 1.25 % notes and a $ 2.6 million charge recorded for the extinguishment of debt related to the repurchase of $ 134.2 million in principal of the 2 % notes . this was partially offset from a slight decrease in capital lease interest expense . income tax expense income tax expense was not material to our results of operations in the years 2016 or 2015. for more information on our income tax expense , please refer to note 15 to the consolidated financial statements . 48 loss from discontinued operations , net of tax the loss from discontinued operations decreased by approximately $ 10.2 million in 2016 , compared to the year ended december 31 , 2015. this decrease was primarily the result of a $ 9.1 million impairment charge recorded in the fourth quarter of 2015 for the long-lived assets of neighborhood diabetes which we sold in february 2016. as the neighborhood diabetes business was sold in february 2016 , 2016 includes less than two months of full operations compared to a full year for 2015. liquidity and capital resources as of december 31 , 2017 , we had $ 272.6 million in cash and cash equivalents and $ 293.0 million in short-term and long-term investments . we believe that our current liquidity will be sufficient to meet our projected operating , investing and debt service requirements for at least the next twelve months . to lower our manufacturing costs , increase supply redundancy , add capacity closer to our largest customer base and support growth , we are constructing a highly-automated manufacturing facility in acton , massachusetts , with planned production out of the facility beginning in 2019. this facility will also serve as our global headquarters . as a result , capital expenditures have increased above historic levels to fund the construction of the acton facility and related equipment purchases . as of december 31 , 2017 , investments in construction-in-progress related to the acton facility were approximately $ 70 million . we expect that capital expenditures for this facility will approach $ 200 million when production begins in 2019. in connection with our plans to assume , on july 1 , 2018 , all commercial activities of our omnipod system across europe following the expiration of our distribution agreement with our european distributor on june 30 , 2018 , we will be required to pay to the european distributor a per unit fee for sales of our omnipod device , over the twelve months following the expiration of the global distribution agreement , to identified customers ( as that term is defined in the distribution
| results of operations this section discusses our consolidated results of operations for 2017 compared to 2016 , as well as 2016 compared to 2015 , and should be read in conjunction with the consolidated financial statements and accompanying notes included under item 8 of this form 10-k. replace_table_token_5_th comparison of the years ended december 31 , 2017 and december 31 , 2016 revenue our total revenue increased to $ 463.8 million , up $ 96.8 million , or 26 % , in 2017 compared to 2016 , due to strong growth in our international omnipod revenue , our u.s. omnipod revenue and our on-body injection device for drug delivery . our international omnipod revenue increased to $ 120.0 million , up $ 48.1 million , or 67 % , primarily due to growth in distributor sales from continued adoption in existing and newer markets within europe such as france . our u.s. omnipod revenue increased to $ 271.6 million , up $ 41.8 million , or 18 % , primarily due to growth in our installed base as we continue to expand awareness of the omnipod system . our drug delivery revenue increased to $ 72.2 million , up $ 6.9 million , or 11 % , due to growth in demand for our primary drug delivery device on greater market adoption of amgen 's neulasta onpro kit . for 2018 , we expect strong revenue growth driven by our expansion in the u.s. and internationally , as well as the transition to direct distribution of our omnipod system across europe following the expiration of our global distribution agreement with our european distributor on june 30 , 2018 , partially offset by lower drug delivery revenue .
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for example , if the local currencies of our foreign subsidiaries weaken , our consolidated results stated in u.s. dollars are negatively impacted . as exchange rates are an important factor in understanding period to period comparisons , we believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of our performance in comparison to prior periods . the constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates . these results should be considered in addition to , not as a substitute for , results reported in accordance with accounting principles generally accepted in the united states of america ( gaap ) . overview we are a global leader in application development , empowering enterprises to build mission-critical business applications to succeed in an evolving business environment . with offerings spanning web , mobile and data for on-premise and cloud environments , we power businesses worldwide , promoting success one application at a time . our solutions are used across a variety of industries . we operate as three distinct segments : openedge , data connectivity and integration , and application development and deployment . 19 at the beginning of fiscal year 2015 , we acquired telerik ad , a leading provider of application development tools . telerik enables its 1.9 million strong developer community to create compelling user experiences across cloud , web , mobile and desktop applications . through this acquisition , we provide comprehensive cloud and on-premise platform offerings that enable developers to rapidly create applications , driven by data for any web , desktop or mobile platform . the revenue of telerik is being recognized ratably over the maintenance period , which is generally one year , as vendor specific objective evidence ( or vsoe ) of fair value can not be established for such maintenance . as a result of acquisition accounting , the acquired deferred revenue balance was significantly reduced to reflect its fair value as of the acquisition date . however , we still incurred the associated costs to fulfill the acquired deferred revenue , which are reflected in our consolidated statement of operations . as a result , during fiscal year 2015 , our expenses as a percentage of total revenue were higher than in subsequent years until this acquired deferred revenue balance was recognized . the impact of this on fiscal year 2016 was minimal . as of october 31 , 2016 , we tested goodwill for impairment for each of our reporting units . beginning in late october 2016 , with the appointment of yogesh gupta as our new chief executive officer , our board of directors and executive management team undertook a comprehensive review of our strategy and operations , including our expectations for fiscal year 2017 results . based on this review , we reduced our future growth expectations with respect to the product lines within our application development and deployment reporting unit . as a result , the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the reporting unit and we recorded a $ 92.0 million goodwill impairment charge related to the application development and deployment reporting unit . during fiscal year 2016 , our results were adversely impacted by decreases in sales to openedge direct enterprise customers . during the past three fiscal years , our results have benefited from several large license sales to openedge direct enterprise customers . these large transactions are difficult to predict as they are subject to longer sales cycles and the timing of completion is often uncertain . if we fail to complete these large transactions or if completion is delayed , our results will be adversely impacted . in march 2016 , our board of directors authorized a new $ 100.0 million share repurchase program , which increased the total authorization to $ 214.5 million . in fiscal year 2016 , we repurchased and retired 3.1 million shares of our common stock for $ 79.2 million . as of november 30 , 2016 , there is $ 135.3 million remaining under this current authorization . the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors , and the board of directors may choose to suspend , expand or discontinue the repurchase program at any time . in september 2016 , our board of directors approved the initiation of a quarterly cash dividend to progress shareholders . the first quarterly dividend of $ 0.125 per share of common stock was paid on december 15 , 2016 to shareholders of record as of the close of business on december 1 , 2016. on january 11 , 2017 , our board of directors declared a quarterly dividend of $ 0.125 per share of common stock payable on march 15 , 2017 to shareholders of record as of the close of business on march 1 , 2017. we derive a significant portion of our revenue from international operations , which are primarily conducted in foreign currencies . as a result , changes in the value of these foreign currencies relative to the u.s. dollar have significantly impacted our results of operations and may impact our future results of operations . beginning in the fourth quarter of 2014 , the value of the u.s. dollar strengthened in comparison to certain foreign currencies , including in europe , brazil and australia , and continued to strengthen during the first half of 2015. the u.s. dollar remained strong in comparison to foreign currencies in 2016. since approximately one-third of our revenue is denominated in foreign currency , our revenue results have been negatively impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . on january 16 , 2017 , we announced a new strategic plan . story_separator_special_tag based on our analysis , the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the reporting unit . as a result , we recorded a $ 92.0 million goodwill impairment charge related to the application development and deployment reporting unit . see note 6 to the consolidated financial statements in item 8 of this form 10-k for additional details . amortization of acquired intangibles fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change amortization of acquired intangibles $ 12,735 $ 12,745 — % as a percentage of total revenue 3 % 3 % amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of acquired intangibles remained flat in fiscal year 2016 as compared to fiscal year 2015. impairment of intangible assets fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change impairment of intangible assets $ 5,051 $ — 100 % as a percentage of total revenue 1 % — % during fiscal year 2016 , we evaluated the ongoing value of the intangible assets associated with the technology obtained in connection with the acquisition of modulus . as a result of our decision to abandon the related assets due to a change in our expected ability to use the technology internally , we determined that the intangible assets were fully impaired . as a result , we incurred an impairment charge of $ 5.1 million during fiscal year 2016. restructuring expenses fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change restructuring expenses $ 1,692 $ 12,989 ( 87 ) % as a percentage of total revenue — % 3 % we incurred restructuring expenses of $ 1.7 million in fiscal year 2016 as compared to $ 13.0 million in fiscal year 2015. restructuring expenses recorded in fiscal year 2016 relate to the restructuring activities occurring in fiscal years 2016 , 2015 , 2014 , 2013 and 2012. see note 13 to the consolidated financial statements in item 8 of this form 10-k for additional details , 25 including types of expenses incurred and the timing of future expenses and cash payments . see also the liquidity and capital resources section of this item 7 , management 's discussion and analysis of financial condition and results of operations . acquisition-related expenses fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change acquisition-related expenses $ 1,240 $ 4,239 ( 71 ) % as a percentage of total revenue — % 1 % acquisition-related costs are expensed as incurred and include those costs incurred as a result of a business combination . these costs consist of professional service fees , including third-party legal and valuation-related fees , as well as retention fees , and earn-out payments treated as compensation expense . acquisition-related expenses in fiscal year 2016 were minimal . acquisition-related expenses in fiscal year 2015 resulted primarily from expenses related to the telerik acquisition completed in the first quarter of fiscal year 2015. see note 7 to the consolidated financial statements for additional details . ( loss ) income from operations fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change ( loss ) income from operations $ ( 29,709 ) $ 14,754 ( 301 ) % as a percentage of total revenue ( 7 ) % 4 % income from operations decreased $ 44.5 million , or 301 % , in fiscal year 2016 as compared to fiscal year 2015. as discussed above , the decrease was primarily driven by the impairment of goodwill during fiscal year 2016 and partially offset by higher revenue during fiscal year 2016 compared to fiscal year 2015 , as well as by lower expenses period over period . ( loss ) income from operations by segment replace_table_token_11_th note that the following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only : product development , corporate marketing , general and administration , amortization and impairment of acquired intangibles , stock-based compensation , restructuring , and acquisition-related expenses . 26 other ( expense ) income replace_table_token_12_th total other expense , net decreased $ 3.2 million in fiscal year 2016 as compared to fiscal year 2015 primarily due to the foreign currency loss of $ 2.2 million in fiscal year 2016 compared to the foreign currency loss of $ 0.1 million in fiscal year 2015. the change in foreign currency gains/losses is a result of movements in exchange rates and the impact during fiscal year 2016 on our intercompany receivables and payables denominated in currencies other than local currencies . provision for income taxes fiscal year ended ( in thousands ) november 30 , 2016 november 30 , 2015 percentage change provision for income taxes $ 20,446 $ 21,155 ( 3 ) % as a percentage of total revenue 5 % 6 % our effective income tax rate was ( 58 ) % in fiscal year 2016 and 171 % in fiscal year 2015. in fiscal year 2016 our rate was impacted unfavorably as a result of the goodwill impairment expense that is not tax deductible , partially offset by the release of the valuation allowance on state research and development tax credits described below and the out-of-period benefit described below . the decrease in the effective rate is primarily due to the jurisdictional mix of profits as a result of the acquisition of telerik , where substantial losses were incurred in bulgaria in fiscal year 2015 and tax effected at a 10 % statutory rate and other jurisdictions ' earnings , primarily in the united states , were taxed at higher rates . the loss in bulgaria in fiscal 2015 was primarily due to amortization expense and other purchase accounting adjustments related to the telerik acquisition .
| results of operations fiscal year 2016 compared to fiscal year 2015 revenue fiscal year ended percentage change ( in thousands ) november 30 , 2016 november 30 , 2015 as reported constant currency revenue $ 405,341 $ 377,554 7 % 9 % total revenue increased $ 27.8 million , or 7 % , in fiscal year 2016 as compared to fiscal year 2015. revenue would have increased by 9 % if exchange rates had been constant in fiscal year 2016 as compared to exchange rates in fiscal year 2015. the increase in revenue is primarily due to the impact of the telerik acquisition during the first quarter of fiscal year 2015. as a result of acquisition accounting , the acquired deferred revenue balance was significantly reduced to reflect its fair value as of the acquisition date . therefore , the reduction of the acquisition date deferred revenue had a negative impact on revenue in fiscal year 2015. however , in fiscal year 2016 we recognized revenue related to the full value of telerik deferred revenue that was generated during fiscal years 2015 and 2016. the increase in revenue in fiscal year 2016 was also the result of an increase in license and maintenance and services revenue as further described below . changes in prices from fiscal year 2015 to 2016 did not have a significant impact on our revenue . license revenue replace_table_token_4_th software license revenue increased $ 4.6 million , or 4 % , in fiscal year 2016 as compared to fiscal year 2015. software license revenue would have increased by 5 % if exchange rates had been constant in fiscal year 2016 as compared to exchange rates in effect in fiscal year 2015. the increase in license revenue is primarily due to the impact of the telerik acquisition during the first quarter of fiscal year 2015 as described above .
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in the event of liquidation , the holders have preferential rights to liquidation payments in the amount of the original purchase price plus declared and unpaid dividends , if any . at december 29 , 2012 , the aggregate liquidation preference was $ 5,000,000 . in addition , holders of series a preferred stock have certain registration rights including the requirement that the company file a form s-3 registration statement within 90 days of becoming eligible to file a form s-3 registration statement and the right to request that the company file a form s-1 registration statement any time after february 29 , 2008. if the holders notify the company of their decision to have a registration statement filed , the company has 90 days to cause the registration statement to be declared effective . if the registration statement is not filed within 90 days , the company is obligated to pay the holders partial liquidated damages until the registration statement is declared effective . the company shall pay to each holder an amount in cash equal to 1 % of the aggregate purchase price paid for the original units of series a preferred stock and warrants to purchase common stock . the maximum aggregate damages payable to the holders is 12 % of the aggregate purchase price paid by the holders . if the company fails to pay any partial liquidated damages in full within seven days of the date payable , the company will pay interest thereon at a rate of 18 % per annum ( or the lesser maximum amount that is permitted to be paid by applicable law ) to the holders . the maximum potential amount of damages , excluding interest , that the company may have to pay the holders is $ 600,000 . the company regards the probability of having to make this payment to the holders as remote and has therefore not recorded a liability to represent this potential obligation . during 2009 the holders of the series a preferred stock and the company agreed to amend the form s-3 registration rights . the agreement changed the clause requiring the company to file a form s-3 registration statement within 90 days of becoming eligible to a right to request the company file a form s-3 registration statement any time after june 30 , 2009. in consideration for extending the period during which the company is not required to file a registration statement , the company issued the holders of series a preferred stock warrants to purchase an aggregate of 20,000 shares of common stock at an exercise price of $ 0.01 per share . the warrants were exercised in fiscal year 2009. as of december 29 , 2012 , the company has not received a request to file a form s-3 . stock-based compensation 1998 stock plan . the 1998 stock plan ( the 1998 plan ) , as amended story_separator_special_tag overview iridex corporation is a leading worldwide provider of therapeutic based laser systems , delivery devices and consumable instrumentation used to treat sight-threatening eye diseases in ophthalmology . in february 2012 , we sold our aesthetics business to cutera , inc. we view this as a significant step forward in our strategy because it allows us to focus solely on our ophthalmology business which is our core strength . management believes that this path affords the company with the best opportunity for long term profitable growth . in accordance with us gaap we have disclosed the financial results from our aesthetics business as discontinued operations . this discussion and analysis will focus primarily on our ophthalmology business because this is our continuing business and therefore provides more relevant information to the reader of our financial statements both on a retrospective and prospective basis . our ophthalmology products are sold in the united states predominantly through a direct sales force and internationally through approximately 70 independent distributors into over 100 countries . we manage and evaluate our business in one segment - ophthalmology . we break down this segment by geography - domestic ( u.s. ) and international ( the rest of the world ) . in addition , we review trends by laser system sales ( consoles and durable delivery devices ) and recurring sales ( single use consumable laser probes and other associated instrumentation ( consumables ) , service and support ) . our ophthalmology revenues arise primarily from the sale of our iq and oculight laser systems , consumables and service and support activities . our current family of iq products includes iq 532 , iq 577 and iq 810 laser photocoagulation systems and our oculight products include oculight tx , oculight symphony ( laser delivery system ) , oculight sl , oculight slx , oculight gl and oculight glx laser photocoagulation systems . certain of our laser systems are capable of performing traditional continuous wavelength photocoagulation and our patented fovea-friendly micropulse laser photocoagulation . towards the end of 2012 , we introduced the txcell scanning laser delivery system which saves significant time in a variety of laser photocoagulation procedures in allowing physicians to deliver the laser in a multi-spot scanning mode , a more efficient method for these procedures than the traditional single spot mode . our current family of laser probes includes a wide variety of products in 20 , 23 and 25 gauge for vitreoretinal surgery and glaucoma surgery . sales to international distributors are made on open credit terms or letters of credit and are currently denominated in u.s. dollars and accordingly , are not subject to risks associated with currency fluctuations . 29 cost of revenues consists primarily of the cost of purchasing components and sub-systems , assembling , packaging , shipping and testing components at our facility , direct labor and associated overhead ; warranty , royalty and amortization of intangible assets ; and depot service costs . story_separator_special_tag our revenues arise from the sale of laser consoles , delivery devices , consumables and service and support activities . revenue from product sales is recognized upon receipt of a purchase order and product shipment provided that no significant obligations remain and collection of the receivables is reasonably assured . shipments are generally made with free-on-board ( fob ) shipping point terms , whereby title passes upon shipment from our dock . any shipments with fob receiving point terms are recorded as revenue when the shipment arrives at the receiving point . cost is recognized as product sales revenue is recognized . the company 's sales may include post-sales obligations for training or other deliverables . for revenue arrangements such as these , we recognize revenue in accordance with asc 605 , revenue recognition , multiple-element arrangements . the company allocates revenue among deliverables in multiple-element arrangements using the relative selling price method . revenue allocated to each element is recognized when the basic revenue recognition criteria is met for each element . the company is required to apply a hierarchy to determine the selling price to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of selling price ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) and ( iii ) best estimate of the selling price ( esp ) . in general , the company is unable to establish vsoe or tpe for all of the elements in the arrangement ; therefore , revenue is allocated to 34 these elements based on the company 's esp , which the company determines after considering multiple factors such as management approved pricing guidelines , geographic differences , market conditions , competitor pricing strategies , internal costs and gross margin objectives . these factors may vary over time depending upon the unique facts and circumstances related to each deliverable . as a result , the company 's esp for products and services could change . revenues for post-sales obligations are recognized as the obligations are fulfilled . in international regions , we utilize distributors to market and sell our products . we recognize revenue upon shipment for sales to these independent , third party distributors as we have no continuing obligations subsequent to shipment . generally our distributors are responsible for all marketing , sales , installation , training and warranty labor coverage for our products . our standard terms and conditions do not provide price protection or stock retention rights to any of our distributors . royalty revenues are typically based on licensees ' net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured , such as upon the earlier of the receipt of a royalty statement from the licensee or upon payment by the licensee . inventories . inventories are stated at the lower of cost or market and include on-hand inventory physically held at the company 's facility , sales demo inventory and service loaner inventory . cost is determined on a standard cost basis which approximates actual cost on a first-in , first-out ( fifo ) method . lower of cost or market is evaluated by considering obsolescence , excessive levels of inventory , deterioration and other factors . adjustments to reduce the cost of inventory to its net realizable value , if required , are made for estimated excess , obsolete or impaired inventory and are charged to cost of revenues . factors influencing these adjustments include changes in demand , product life cycle and development plans , component cost trends , product pricing , physical deterioration and quality issues . revisions to these adjustments would be required if these factors differ from our estimates . sales returns allowance and allowance for doubtful accounts . the company estimates future product returns related to current period product revenue . we analyze historical returns , and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance . significant management judgment and estimates must be made and used in connection with establishing the sales returns allowance in any accounting period . material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates . our provision for sales returns is recorded net of the associated costs . the balance for the provision of sales returns have not historically been material . similarly management must make estimates regarding the uncollectability of accounts receivable . we are exposed to credit risk in the event of non-payment by customers to the extent of amounts recorded on the balance sheet . as sales levels increase the level of accounts receivable would likely also increase . in addition , in the event that customers were to delay their payments to us , the levels of accounts receivable would likely also increase . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . the allowance for doubtful accounts is based on past payment history with the customer , analysis of the customer 's current financial condition , the aging of the accounts receivable balance , customer concentration and other known factors . warranty . the company accrues for estimated warranty costs upon shipment of products . actual warranty costs incurred have not materially differed from those accrued . the company 's warranty policy is applicable to products which are considered defective in their performance or fail to meet the product specifications . warranty costs are reflected in the statements of operations as cost of revenues . 35 income taxes .
| general and administrative . general and administrative expenses increased $ 0.7 million or 15.7 % , from $ 4.3 million in 2011 to $ 4.9 million in 2012. the increase in expenses was primarily attributable to employee severance and related costs taken as part of streamlining the company 's operations in the latter half of the year . other income ( expense ) . the company received the final annual installment of $ 0.8 million from the settlement with synergetics of legal claims related to patent infringement which was consistent with the amount received in 2011. during 2012 , the remeasurement on the fair value of the earn-out liability from prior acquisitions resulted in an expense of $ 0.2 million . income taxes . we recorded a benefit for income taxes of $ 0.1 million for continuing operations for the year ended december 29 , 2012 compared to a provision for income taxes of $ 0.3 million for the year ended december 31 , 31 2011. the effective tax rate for the year ended december 29 , 2012 was 37 % compared to an effective tax rate of 12 % for the year ended december 31 , 2011. our effective tax rate increased due mainly to the change from 2011 pretax income of $ 2.5 million to 2012 pretax loss of $ 0.3 million . as a result of the current year loss , the tax rate had also increased by a larger reduction in valuation allowance in the current year and the anticipated refund claim from carrying back tax loss to 2010 and 2011 for federal income tax purposes . comparison of 2011 and 2010 revenues . total revenues from continuing operations for 2011 were $ 33.2 million compared with $ 32.3 million in 2010 , an increase of $ 0.9 million or 2.8 % .
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16 approximately two-thirds of product sales are used by the mobile market , which is characterized by applications where the equipment is not fixed in place , the operating environment is often unpredictable and duty cycles are generally moderate to low . some examples of the mobile market include equipment used in off-road construction , agriculture , fire and rescue , utilities , oil fields , and mining . the remaining one-third of sales are used by industrial markets , which are characterized by equipment that is fixed in place , typically in a controlled environment , and which operates at higher pressures and duty cycles . power units , automation machinery , metal cutting machine tools and plastics machinery are some examples of industrial equipment . the company sells to both markets with a single product line . in recent periods , the company 's products have been used by emerging markets that have characteristics of both the mobile and industrial markets and do not conveniently fit either classification exclusively . these markets include alternative energy equipment including wind , wave and solar equipment , animatronics and staging for theater and cinema . the company sells to these markets the same products used in its traditional markets . industry conditions demand for the company 's products is dependent on demand for the capital goods into which the products are incorporated . the capital goods industries in general , and the fluid power industry specifically , are subject to economic cycles . according to the national fluid power association ( the fluid power industry 's trade association in the united states ) , the united states index of shipments of hydraulic products increased 1 % , 24 % and 42 % in 2012 , 2011 and 2010 , respectively . the company 's order trend has historically tracked closely to the united states purchasing managers index ( pmi ) , with the pmi providing a six to ten months leading indication of business conditions . a pmi above 50 indicates economic expansion in the manufacturing sector and when below 50 , it indicates economic contraction . the index decreased to 50.2 in december 2012 , from 52.9 in december 2011. the index has remained relatively close to 50 for most of 2012. the index in the early part of 2013 has increased with january at 53.1 and february at 54.2. this is the third consecutive month that the pmi has been above 50. management believes the growth in the manufacturing sector is a positive sign for the company 's business in 2013. business conditions in 2012 were erratic for the capital goods industry and our business . the first half of the year was very strong , led by north american demand . sales for the year were bolstered by the addition of hct sales ( acquired in november of 2011 ) and pricing actions . these increases were partially offset by a decline in demand and currency transactions . the decline in demand was most notable in our european and asian markets throughout the year . the demand weakness also occurred in domestic markets in the second half of the year , as business conditions deteriorated . while we continue to add new customers in all regions , including at a faster rate in asia and europe , it was not enough to offset the effects of the general economic decline in our existing customer base . as business conditions improve , management believes our now larger client base in all regions will lead to business growth and greater market penetration . as we have demonstrated in the past , we are able to respond to increases in demand and consistently ship product on-time to the customer 's requested ship date . our focus is on satisfying customers today , without losing focus of our long-term goals . this is why we began construction of a third manufacturing facility in the u.s. in the spring of 2012. this facility will provide added flexibility and capacity to meet anticipated higher demand levels in the future . providing the right products in a timely fashion continues to strengthen sun 's brand and differentiate us from others in our industry . 17 results for the 2012 fiscal year replace_table_token_3_th a stronger than expected fourth quarter allowed us to achieve our highest top line year ever . despite deteriorating business conditions in all markets in the second half , we were able to maintain margin performance and add new customers in what was a difficult and uncertain year . there is still a lot of uncertainty in the macro economy , but management believes things appear to be settling down a bit . our first quarter forecast indicates a sequential rebound in demand led by asia and europe . as our existing customers ' business rebounds in china and europe , with the new customers we have added , management expects to see the top line continue to grow . u.s. pmi numbers have been positive for three months now , which management believes is a good sign for the 2013 capital goods environment . maintaining the company 's strong balance sheet and financial flexibility remains a key strategy . the company ended 2012 with cash and marketable securities of $ 72.5 million , an unused line of credit of $ 15.0 million , with availability up to $ 50.0 million and zero dollars of long-term debt . the company continued to invest in its business in 2012 with capital expenditures for the year of approximately $ 13.4 million . dividends the company declared quarterly dividends of $ 0.09 per share during 2012. these dividends were paid on the 15th day of the month following the date of declaration . additionally in 2012 , the company declared a shared distribution dividend , a special cash dividend , and accelerated payment of its fourth quarter dividend . story_separator_special_tag liquidity and capital resources historically , the company 's primary source of capital has been cash generated from operations , although short-term fluctuations in working capital requirements have been met through borrowings under revolving lines of credit as needed . the company 's principal uses of cash have been paying operating expenses , paying dividends to shareholders , making capital expenditures , and servicing debt . net cash flow from operations in 2012 was $ 52.2 million , compared to $ 49.5 million in 2011 and $ 25.1 million in 2010. the $ 2.7 million increase in the company 's net cash flow from operations in 2012 was due primarily to changes in non-cash adjustments to net income and changes in working capital . the 22 change in non-cash adjustments to net income was primarily related to the gain on the step acquisition of hct of approximately $ 1.2 million included in the prior year . changes in inventory and accounts receivable added $ 2.6 million to cash compared to a decrease of $ 0.9 million in the prior year . changes in accounts payable and accrued expenses added $ 3.8 million to cash in 2012 compared to $ 4.9 million in the prior year . these changes in assets and liabilities were primarily related to slower business conditions in the fourth quarter of 2012. additionally , the decrease in accounts receivable for the year is a result of the company improving its days sales outstanding . days sales outstanding decreased to 27 in 2012 from 29 in 2011. inventory turns decreased to 9.8 in 2012 from 10.6 in 2011. cash on hand decreased $ 8.3 million from $ 42.8 million in 2011 to $ 34.5 million in 2012. investments in marketable securities increased $ 7.4 million from $ 30.3 million in 2011 to $ 37.7 million in 2012. the $ 24.5 million increase in the company 's net cash flow from operations in 2011 was due primarily to the increase in net income of $ 16.3 million , and changes in working capital relating to accounts receivable , inventories , accounts payable , and accrued expenses . these changes were primarily related to the improved general business conditions during 2011. in 2012 , the company began construction on a new facility in sarasota , florida . the new facility , when completed , will have 60,000 square feet of manufacturing and 16,000 square feet of office space . the total investment is estimated to be approximately $ 16.0 million . capital expenditures were $ 13.4 million in 2012 , compared to $ 10.1 million in 2011 and $ 3.9 million in 2010. included in capital expenditures for 2012 was approximately $ 7.3 million relating to the new sarasota facility and $ 1.0 million for an expansion and update of our u.k. facility . also included in capital expenditures for the year ended december 31 , 2011 was a building expansion of $ 1.0 million and an infrastructure utility building of $ 3.0 million . included in capital expenditures for the year ended january 2 , 2010 was a land purchase equal to $ 1.7 million . the remaining expenditures consist of purchases of machinery and equipment . capital expenditures for 2013 are estimated to be $ 14.0 million , which include approximately $ 9.0 for the completion of the new sarasota facility , and $ 1.0 million for the completion of the expansion and update of our uk facility . the remaining expenditures consist of purchases of machinery and equipment . effective august 1 , 2011 , the company completed a credit and security agreement in the u.s. with fifth third bank ( the bank ) . the agreement provides for three separate credit facilities totaling $ 50 million . facility a is a $ 15 million unsecured revolving line of credit and requires monthly payments of interest . facility a has a floating interest rate of 1.45 % over the 30-day libor rate ( as defined ) . facility b is an accordion feature to increase the revolving line of credit to a $ 35 million secured revolving line of credit . facility b will be secured by the company 's u.s. assets , including its manufacturing facilities , and requires monthly payments of interest . facility b will bear interest at the 30-day libor rate or the bank 's base rate ( as defined ) , at the company 's discretion , plus a margin based on the borrower 's funded debt to ebitda leverage ratio ( as defined ) . the libor margin ranges from 1.45 % to 2.25 % and the bank 's base rate ranges from -0.25 % to 0.00 % . facility c is a $ 15 million construction and term loan . facility c requires monthly payments of interest for the first 24 months and monthly payments of principal plus accrued interest for 60 months based upon a 15 year amortization schedule . the construction loan bears interest at the 30-day libor rate or the bank 's base rate , at the company 's discretion , plus a margin based on the borrower 's funded debt to ebitda leverage ratio . the libor margin ranges from 1.65 % to 2.45 % and the bank 's base rate ranges from -0.05 % to 0.20 % . facility a or facility b ( if activated ) is payable in full on august 1 , 2016. facility c is payable seven years after the closing of the facility . maturity may be accelerated by the bank upon an event of default ( as defined ) . prepayment may be made without penalty or premium at any time upon the required notice to the bank .
| results of operations the following table sets forth , for the periods indicated , certain items in the company 's statements of operations as a percentage of net sales . replace_table_token_4_th 19 comparison of years ended december 29 , 2012 and december 31 , 2011 historically the company had four operating and reportable segments , which were based on the geographic location of its subsidiaries . in 2012 , the company re-evaluated its operating and reportable segments , resulting in a change to a single reportable segment in manufacturing , marketing , selling and distributing its products worldwide . prior period financial information included herein has been restated to reflect the financial position and results of operations as one segment . net sales net sales were $ 204.4 million , an increase of $ 0.2 million , compared to $ 204.2 million in 2011. demand for our products in 2012 was primarily driven by increased demand in our north american end markets , which primarily include capital goods equipment . price increases , effective july 1 , 2011 , and 2012 , contributed approximately 3 % to sales . exchange rates had a negative impact on sales in 2012 of approximately $ 2.3 million compared to a positive effect in the prior year of approximately $ 2.6 million to sales . sales from hct increased approximately $ 2.5 million compared to the prior year . new product sales ( defined as products introduced within the last five years ) continue to make up 10-15 % of total sales . sales to the americas increased 9.4 % or $ 9.0 million , to $ 105.0 million in 2012 , driven by north american demand . asian/pacific sales decreased 8.8 % or $ 3.8 million , to $ 39.6 million in 2012 , primarily related to demand from korea and china .
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to achieve this objective , we primarily invest in the following : residential mortgage-backed securities ( “ rmbs ” ) that are guaranteed by a u.s. government agency such as the government national mortgage association or a federally chartered corporation such as the federal national mortgage association ( “ fannie mae ” ) or the federal home loan mortgage corporation ( “ freddie mac ” ) ( collectively `` agency rmbs '' ) ; rmbs that are not guaranteed by a u.s. government agency ( `` non-agency rmbs '' ) ; credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ( `` gse crt '' ) ; commercial mortgage-backed securities ( “ cmbs ” ) ; residential and commercial mortgage loans ; and replace_table_token_44_th other real estate-related financing arrangements . we are externally managed and advised by invesco advisers , inc. , our manager , which is an indirect , wholly-owned subsidiary of invesco ltd. we elected to be taxed as a real estate investment trust ( “ reit ” ) for u.s. federal income tax purposes under the provisions of the internal revenue code of 1986 , as amended ( “ code ” ) , commencing with our taxable year ended december 31 , 2009. to maintain our reit qualification , we are generally required to distribute at least 90 % of our reit taxable income to our stockholders annually . we operate our business in a manner that permits our exclusion from the definition of “ investment company ” under the 1940 act , as amended . we generally finance our investments through short- and long-term borrowings structured as repurchase agreements and secured loans . we have historically financed our residential loans held-for-investment through asset-backed securities ( `` abs '' ) issued by consolidated securitization trusts . we have also financed investments through the issuance of debt and equity and may utilize other forms of financing in the future . capital activities on december 15 , 2015 , we declared the following dividends : a dividend of $ 0.40 per share of common stock to be paid on january 26 , 2016 to stockholders of record as of the close of business on december 28 , 2015 ; a dividend of $ 0.4844 per share of series a preferred stock to be paid on january 25 , 2016 to stockholders of record as of the close of business on january 1 , 2016 ; and a dividend of $ 0.4844 per share of series b preferred stock to be paid on march 28 , 2016 to stockholders of record as of the close of business on march 5 , 2016 . during the three months ended december 31 , 2015 , we repurchased 5,843,883 shares of our common stock at an average repurchase price of $ 12.94 per share for a net cost of $ 75.6 million , including acquisition expenses . during the year ended december 31 , 2015 , we repurchased 9,539,251 shares of our common stock at an average repurchase price of $ 13.17 per share for a net cost of $ 125.6 million , including acquisition expenses . replace_table_token_45_th factors impacting our operating results our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets . the market value of our assets can be impacted by asset spreads and the supply of , and demand for , target assets in which we invest . our net interest income , which includes the amortization of purchase premiums and accretion of purchase discounts , varies primarily as a result of changes in market interest rates and prepayment speeds , as measured by the constant prepayment rate ( “ cpr ” ) on our target assets . interest rates and prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . market conditions macroeconomic factors that affect our business include credit spread premiums , market interest rates , federal reserve policy initiatives , residential and commercial real estate prices , credit availability , personal income , corporate earnings , employment conditions , financial conditions and inflation . global equity markets improved in the fourth quarter after a weak third quarter , even as the federal reserve raised short-term interest rate policy targets for the first time since 2006. the move by the federal reserve was widely anticipated , and interest rate volatility decreased modestly in its wake . the biggest concerns for investors broadly in the fourth quarter were similar to the concerns which drove equities and interest rates down in the third quarter , namely a sharp decline in oil prices and global economic weakness owing to slowing growth in china and the impact on emerging market economies from lower commodity prices . still , domestic employment continued to look healthy with stronger payroll data , and intermediate and long term interest rates increased only modestly . structured credit spread premiums widened , and financial conditions generally tightened in the u.s. , but prices of u.s. real estate , both residential and commercial , continued to appreciate in the fourth quarter and for all of 2015 . roughly 5 % appreciation along with relatively tight underwriting of residential loans has created strong fundamentals and attractive lending conditions . commercial real estate property prices appreciated more , by nearly 13 % year over year through december 2015 . commercial real estate lending standards have eased and higher property valuations make commercial lending more competitive and worthy of conservatism and caution in new loan underwriting . consensus forecasts for u.s. domestic economic activity were reduced during 2015 . at the beginning of the year , economists expected real gdp growth of 3 % for 2015 , and they now expect growth will be 2.1 % and 2.2 % for the years 2016 and 2017 , respectively . story_separator_special_tag in addition , the federal home loan bank of indianapolis ( `` fhlbi '' ) would be permitted to honor the contractual terms of maturity of outstanding advances to ias services llc that were made prior to the effective date of the final fhfa rule . therefore , we do not expect there to be any impact to our existing fhlbi borrowings under the fhfa rule , and we do not expect that the fhfa rule will have a material effect on our sources or costs of funding or our results of operations . investment activities in 2015 , our investment portfolio remained positioned to take advantage of opportunities in both mortgage-backed and credit risk transfer securities and newly originated loans against a backdrop of improving housing and commercial real estate markets . for the first nine months of 2015 , we maintained a relatively balanced allocation of our equity among residential credit , commercial credit and agency rmbs . during the fourth quarter of 2015 , our equity allocation to agency rmbs increased to 37 % , due to the impact of the deconsolidation of residential loan securitizations , wider credit asset spreads and limited opportunities in the residential credit investment market . we continue to invest in gse crt transactions issued by both fannie mae and freddie mac and hold securities with a fair value of $ 658.2 million as of december 31 , 2015 . since the inception of our commercial real estate lending program in 2013 , we have invested in a first mortgage loan and ten subordinated interests . our first mortgage loan and four subordinated interests have paid off as of december 31 , 2015 . replace_table_token_47_th the table below shows the allocation of our equity as of december 31 , 2015 and 2014 : replace_table_token_48_th ( 1 ) cmbs , commercial loans and investments in unconsolidated ventures of $ 38.4 million ( which are included in other investments ) , are considered commercial credit . ( 2 ) non-agency rmbs , gse crt and residential loans are considered residential credit . the table below shows the breakdown of our investment portfolio as of december 31 , 2015 and 2014 : replace_table_token_49_th during 2015 , we reinvested cash flows from our 30 year fixed-rate agency rmbs portfolio into 15 year fixed-rate agency rmbs and hybrid arm agency rmbs . we have continued to hold certain 30 year fixed-rate agency rmbs securities that have relatively short durations because they are collateralized by higher coupons . we expect these securities to prepay more favorably than their applicable cohorts based on their seasoning and collateral attributes . the average coupon of our 30 year fixed-rate agency rmbs declined to 4.24 % at december 31 , 2015 , compared to 4.29 % at december 31 , 2014 . additionally , we hold 15 year fixed-rate agency rmbs , hybrid arm agency rmbs and arm agency rmbs that we believe have lower durations and better cash flow certainty relative to current coupon 30 year fixed-rate agency rmbs . further , we own agency collateralized mortgage obligations ( `` cmos '' ) , some of which are interest-only securities ( `` ios '' ) , to hedge the risk of higher interest rates . our portfolio of investments that have credit exposure include non-agency rmbs , gse crts , cmbs and commercial estate loans . we use our proprietary models to perform a detailed review of each investment which often includes loan level analysis of expected performance . we do not place any reliance on ratings by various agencies as we believe our models more accurately evaluate the performance based on our assumptions about market conditions . with respect to our non-agency rmbs portfolio , we primarily invest in rmbs collateralized by prime and alt-a loans . in addition , we have invested in re-securitizations of real estate mortgage investment conduit ( `` re-remic '' ) rmbs and reperforming mortgage loans that we believe provide attractive risk adjusted returns . we also invest in gse crts , which have the added benefit of paying a floating rate coupon and reduces our need to hedge interest rate risk . based on our view of the improving housing market and relative value opportunities , we increased holdings in gse crts as paydowns from principal repayments and dispositions reduced our non-agency rmbs holdings during 2015 . during the period from the first quarter of 2013 through the first quarter of 2015 , we purchased subordinate interests in eleven residential loan securitizations ( `` residential securitizations '' ) that we consolidated in our financial statements . on december 9 , 2015 , we completed the sale of certain beneficial interests in the residential securitizations and deconsolidated the residential securitizations . the securities sold included the most subordinated classes of asset-backed securities issued by replace_table_token_50_th the residential securitizations . we sold these securities in order to further our efforts to increase shareholder value by allocating capital away from lower return investments . in addition , we expect to benefit from reduced accounting and auditing expenses associated with consolidating the residential securitizations and increased transparency into the our results of operations and financial position . our debt-to-equity ratio decreased as a result of deconsolidating the residential securitizations . our cmbs portfolio generally consists of assets originated before 2007 , assets originated after 2010 ( “ cmbs 2.0 ” ) and multi-family cmbs issued by freddie mac under their “ k ” program . over the past twelve months we have primarily invested in cmbs 2.0. the allocation of our cmbs holdings in our mbs and gse crt portfolio is approximately 18.1 % as of december 31 , 2015 . during 2015 , we purchased or originated four new commercial real estate loans . as of december 31 , 2015 , our commercial real estate loan portfolio includes six mezzanine loans that we purchased or originated . for further details on the loan portfolio , refer to note 5 - `` commercial loans held-for-investment '' of our consolidated financial statements in part iv , item 15 of this report .
| results of operations the table below presents certain information from our consolidated statements of operations for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_58_th ( 1 ) the consolidated statements of operations include income and expenses of consolidated vies . the company deconsolidated these vies in 2015. refer to note 3 - “ variable interest entities ” of our consolidated financial statements for further discussion . replace_table_token_59_th net income summary for the year ended december 31 , 2015 , our net income attributable to common stockholders was $ 81.1 million ( 2014 : $ 245.5 million net loss ; 2013 : $ 147.3 million net income ) , or $ 0.67 ( 2014 : $ 1.99 loss per share ; 2013 : $ 1.11 income per share ) basic and diluted net income per average share available to common stockholders . the change in net income attributable to common stockholders for the year ended december 31 , 2015 versus net loss attributable to common stockholders for the year ended december 31 , 2014 is primarily attributable to lower realized and unrealized losses on derivative instruments and lower losses on sales of investments in 2015 . on december 9 , 2015 , we completed the sale of certain beneficial interests in our residential securitizations for $ 69.0 million ( the `` transaction '' ) . the securities sold included the most subordinated classes of asset-backed securities issued by the residential securitizations . as a result of the transaction , we no longer have the power to direct the activities of the residential securitizations through default oversight rights and are therefore no longer the primary beneficiary of the residential securitizations . we deconsolidated the assets and liabilities of the residential securitizations as of the date of the transaction .
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with more information available on options exercise activity in the past few years , from january 1 , 2015 onwards , the company estimated the expected life based on historical option exercise experience as prescribed by fasb asc 718. in early march 2014 , the company granted to an independent director an option to purchase 12,500 shares of the company 's common stock at an exercise price of $ 2.55 per share and the options vested immediately . the options were valued at $ 10,200 fair value , with assumed story_separator_special_tag overview we are a holding company which conducts operations through our wholly-owned china subsidiaries . our business is conducted and reported in three segments , namely , bromine , crude salt and chemical products . through our wholly-owned subsidiary , schc , we produce and trade bromine and crude salt . we are one of the largest producers of bromine in china , as measured by production output . elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture . bromine also is used to form intermediary chemical compounds such as tetramethylbenzidine . bromine is commonly used in brominated flame retardants , fumigants , water purification compounds , dyes , medicines and disinfectants . crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical , food and beverage , and other industries . through our wholly-owned subsidiary , syci , we manufacture and sell chemical products used in oil and gas field exploration , oil and gas distribution , oil field drilling , wastewater processing , papermaking chemical agents and inorganic chemicals . on december 12 , 2006 , we acquired , through a share exchange , upper class group limited , a british virgin islands holding corporation which then owned all of the outstanding shares of schc . under accounting principles generally accepted in the united states , the share exchange is considered to be a capital transaction in substance , rather than a business combination . that is , the share exchange is equivalent to the issuance of stock by upper class for the net assets of our company , accompanied by a recapitalization , and is accounted for as a change in capital structure . accordingly , the accounting for the share exchange was identical to that resulting from a reverse acquisition , except no goodwill was recorded . under reverse takeover accounting , the post reverse acquisition comparative historical financial statements of the legal acquirer , our company , are those of the legal acquiree , upper class group limited , which is considered to be the accounting acquirer . share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger . on february 5 , 2007 , the company , acting through schc , acquired syci . since the ownership of the company and syci was then substantially the same , the transaction was accounted for as a transaction between entities under common control , whereby we recognized the assets and liabilities of syci at their carrying amounts . share and per share amounts stated in this report have been retroactively adjusted to reflect the merger . on august 31 , 2008 , syci completed the construction of a new chemical production line . it passed the examination by shouguang city administration of work safety and local fire department . this new production line focuses on producing environmental friendly additive products , solid lubricant and polyether lubricant , for use in oil and gas exploration . the line has an annual production capacity of 5,000 tons . formal production of this chemical production line started on september 15 , 2008. on october 12 , 2009 we completed a 1-for-4 reverse stock split of our common stock , such that for each four shares outstanding prior to the stock split there was one share outstanding after the reverse stock split . all shares of common stock referenced in this report have been adjusted to reflect the stock split figures . on october 27 , 2009 our shares began trading on the nasdaq global select market under the ticker symbol “ gfre ” and on june 30 , 2011 we changed our ticker symbol to “ gure ” to better reflection of our corporate name . on january 12 , 2015 , the company and schc entered into an equity interest transfer agreement with scrc pursuant to which schc agreed to acquire scrc and all rights , title and interest in and to all assets owned by scrc , a leading manufacturer of materials for human and animal antibiotics in china and other parts of asia . on february 4 , 2015 the company closed the transactions contemplated by the agreement between the company , schc and scrc . on the closing date , the company issued 7,268,011shares of its common stock , par value $ 0.0005 per share ( the “ shares ” ) , at the closing market price of $ 1.84 per share on the closing date to the four former equity owners of scrc .the issuance of the shares was exempt from registration pursuant to regulation s of the securities act of 1933 , as amended . on the closing date , the company entered into a lock-up agreement with the four former equity owners of scrc . in accordance with the terms of the lock-up agreement , the shareholders have agreed not to sell or transfer the shares for five years from the date the stock certificates evidencing the shares are issued . the sellers of scrc agreed as part of the purchase price to accept the shares , based on a valuation of $ 2.00 , which was a 73 % premium to the price on the day the agreement was entered into . for accounting purposes , the shares are now being valued at $ 1.84 , which was the closing price of our stock on the day of the closing date of the agreement . story_separator_special_tag year 2014 , a similar cost structure as compared with the same in 2015. the decrease in net cost of net revenue was mainly attributable to the decreased volume of products sold and an inter-company elimination adjustment related to the sale of bromine to scrc in the fiscal year 2015 allocated to the bromine segment whereas there is no such adjustment in the same period in 2014 as scrc was acquired by us in january 2015. replace_table_token_20_th 46 crude salt segment for the fiscal year 2015 , the cost of net revenue for our crude salt segment was $ 8,335,648 , representing a decrease of $ 788,948 , or 9 % , over the same period in 2014. the decrease in cost was mainly due to the decrease in volume of crude salt sold and unit production cost . the significant costs were depreciation and amortization of $ 5,839,694 ( or 70 % ) , resource tax calculated based on the crude salt sold of $ 1,060,665 ( or 13 % ) and electricity of $ 535,178 ( or 6 % ) for the fiscal year 2015. the significant costs were depreciation and amortization of $ 6,352,513 ( or 70 % ) , resource tax calculated based on the crude salt sold of $ 1,039,095 ( or 12 % ) and electricity of $ 619,572 ( or 7 % ) for the fiscal year 2014. the table below represents the major production cost components of crude salt per ton for respective periods : replace_table_token_21_th chemical products segment for the fiscal year 2015 , the cost of net revenue for our chemical products segment was $ 64,107,410 , representing an increase of $ 34,851,002 , or 119 % , over the same period in 2014. this increase was primarily attributable to the consolidation in 2015 of scrc , which collectively contributed $ 33,309,027 to our cost of net revenue for the fiscal year 2015. gross profit . gross profit was $ 53,281,250 , or 33 % , of net revenue for fiscal year 2015 as compared to $ 31,922,721 , or 28 % , of net revenue for fiscal year 2014. replace_table_token_22_th 47 bromine segment for the fiscal year 2015 , the gross profit margin for our bromine segment was 30 % , as compared to 25 % for the fiscal year 2014. this 5 % increase is mainly due to the selling price of bromine increased from $ 2,886 per tonne for the fiscal year 2014 to $ 3,162 per tonnes for the same period in 2015 , an increase of 10 % . we expect that the average selling price and gross profit margin of bromine will remain at current levels towards the first quarter of 2016 should the prc government 's macro-economic tightening policy remain in place . crude salt segment for the fiscal year 2015 , the gross profit margin for our crude salt segment was 21 % as compared to 15 % for the same period in 2014. this 6 % is mainly attributable to the selling price increased from $ 31.43 per tonne for the fiscal year 2014 to $ 31.77 per tonne for the same period in 2015 , an increase of 1 % . chemical products segment the gross profit margin for our chemical products segment for the fiscal year 2015 was 36 % as compared to 35 % for the same period in 2014 , an increase of 1 % . research and development costs the total research and development costs incurred for the fiscal years 2015 and 2014 were $ 230,590 and $ 134,292 , respectively , an increase of 72 % . research and development costs for the fiscal year 2015 represented raw materials used by syci and scrc for testing the manufacturing routine . research and development costs for fiscal year 2014 represented raw materials used by syci for testing the manufacturing routine . exploration costs the total exploration costs incurred for fiscal year 2015 and 2014 were $ 325,840 and $ 488,880. as of december 31 , 2015 the company incurred a total of $ 7,848,873 in exploration cost for the drilling of natural gas resources . on january 30 , 2015 , the company announced that it found natural gas resources under its bromine well in the sichuan area and received a testing report in early may 2015 which confirmed the economics of the natural gas under this well . the company is in discussion with the government about the natural gas trial production . write-off/impairment on property , plant and equipment . write-off on property , plant and equipment for the fiscal year 2015 and 2014 were $ 969,638 and $ 673,705 , respectively , an increase of 44 % . write-off on property , plant and equipment of $ 673,705 for the fiscal year 2014 represented the write-off of certain protective shells to transmission pipelines and ducts replaced during the third phase enhancement project that started in august 2014 and completed in september 2014. write-off on property , plant and equipment of $ 969,638 for the fiscal year 2015 mainly represented the write-off of ( i ) certain protective shells to transmission pipelines and ducts replaced of $ 753,025 during the fourth phase enhancement project that started in august 2015 and completed in september 2015 ; and ( ii ) certain machinery and equipment replaced during the enhancement work to our bromine production facilities in factory no . 11 of $ 66,676 ; ( iii ) the dismantle cost of $ 149,937 due to part of the factory no.1 and 9 plant construction equipment did not meet the government 's safety and environmental standards . general and administrative expenses .
| results of operations year ended december 31 , 2015 as compared to year ended december 31 , 2014 replace_table_token_12_th net revenue net revenue for the fiscal year 2015 , was $ 162,317,120 , representing an increase of $ 48,656,789 or 43 % over the same period in 2014. this increase was primarily attributable to the consolidation in 2015 of scrc , which collectively contributed $ 51,274,989 to our net revenue for the fiscal year 2015. revenue from our bromine segment decreased from $ 57,949,824 for the fiscal year 2014 to $ 52,385,491 for the same period in 2015 , a decrease of approximately 10 % . revenue from our crude salt segment decreased from $ 10,752,226 for the fiscal year 2014 to $ 10,494,939 for the same period in 2015 , a decrease of approximately 2 % . revenue from our chemical products segment increased from $ 44,958,281 for the fiscal year 2014 to $ 99,436,690 for the same period in 2015 , an increase of approximately 121 % . replace_table_token_13_th replace_table_token_14_th 42 replace_table_token_15_th 43 bromine segment the decrease in net revenue from our bromine segment was mainly due to the decrease in the sales volume of bromine . the sales volume of bromine decreased from 20,077 tonnes for the fiscal year 2014 to 16,569 tonnes for the same period in 2015 , a decrease of 17 % .
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in some cases you can identify these “ forward-looking statements ” by words like “ may , ” “ will , ” “ should , ” “ expects , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential ” or “ continue ” or the negative of those words and other comparable words . any such forward-looking statements are not guarantees of future performance and involve risks , uncertainties and other factors that may cause our actual results , performance or achievements , or industry results to vary materially from our future results , performance or achievements , or those of our industry , expressed or implied in such forward-looking statements . such factors include , among others , general industry , economic and business conditions , demand for our products , changes in consumer preferences , competition within our industry , our reliance on our network of independent dealers , our ability to manage our manufacturing levels and our large fixed cost base , and the successful introduction of our new products , as well as other factors affecting us discussed under the heading “ item 1a . risk factors ” in this form 10-k. many of these risks and uncertainties are outside our control , and there may be other risks and uncertainties which we do not currently anticipate because they relate to events and depend on circumstances that may or may not occur in the future . we do not intend and undertake no obligation to update any forward-looking information to reflect actual results or future events or circumstances . overview we are a leading designer , manufacturer and marketer of performance sport boats , having the # 1 market share position in the united states since 2010. our boats are used for water sports , including water skiing , wakeboarding and wake surfing , as well as general recreational boating . we earn revenue and generate profits from the sale of our high performance boats under two brands—malibu and axis . our flagship malibu brand boats offer our latest innovations in performance , comfort and convenience , and are designed for consumers seeking a premium boating experience . our axis brand of boats is designed to appeal to consumers who desire a more affordable product but still demand high performance , functional simplicity and the option to upgrade key features . since inception in 1982 , we believe we have been a consistent innovator in the powerboat industry , designing products that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key aspect of their lifestyle . we continue to focus on innovation and invest in product development to expand the market for our products by introducing consumers to new and exciting recreational activities . we believe that our boats are increasingly versatile , allowing consumers to use them for a wide range of activities that enhance the experience of a day on the water with family and friends . while there is no guarantee that we will achieve market share growth in the future , we believe that the 42 performance , quality , value and multi-purpose features of our boats position us to achieve our goal of increasing our market share in the expanding recreational boating market . we offer our boats for sale through an extensive network of independent dealers in north america and throughout the world . as of july 1 , 2016 , our distribution channel consisted of 110 independent dealers in north america operating 147 locations and we had 58 independent dealer locations across 38 countries outside of north america , including australia . our boats are the exclusive performance sport boats offered by the majority of our dealers . additionally , we offered our boats through an exclusive licensee in australia that is one of the largest performance sport boat manufacturers in that country until october 23 , 2014 , at which time we acquired it and it became our subsidiary . following the acquisition , the results of our australian operations are included in our consolidated financial results . see note 4 of our consolidated financial statements for more information . our dealer base is an important part of our consumers ' experience , our marketing efforts and our brands . we devote significant time and resources to find , develop and improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage . we have undergone significant growth since we were founded in 1982 and began building custom ski boats in a small shop in merced , california . in 2006 , we were acquired by an investor group , including affiliates of black canyon capital llc , horizon holdings , llc and then-current management . beginning in 2009 , under the leadership of new management , we implemented several measures designed to improve our cost structure , increase our operating leverage , enhance our product offerings and brands , and strengthen our dealer network . jack springer , our chief executive officer , and wayne wilson , our chief financial officer , helped lead us successfully through the volume declines experienced during the economic recession . despite the downturn , we continued to build on our legacy of innovation and invested in product development and process improvements . story_separator_special_tag cost of sales our cost of sales includes all of the costs to manufacture our products , including raw materials , components , supplies , direct labor and factory overhead . for components and accessories manufactured by third-party vendors , such costs represent the amounts invoiced by the vendors . shipping costs and depreciation expense related to manufacturing equipment and facilities are also included in cost of sales . warranty costs associated with the repair or replacement of our boats under warranty are also included in cost of sales . operating expenses our operating expenses include selling and marketing , and general and administrative costs . each of these items includes personnel and related expenses , supplies , non-manufacturing overhead , third-party professional fees and various other operating expenses . further , selling and marketing expenditures include the cost of advertising and various promotional sales incentive programs . general and administrative expenses include , among other things , salaries , benefits and other personnel related expenses for employees engaged in product development , engineering , finance , information technology , human resources , litigation settlement expense and executive management . other costs include outside legal and accounting fees , investor relations , risk management ( insurance ) and other administrative costs . other income ( expense ) , net other income ( expense ) , net consists of interest expense and other income or expense , net . interest expense consists of interest charged under our outstanding debt , interest on our interest rate swap arrangement , change in the fair value of our interest rate swap we entered into on july 1 , 2015 , amortization of deferred financing costs on our credit facilities , debt issuance costs written off in connection with the pay down of all the amounts owed under our prior credit facilities and term 44 loans with the proceeds from our ipo and related settlement of our interest rate swap . other income includes a portion of the amounts received from the settlement of our litigation with nautique entered into on february 6 , 2015. income taxes malibu boats , inc. is subject to u.s. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the llc after the ipo on february 5 , 2014. the llc is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions . the income tax provision ( benefit ) reflects a reported effective income tax rate of 36.8 % , 27.2 % and 65.2 % attributable to malibu boats , inc. 's share of income ( loss ) after the completion of the ipo for fiscal years 2016 , 2015 and 2014 , respectively . the reported effective tax rates differ from the statutory federal income tax rate of 35 % primarily due to the impact of the non-controlling interest and state income taxes attributable to the llc , including the benefit of deductions under section 199 of the internal revenue code of 1986 , as amended ( the `` internal revenue code '' ) and the impact of an out-of-period tax adjustment associated with benefits recognized for the tennessee jobs tax credit for fiscal year 2015. our effective tax rates also reflect the impact of state taxes and our share of the llc 's permanent items such as stock compensation expense attributable to profits interests , the domestic production activities deduction , nondeductible offering costs for fiscal years 2015 and 2014 and acquisition related costs for fiscal year 2015 . net income attributable to non-controlling interest as of june 30 , 2016 and 2015 , we had a 92.6 % controlling economic interest and 100 % voting interest in the llc . as of june 30 , 2014 , we had a 49.3 % controlling economic interest and 100 % voting interest in the llc . we therefore consolidate the llc 's operating results for financial statement purposes . net income or ( loss ) attributable to non-controlling interest represents the portion of net income or ( loss ) attributable to the llc members . recapitalization , ipo and equity transactions recapitalization and ipo immediately prior to the closing of the ipo of malibu boats , inc. on february 5 , 2014 , a new single class of llc units was allocated among the pre-ipo owners of the llc in exchange for their prior membership interests of the llc based upon the liquidation value of the llc , assuming it was liquidated at the time of the ipo with a value implied by the initial public offering price of the shares of class a common stock sold in the ipo . immediately prior to the closing of the ipo , there were 17,071,424 llc units issued and outstanding . further , on february 4 , 2014 ( prior to the closing of the ipo ) , two holders of membership interests in the llc merged with and into two newly formed subsidiaries of malibu boats , inc. as a result of these mergers , the sole stockholders of each of the two merging entities received shares of class a common stock in exchange for shares of capital stock of the merging entities . also , we redeemed for nominal consideration , the initial 100 shares of class a common stock issued to our initial stockholder in connection with our formation . we refer to the foregoing transactions as the “ recapitalization. ” on february 5 , 2014 , we completed our initial public offering of 8,214,285 shares of class a common stock , of which 7,642,996 shares were issued and sold by us and 571,289 shares were sold by selling stockholders . we received $ 99.5 million and the selling stockholders received $ 7.4 million net proceeds from the ipo .
| results of operations the table below sets forth our consolidated results of operations , expressed in thousands ( except unit volume and net sales per unit ) and as a percentage of net sales , for the periods presented . our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . certain totals for the table below will not sum to exactly 100 % due to rounding . 48 replace_table_token_8_th comparison of the fiscal year ended june 30 , 2016 to the fiscal year ended june 30 , 2015 net sales net sales for fiscal year 2016 increased $ 24.3 million , or 10.6 % , to $ 253.0 million , compared to fiscal year 2015 . included in net sales for fiscal years 2016 and 2015 were net sales of $ 20.8 million and $ 14.9 million , respectively , attributable to our australian operations acquired in october 2014. unit volume for fiscal year 2016 increased 165 units , or 4.8 % , to 3,569 units compared to fiscal year 2015 . of the 165 units added , 89 units were added as a result of our australian business and the remainder of the increase was primarily due to a demand-driven increase in our daily production rate over the prior year , bolstered by the strong demand for new , larger models such as the m235 and 25 lsv , offset by currency-driven challenges in international markets outside of australia , including canada .
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during 2012 , approximately 385,000 options were granted to certain of our employees under the 2010 equity incentive plan at an exercise price of $ 6.58 per share ( c $ 6.47 at date of issuance ) . the fair value of the option grant was estimated to be $ 4.04 using the black-scholes option pricing model . no options were granted during the year ended december 31 , 2011. options representing 250,000 shares were granted to our chief executive officer during the first quarter of 2010 at an exercise price of c $ 8.01 per share . the fair value of this option grant was estimated to be c $ 5.16 using the black-scholes option pricing model . on august 9 , 2010 , the company entered into a common share option cancellation and forfeiture agreement to cancel this option award . the cancellation was effective as of september 22 , 2010. the company entered into this arrangement with the chief executive officer in order to transition him to the company 's 2010 equity story_separator_special_tag overview we are one of the world 's largest producers of beverages on behalf of retailers , brand owners and distributors . our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our customers to provide proven profitable products . as a fast follower of innovative products , our goal is to identify which new products are succeeding in the marketplace and develop similar high quality products at a better value . this objective is increasingly relevant in more difficult economic times . the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and weather fluctuations . the purchases of our raw materials and related accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing seasons . the seasonality of our sales volume combined with the seasonal nature of fruit growing causes our working capital needs to fluctuate throughout the year , with inventory levels increasing in the first half of the year in order to meet high summer demand , and with fruit inventories peaking during the last quarter of the year when purchases are made after the growing season . in addition , our accounts receivable balances decline in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries . we typically operate at low margins and therefore relatively small changes in cost structures can materially impact results . in 2010 and 2011 industry carbonated soft drink ( csd ) sales were mostly flat while a decline was seen during 2012 , and ingredient and packaging costs remained volatile . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are aluminum , polyethylene terephthalate ( pet ) resin , corn , sugar , fruit and fruit concentrates . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . in 2012 , we had fixed price commitments for a majority of our forecasted aluminum and fruit and fruit concentrate requirements for 2012 and entered into fixed price commitments for a majority of our aluminum requirements and a portion of our fruit and fruit concentrate requirements for 2013 , as well as a portion of our aluminum requirements for 2014. in 2012 , we had fixed price commitments for all of our high fructose corn syrup ( hfcs ) requirements for 2012 and entered into fixed price commitments for all of our hfcs requirements for 2013. in 2012 , we had fixed price commitments for all of our sugar requirements for 2012 and entered into fixed price commitments for all of our sugar requirements for 2013. regarding pet resin , since this is not a traded commodity , no fixed price mechanism has been implemented , and we expect to pay prevailing market prices . although pet resin is not a traded commodity , at times we are able to enter into short-term fixed price commitments . during 2012 , we entered into fixed price commitments for a portion of our pet resin requirements for the second and third quarter of the year . in 2010 , we completed the acquisition of substantially all of the assets and liabilities of cliffstar corporation and its affiliated companies for approximately $ 503.0 million in cash , $ 14.0 million in deferred consideration payable in equal installments over three years and contingent consideration of up to $ 55.0 million . the first $ 15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. the remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending january 1 , 2011. in 2011 , the seller of cliffstar raised certain objections to the performance measures used to calculate the contingent consideration , and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement . during 2011 , cott made interim payments to the seller equal to $ 29.6 million , which was net of a $ 4.7 million refund due to cott and included $ 0.9 million in settlement of certain of the seller 's objections to the calculation of the contingent consideration . the seller 's claims for an additional $ 12.1 million in contingent consideration were submitted to binding arbitration pursuant to the asset purchase agreement and favorably resolved in february 2013 by payment of $ 0.6 million by cott to settle all claims . story_separator_special_tag there are no legal , regulatory , contractual , competitive , economic , or other factors that limit the useful life of this intangible . the life of the rights is considered to be indefinite and therefore not amortized , but instead is tested at least annually for impairment or more frequently if we determine a triggering event has occurred during the year . we compare the carrying amount of the rights with its fair value and if the carrying amount is greater than the fair value , we recognize in income an impairment loss . to determine fair value , we use a relief from royalty method which calculates a fair value royalty rate that is applied to a forecast of future volume shipments of concentrate that is used to produce csds . the forecast of future volumes is based on the estimated inter-plant shipments and rci shipments . the relief from royalty method is used since the rights were purchased in part to avoid making future royalty payments for concentrate to the royal crown company . the resulting cash flows are discounted using a discount rate of 14.5 % and estimated volume changes between 1.0 % and 10.0 % . no impairment was identified as of december 29 , 2012. absent any other changes , if our inter-plant concentrate volume declines by 1.0 % from our estimated volume , the fair value of our rights would decline by approximately $ 1.5 million . if our rci volume declines by 1.0 % from our estimated volume , the fair value of the rights would decline by approximately $ 2.6 million . if our discount rate increases by 100 basis points , the fair value of the rights would decline by approximately $ 5.2 million . none of these adjustments would result in an impairment of our rights as either a stand-alone adjustment or in combination . other intangible assets as of december 29 , 2012 , other intangible assets were $ 270.4 million , consisting principally of $ 225.0 million of customer relationships that arose from acquisitions , $ 13.3 million of financing costs , $ 15.0 million of information technology assets , and $ 5.5 million of trademarks . customer relationships are amortized on a straight-line basis for the period over which we expect to receive economic benefits . we review the estimated useful life of these intangible assets annually , taking into consideration the specific net cash flows related to the intangible asset , unless a review is required more frequently due to a triggering event such as the loss of a customer . the permanent loss or significant decline in sales to any customer included in the intangible asset would result in impairment in the value of the intangible asset or accelerated amortization and could lead to an impairment of fixed assets that were used to service that customer . in 2010 , we recorded $ 216.9 million of customer relationships acquired in connection with the cliffstar acquisition . in 2011 , we recorded an asset impairment charge of $ 1.4 million related primarily to customer relationships . in 2012 , we did not record any impairment charges for other intangible assets . 27 impairment of long-lived assets when adverse events occur , we compare the carrying amount of long-lived assets to the estimated undiscounted future cash flows at the lowest level of independent cash flows for the group of long-lived assets and recognize any impairment loss in the consolidated statements of operations , taking into consideration the timing of testing and the asset 's remaining useful life . the expected life and value of these long-lived assets is based on an evaluation of the competitive environment , history and future prospects as appropriate . in 2011 , we recorded an impairment of long-lived assets of $ 0.6 million related to a production plant in mexico that ceased operations . we did not record impairments of long-lived assets in 2012 or 2010. inventories inventories are stated at the lower of cost , determined on the first-in , first-out method , or net realizable value . finished goods and work-in-process include the cost of raw materials , direct labor and manufacturing overhead costs . as a result , we use an inventory reserve to adjust our costs down to a net realizable value and to reserve for estimated obsolescence of both raw and finished goods . income taxes we are subject to income taxes in canada as well as in numerous foreign jurisdictions . significant judgments and estimates are required in determining the income tax expense in these jurisdictions . our income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid in the jurisdictions in which we operate . our income tax expense includes the results of the reorganization of our legal entity structure and refinancing of intercompany debt . the reorganization of our legal entity structure and refinancing of intercompany debt should result in long term reduction of cott 's effective tax rate versus statutory rates . however , since the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations , our effective tax rate may ultimately be different than the amount we are currently reporting . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations .
| summary financial results our net income in 2012 was $ 47.8 million or $ 0.50 per diluted share , compared with net income of $ 37.6 million or $ 0.40 per diluted share in 2011. the following items of significance impacted our 2012 financial results : our filled beverage 8-ounce equivalents ( beverage case volume ) decreased 9.6 % due primarily to our exit from certain low gross margin business and the general decline in the north american csd and juice categories ; our revenue decreased 3.6 % in 2012 compared to 2011 due primarily to lower volumes and a product mix shift into juice drinks and sports drinks from 100 % shelf-stable juice in north america . excluding the impact of foreign exchange , revenue decreased 3.0 % ; our gross profit as a percentage of revenue increased to 12.9 % in 2012 from 11.8 % in 2011 due primarily to an increase in average price per case and our exit from lower margin business , as well as operational efficiencies in north america ; our selling , general and administrative ( sg & a ) expenses increased to $ 178.0 million from $ 172.7 million , due primarily to an increase in certain employee-related costs compared to a lowering of the annual incentive and long-term incentive accruals in the prior year partially offset by lower information technology expenses in 2012 ; our loss on disposal of property , plant and equipment was the result of the sale of a facility in mexico and normal operational disposals ; our 2012 results were impacted by the final contingent consideration earn-out accrual of $ 0.6 million related to the cliffstar acquisition ; our other income in 2012 was $ 2.0 million as a result of insurance recoveries in excess of the loss incurred on a facility in the united states in the amount of $ 1.9 million and recording a bargain purchase of $ 0.9 million in
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preliminary note regarding forward-looking statements this annual report contains forward-looking statements within the meaning of the federal securities laws . these include statements about our expectations , beliefs , intentions or strategies for the future , which we indicate by words or phrases such as “ anticipate , ” “ expect , ” “ intend , ” “ plan , ” “ will , ” “ we believe , ” “ nnvc believes , ” “ management believes ” and similar language . the forward-looking statements are based on the current expectations of nnvc and are subject to certain risks , uncertainties and assumptions , including those set forth in the discussion under “ management 's discussion and analysis of financial condition and results of operations ” in this report . actual results may differ materially from results anticipated in these forward-looking statements . we base the forward-looking statements on information currently available to us , and we assume no obligation to update them . investors are also advised to refer to the information in our previous filings with the securities and exchange commission ( sec ) , especially on forms 10-k , 10-q and 8-k , in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results . it is not possible to foresee or identify all such factors . as such , investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions . management 's plan of operation the company 's drug development business model was formed in may 2005 with a license to the patents and intellectual property held by theracour pharma , inc. , that enabled creation of drugs engineered specifically to combat viral diseases in humans . this exclusive license from theracour pharma serves as a foundation for our intellectual property . the company was granted a worldwide exclusive perpetual license to this technology for several drugs with specific targeting mechanisms in perpetuity for the treatment of the following human viral diseases : human immunodeficiency virus ( hiv/aids ) , hepatitis b virus ( hbv ) , hepatitis c virus ( hcv ) , rabies , herpes simplex virus ( hsv ) , influenza and asian bird flu virus . the company has entered into an additional license agreement with theracour granting the company the exclusive licenses in perpetuity for technologies developed by theracour for the additional virus types for dengue viruses , japanese encephalitis virus , west nile virus , viruses causing viral conjunctivitis ( a disease of the eye ) and ocular herpes , and ebola/marburg viruses . the company may want to add further virus types to its drug pipeline . the company would then need to negotiate with theracour an amendment to the licensing agreement to include those of such additional viruses that the company determines it wants to follow for further development . we are seeking to add to our existing portfolio of products through our internal discovery pre-clinical development programs and through an in-licensing strategy . 48 the company plans to develop several drugs through the preclinical studies and clinical trial phases with the goal of eventually obtaining approval from the united states food and drug administration ( “ fda ” ) and international regulatory agencies for these drugs . the company plans , when appropriate , to seek regulatory approvals in several international markets , including developed markets such as europe , japan , canada , australia , and emerging regions such as southeast asia , india , china , central and south america , as well as the african subcontinent . the seeking of these regulatory approvals would only come when and if one or more of our drugs , now in early stage of pre-clinical development , has significantly advanced through the us fda and international regulatory process . if and as these advances occur , the company may attempt to partner with more established pharmaceutical companies to advance the various drugs through the approval process . the company intends to perform the regulatory filings and own all the regulatory licenses for the drugs it is currently developing . the company will develop these drugs in part via subcontracts to theracour pharma , inc. , the exclusive source for these nanomaterials . the company may manufacture these drugs itself , or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate capabilities . the company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements . the company plans to market these drugs either on its own or in conjunction with marketing partners . the company also plans to actively pursue co-development , as well as other licensing agreements with other pharmaceutical companies . such agreements may entail up-front payments , milestone payments , royalties , and or cost sharing , profit sharing and many other instruments that may bring early revenues to the company . such licensing and or co-development agreements may shape the manufacturing and development options that the company may pursue . the company has received significant interest from certain pharmaceutical companies for potential licensing or co-development of some of our drug candidates . however , none of these distributor or co-development agreements is in place at the current time . there can be no assurance that the company will be able to develop effective nanoviricides , or if developed , that we will have sufficient resources to be able to successfully manufacture and market these products to commence revenue-generating operations . there can be no assurance that other developments in the field would not impact our business plan adversely . for example , successful creation and availability of an effective vaccine may reduce the potential market size for a particular viral disease . story_separator_special_tag we have additional collaborations in the process of formalization . we have also signed a non-disclosure agreement with the lovelace respiratory research institute , albuquerque , nm . we typically employ more than one external laboratory to perform testing for a particular disease agent in order to limit possible laboratory level bias . we previously had a collaborative research agreement with the walter reed army institute of research ( wrair ) , dr. putnak lab , for work on dengue viruses . this agreement has since lapsed , but we believe it can be reactivated at an opportune time . to date , we have entered into the following collaborations . hsv-1 and hsv-2 nanoviricides efficacy evaluation agreement with the collaborative ophthalmic research laboratories ( corl ) at the university of wisconsin , madison , wi . in january 2016 , we signed an agreement with corl . under this agreement , corl will perform evaluation of efficacy of our nanoviricides drug candidates in cell culture assays as well as in small animal studies towards the goal of filing an ind application for ocular herpes keratitis , and possibly for recurrent herpes labialis ( rhl , “ cold sores ” ) . the studies will be performed in the laboratory of dr. curtis brandt , an expert in herpes simplex virus infections and in evaluating anti-viral agents . evaluation of nanoviricides efficacy against ocular viral infections ; agreement with the campbell lab at the university of pittsburgh , pa in january 2016 , we signed an agreement with the campbell lab . under this agreement , the campbell lab will perform evaluation of efficacy of our nanoviricides drug candidates in cell culture assays against various strains of hsv-1 , hsv-2 , and adenoviruses . successful candidates will be further evaluated for efficacy in industry standard ocular animal models for herpes keratitis as well as adenoviral epidemic keratoconjunctivitis ( ekc ) , towards the goal of filing ind application ( s ) for ocular herpes keratitis , and for ekc . the research will be performed in the charles t. campbell ophthalmic microbiology laboratory by dr. eric romanowski , research director . dr. romanowski has extensive experience in ocular virus infections and anti-viral agents discovery . agreement with the department of ophthalmology , baylor university college of medicine , houston , tx in february 2016 , we signed an agreement with the pflugfelder lab at baylor . under this agreement , the lab will perform confirmatory testing of certain nanoviricides for efficacy in a small animal model of herpes keratitis . the research will be supervised by dr. stephen pflugfelder , professor of ophthalmology and the james and margaret elkins chair in ophthalmology at baylor . dr. pflugfelder has extensive experience in ophthalmological research as well as in ocular drug development , including conducting clinical trials . the research will be performed in the laboratories of the department of ophthalmology . this program is currently on hold until appropriate personnel are hired at the lab . 51 research and development agreement with professor ken rosenthal 's laboratory at the northeastern ohio medical university ( neomed , formerly called neoucom ) on may 13 , 2010 , the company announced that it had signed a research and development agreement with professor ken rosenthal 's laboratory at the northeastern ohio medical university ( neomed ) . pursuant to the terms of this agreement , professor rosenthal and neomed will evaluate the effectiveness of nanoviricides drug candidates against herpes simplex viruses , hsv-1 and hsv-2 , in both cell culture and animal models . the focus of this evaluation will be the development of drug candidates against herpes skin infections ( oral and genital herpes ) . dr. ken rosenthal is a professor of microbiology , immunology and biochemistry at neomed . he is a leading researcher in the field of herpes viruses . his laboratory has developed an improved mouse model of skin-infection with hsv to follow the disease progression . this model has been shown to provide highly uniform and reproducible results . a uniform disease pattern including onset of lesions and further progression to zosteriform lesions is observed in all animals in this model . this uniformity makes it an ideal model for comparative testing of various drug candidates which , the company believes , can be expected to lead to a broad-spectrum anti-hsv antiviral treatment capable of attacking both hsv-1 and hsv-2 . on august 16 , 2010 , the company reported that its anti-herpes drug candidates demonstrated significant efficacy in the recently completed cell culture studies in dr. rosenthal lab at neomed . several of the anti-herpes nanoviricides® demonstrated a dose-dependent maximal inhibition of herpes virus infectivity in a cell culture model . almost complete inhibition of the virus production was observed at clinically usable concentrations . these studies employed the h129 strain of herpes simplex virus type 1 ( hsv-1 ) . h129 is an encephalitic strain that closely resembles a clinical isolate ; it is known to be more virulent than classic hsv-1 laboratory strains . the h129 strain will be used in subsequent animal testing of nanoviricides . since then the company was optimizing formulations for use in the dermal hsv-1 h129c infection animal model in the rosenthal lab . the company also continued to further optimize the anti-herpes nanoviricides . our herpes program was run at a lower priority than other programs until recently . in april 2015 , after only 4 cycles of sar ( structure-activity-relationship based improvements ) , our anti-herpes nanoviricides demonstrated strong effectiveness in the lethal hsv-1 h129c dermal infection model in the rosenthal lab at neomed . treatment with certain nanoviricides caused significant improvements in the clinical observations , and led to > 85 % survival of the infected animals , wherein 100 % of the untreated animals died within 10 days . in august 2015 , the company reported that these results were reproduced in dermal animal model at transpharm , with 100 % of the nanoviricides treated animals surviving . the herpecide program has thus advanced to the lead identification stage now .
| results of operations the company is a biopharmaceutical company and does not have any revenue for the years ended june 30 , 2016 , 2015 and 2014. comparison of the year end june 30 , 2016 to the year ended june 30 , 2015 revenues - the company is a non-revenue producing entity . operating expenses - general and administrative expenses increased $ 427,753 to $ 3,830,531 for the year ended june 30 , 2016 , from $ 3,402,778 for the year ended june 30 , 2015. the increase in general and administrative expenses is generally attributable to an increase in stock compensation paid to employees and an increase in employment . research and development expenses for the year ended june 30 , 2016 increased $ 1,368,648 to $ 5,028,970 from $ 3,660,322 for the year ended june 30 , 2015. this year to year increase is generally attributable to the increase in the number of employees and salaries , an increase in lab supplies and chemicals and an increase in stock compensation to research scientists . other income ( expenses ) - interest income was $ 62,638 and $ 160,859 for the years ended june 30 , 2016 , and 2015 , respectively . interest income included interest on cash or cash equivalent deposits in interest-bearing account . interest income decreased due to decrease in interest rates . the company has incurred interest expense of $ 1,042,470 and $ 2,649,592 for the years ended june 30 , 2016 and june 30 , 2015 respectively . the company amortizes the discount on its series b and series c debentures which were calculated at issuance . the company recognized an amortization of bond discount expense of $ 1,427,218 and $ 1,175,344 for the years ended june 30 , 2016 and 2015 , respectively . income taxes - there is no provision for income taxes due to ongoing operating losses .
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under this method , deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective income tax bases and for operating loss , capital loss and tax credit carryforwards based on enacted income tax rates expected to be in effect when such amounts are realized or settled . however , deferred tax assets are recognized only to the extent that is more likely than not they will be realized based on consideration of available evidence , including future reversals of existing taxable temporary differences , future projected taxable income and tax planning strategies . the company performs an annual review for any uncertain tax positions and , if necessary , will record expected future tax consequences of uncertain tax positions in the financial story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements , related notes included thereto and item 1a. , `` risk factors '' , appearing elsewhere in this annual report on form 10-k. overview our strategy is to acquire primarily premium-branded , focused-service and compact full-service hotels . focused-service and compact full-service hotels typically generate most of their revenue from room rentals , have limited food and beverage outlets and meeting space , and require fewer employees than traditional full-service hotels . we believe premium-branded , focused-service and compact full-service hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve revpar levels at or close to those achieved by traditional full-service hotels while achieving higher profit margins due to their more efficient operating model and less volatile cash flows . while the outlook for global economic growth has become more uncertain recently , the health of the domestic consumer has improved . as such , we are optimistic that the u.s. economy will continue to grow . lodging demand is at record levels and hotel industry supply remains below historical averages . we believe that corporate profits will increase over the upcoming years and support lodging fundamentals . accordingly , we remain cautiously optimistic that we are in a positive lodging cycle that will continue in the near term . we believe that attractive acquisition opportunities that meet our investment profile remain available in the market and we intend to weigh all investment decisions against our capital allocation requirements . we believe our cash on hand and expected access to capital ( including availability under our unsecured revolving credit facility ) along with our senior management team 's experience , extensive industry relationships and asset management expertise , will enable us to pursue investment opportunities that generate additional internal and external growth . as of december 31 , 2015 , we owned 126 hotels with approximately 20,900 rooms , located in 21 states and the district of columbia and an interest in a mortgage loan secured by a hotel . we own , through wholly-owned subsidiaries , 100 % of the interests in all properties , with the exception of one property in which we own a 98.3 % controlling interest in a joint venture . 40 table of contents our customers substantially all of our hotels consist of premium-branded , focused-service and compact full-service hotels . as a result of this property profile , the majority of our customers are transient in nature . transient business typically represents individual business or leisure travelers . the majority of our hotels are located in business districts within major metropolitan areas . accordingly , business travelers represent the majority of the transient demand at our hotels . as a result , macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel . group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business . group business may or may not use the meeting space at any given hotel . given the limited meeting space at the majority of our hotels , group business that utilizes meeting space represents a small component of our customer base . a number of our hotels are affiliated with brands marketed toward extended-stay customers . extended-stay customers are generally defined as those staying five nights or longer . reasons for extended stays may include , but are not limited to , training and or special project business , relocation , litigation and insurance claims . our revenues and expenses our revenue is primarily derived from hotel operations , including the sale of rooms , food and beverage revenue and other operating department revenue , which consists of telephone , parking and other guest services . our operating costs and expenses consist of the costs to provide hotel services , including room expense , food and beverage expense , management and franchise fees and other operating expenses . room expense includes housekeeping and front office wages and payroll taxes , reservation systems , room supplies , laundry services and other costs . food and beverage expense primarily includes the cost of food , the cost of beverages and associated labor costs . other operating expenses include labor and other costs associated with the other operating department revenue , as well as labor and other costs associated with administrative departments , sales and marketing , repairs and maintenance and utility costs . our hotels that are subject to franchise agreements are charged a royalty fee , plus additional fees for marketing , central reservation systems and other franchisor costs , in order for the properties to operate under the respective brands . franchise fees are based on a percentage of room revenue and for certain hotels additional franchise fees are charged for food and beverage revenue . our hotels are managed by independent , third-party management companies under long-term agreements pursuant to which the management companies typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel . story_separator_special_tag for the year ended december 31 , 2015 , the portfolio wide revpar penetration index of our hotels was 110.7 which indicates that , on average , our hotels maintained a market share premium of approximately 10.7 % in relation to their competitive set . we also use non-gaap measures such as ffo , adjusted ffo , ebitda and adjusted ebitda to evaluate the operating performance of our business . see `` —non-gaap financial measures . '' principal factors affecting our results of operations the principal factors affecting our operating results include overall demand for lodging compared to the supply of available hotel rooms and other lodging options , and the ability of our third-party management companies to increase or maintain revenues while controlling expenses . demand — the demand for lodging , especially business travel , generally fluctuates with the overall economy . historically , periods of declining demand are followed by extended periods of relatively strong demand , which typically occurs during the growth phase of the lodging cycle . supply — the development of new hotels is driven largely by construction costs , the availability of financing and expected performance of existing hotels and other lodging options . we expect that our adr , occupancy and revpar performance will be impacted by macroeconomic factors such as regional and local employment growth , government spending , personal income and corporate earnings , office vacancy rates and business relocation decisions , airport activity , business and leisure travel demand , new hotel construction and the pricing strategies of our competitors . in addition , our adr , occupancy and revpar performance are dependent on the continued success of the marriott , hilton and hyatt brands . 42 table of contents revenue — substantially all of our revenue is derived from the operation of hotels . specifically , our revenue is comprised of : ◦ room revenue — occupancy and adr are the major drivers of room revenue . room revenue accounts for the substantial majority of our total revenue . ◦ food and beverage revenue — occupancy , the nature of the property and the type of customer staying at the hotel are the major drivers of food and beverage revenue ( i.e. , group business typically generates more food and beverage revenue through catering functions as compared to transient business , which may or may not utilize the hotel 's food and beverage outlets ) . ◦ other operating department revenue — occupancy and the nature of the property are the main drivers of other ancillary revenue , such as telephone , parking and other guest services . some hotels , due to the limited focus of the services offered and size or space limitations , may not have facilities that generate other operating department revenue . property operating expense — the following presents the components of our property operating expenses : ◦ room expense — these costs include housekeeping and front office wages and payroll taxes , reservation systems , room supplies , laundry services and other costs . like room revenue , occupancy is the major driver of room expense . these costs can increase based on increases in salaries and wages , as well as the level of service and amenities that are provided . ◦ food and beverage expense — these expenses primarily include food , beverage and labor costs . occupancy and the type of customer staying at the hotel ( i.e. , catered functions are generally more profitable than restaurant , bar or other on-property food and beverage outlets ) are the major drivers of food and beverage expense , which correlates closely with food and beverage revenue . ◦ management and franchise fee expense — base management fees are computed as a percentage of gross revenue . incentive management fees generally are paid when operating profits exceed certain threshold levels . franchise fees are based on a percentage of room revenue and for certain hotels additional franchise fees are charged for food and beverage revenue . see `` our properties — our hotel management agreements '' and `` our properties — franchise agreements . '' ◦ other operating expense — these expenses include labor and other costs associated with the other operating department revenue , as well as labor and other costs associated with administrative departments , sales and marketing , repairs and maintenance and utility costs . most categories of variable operating expenses , including labor costs such as housekeeping , fluctuate with changes in occupancy . increases in occupancy are accompanied by increases in most categories of variable operating expenses , while increases in adr typically only result in increases in limited categories of operating costs and expenses , such as franchise fees , management fees , travel agency commissions and credit card processing fee expenses which are based on hotel revenues . thus , changes in adr have a more significant impact on operating margins than changes in occupancy . 2015 significant activities our significant activities reflect our commitment to creating long-term shareholder value through enhancing our portfolio 's quality , recycling capital and maintaining a prudent capital structure . during the year ended december 31 , 2015 , the following significant activities took place : purchased three hotel properties for an aggregate purchase price of $ 175.9 million ; sold 23 hotel properties for an aggregate sale price of $ 252.5 million and a gain on sale of $ 28.4 million ; completed two major redevelopment projects in san francisco and houston ; repurchased 8.0 million common shares for $ 225.2 million at an average per share price of $ 27.99 ; and declared cash dividends of $ 1.32 per share for the year , an increase of 26.9 % over the cash dividends declared in 2014 .
| results of operations at december 31 , 2015 , 2014 and 2013 we owned 126 , 146 and 149 properties , respectively . based on when a property is acquired , sold or closed for renovation , the operating results for certain properties are not comparable for the years ended december 31 , 2015 , 2014 and 2013 . for comparisons between the years ended december 31 , 2015 and 2014 , the non-comparable properties include 18 acquisitions that were completed between january 1 , 2014 and december 31 , 2015 , 41 dispositions that were completed between january 1 , 2014 and december 31 , 2015 and three properties that were closed for renovations during all or a portion of the period between january 1 , 2014 and december 31 , 2015. for comparisons between the years ended december 31 , 2014 and 2013 , the non-comparable properties include 22 acquisitions that were completed between january 1 , 2013 and december 31 , 2014 , 18 dispositions that were completed in 2014 and one property that was closed for renovations during all or a portion of the period between january 1 , 2013 and december 31 , 2014. we sold or transferred three hotels during 2013 which are included in discontinued operations for the year ended december 31 , 2013 , and therefore are not included in any of the comparisons presented . 44 table of contents comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 replace_table_token_7_th revenue total revenue increased $ 27.1 million , or 2.4 % , to $ 1.136 billion for the year ended december 31 , 2015 from $ 1.109 billion for the year ended december 31 , 2014 .
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> basis of presentation : this section provides a discussion of the basis on which our consolidated financial statements were prepared . > results of operations : this section provides an analysis of our results of operations for each of the three years ended december 31 , 2015 , 2014 and 2013 . > liquidity and capital resources : this section provides a discussion of our financial condition and an analysis of our cash flows for each of the three years ended december 31 , 2015 , 2014 and 2013. this section also provides a discussion of our contractual obligations , other purchase commitments and customer credit risk that existed at december 31 , 2015 , as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital . > critical accounting policies and estimates : this section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application . overview the company is a leader in home and security products focused on the design , manufacture and sale of market-leading branded products in the following categories : kitchen and bath cabinetry , plumbing and accessories , entry door systems , and security products . for the year ended december 31 , 2015 , net sales based on country of destination were : replace_table_token_9_th we believe the company has certain competitive advantages including market-leading brands , a diversified mix of customer channels , and lean and flexible supply chains , as well as a tradition of strong innovation and customer service . we are focused on outperforming our markets in growth , profitability and returns in order to drive increased shareholder value . we believe the company 's track record reflects the long-term attractiveness and potential of our categories and our leading brands . as consumer demand and the housing market grow , we expect the benefits of operating 20 leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us to continue to achieve profitable organic growth . we believe our most attractive opportunities are to invest in profitable organic growth initiatives . we also believe that as the market grows , we have the potential to generate additional growth from leveraging our cash flows and balance sheet strength by pursuing accretive strategic acquisitions and joint ventures , and returning cash to shareholders through a combination of dividends and repurchases under our share repurchase programs as explained in further detail under liquidity and capital resources below . the u.s. market for our home products consists of spending on both new home construction and repair and remodel activities within existing homes , with the substantial majority of the markets we serve consisting of repair and remodel spending . we believe that the u.s. market for our home products is in the midst of a multi-year recovery from the u.s. economic recession that ended in mid-2009 and that a continued recovery will largely depend on consumer confidence , employment , home prices , stable mortgage rates and credit availability . over the long term , we believe that the u.s. home products market will benefit from favorable population and immigration trends , which will drive demand for new housing units , and from aging existing housing stock that will continue to need to be repaired and remodeled . we may be impacted by fluctuations in raw material and transportation costs and promotional activity among our competitors . we strive to offset the potential unfavorable impact of these items with productivity initiatives and price increases . during the past three years ended december 31 , 2015 , our net sales grew at a compounded annual rate of 13 % as we benefited from an improving u.s. home products market , acquisitions , share gains and growth in international markets . operating income grew at a compounded annual rate of 51 % with consolidated operating margins improving from 5 % in 2012 to 11 % in 2015. growth in operating income was primarily due to higher sales volume , control and leverage of our operating expenses , the benefits of productivity programs , and changes to our portfolio of businesses . during 2015 , the u.s. home products market grew due to increases in new home construction and repair and remodel activities . we believe new housing construction experienced low double-digit growth in 2015 compared to 2014 and spending for home repair and remodeling increased approximately 5 % . in 2015 , net sales grew 14 % and operating income increased 23 % due to the acquisitions of norcraft companies , inc. ( norcraft ) in 2015 , and john d. brush & co. , inc. ( sentrysafe ) and anaheim manufacturing company ( anaheim ) in 2014 , higher sales volume primarily resulting from u.s. home products market growth , price increases to help mitigate cumulative raw material cost increases and productivity improvements . during 2014 , the u.s. home products market also grew due to expansion of both new home construction and repair and remodel activities . we believe new housing construction experienced high-single digit growth in 2014 compared to 2013 and spending for home repair and remodeling increased approximately 4 % to 5 % . in 2014 , net sales grew 8 % and operating income increased 25 % due to higher sales volume primarily resulting from u.s. home products market growth , the acquisitions of woodcrafters home products holding , llc ( woodcrafters ) in 2013 and sentrysafe in 2014 , and productivity improvements . in september 2015 , we completed the sale of waterloo industries , inc. ( waterloo ) for approximately $ 14 million in cash , subject to certain post-closing adjustments . we recorded a pre-tax loss of $ 16.7 million as the result of this sale . transaction and other sale related costs were approximately $ 2.8 million . story_separator_special_tag $ 16 million on operating income and approximately $ 10 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and > income from discontinued operations of $ 9.0 million , net of tax , includes the after-tax gain associated with the sale of the waterloo business . 23 in 2014 , financial results included : > the impact of the woodcrafters and sentrysafe acquisitions , which added approximately $ 165 million of net sales ( approximately $ 100 million and $ 65 million , respectively ) , > defined benefit plan recognition of actuarial losses , recorded in the corporate segment , of $ 13.7 million ( $ 8.7 million after tax ) compared to $ 5.2 million ( $ 3.3 million after tax ) in 2013. the actuarial losses in 2014 were primarily due to lower discount rates , partially offset by the impact of a higher than expected increase in pension plan assets and lower postretirement liabilities due to plan amendments to reduce health benefits , > restructuring and other charges of $ 7.7 million before tax ( $ 4.7 million after tax ) , primarily associated with supply chain initiatives , > the impact of foreign exchange , which had an unfavorable impact compared to 2013 , of approximately $ 25 million on net sales , approximately $ 13 million on operating income and approximately $ 10 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and > loss from discontinued operations of $ 114.3 million , net of tax , which includes the net loss on the sale of simonton windows of $ 111.2 million , as well as restructuring and impairment losses of $ 14.1 million , net of tax , as a result of the decision to sell the waterloo tool storage business . in 2013 , financial results included : > the impact of the woodcrafters acquisition , which added approximately $ 115 million of net sales , > asset impairment charges in our cabinets segment of $ 21.2 million ( $ 13.8 million after tax ) associated with the abandonment of certain internal use software , > defined benefit plan recognition of actuarial losses , recorded in the corporate segment , of $ 5.2 million ( $ 3.3 million after tax ) compared to $ 42.2 million ( $ 26.2 million after tax ) in 2012. the actuarial losses in 2013 were primarily due to a higher than expected increase in pension plan assets and higher discount rates , as well as lower postretirement liabilities due to plan amendments to reduce health benefits , > restructuring and other charges of $ 3.7 million before tax ( $ 2.8 million after tax ) , primarily associated with supply chain initiatives , > the impact of foreign exchange , which had an unfavorable impact compared to 2012 , of approximately $ 7 million on net sales and approximately $ 1 million on operating income and net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and > income from discontinued operations of $ 21.9 million , net of tax . 2015 compared to 2014 total fortune brands net sales net sales increased $ 565.8 million , or 14 % . the increase was due to the benefit of the acquisitions of norcraft , sentrysafe , and anaheim ( approximately $ 369 million in aggregate ) , higher sales volume primarily from the continuing improvement in u.s. market conditions for home products , price increases to help mitigate cumulative raw material cost increases and favorable mix . these factors were partially offset by unfavorable foreign exchange of approximately $ 66 million and higher sales rebates . 24 cost of products sold cost of products sold increased $ 350.8 million , or 13 % , due to higher net sales , including the impact of the acquisitions of norcraft , sentrysafe and anaheim ( approximately $ 246 million in aggregate ) , and investments to support increased manufacturing capacity and long-term growth initiatives , partially offset by the benefit of productivity improvements . selling , general and administrative expenses selling , general and administrative expenses increased $ 104.3 million , or 11 % , due to the impact of the acquisitions of norcraft , sentrysafe , and anaheim ( approximately $ 82 million in aggregate ) , $ 15.1 million of norcraft transaction costs , higher employee-related costs , and planned increases in strategic spending to support increased capacity and long-term growth initiatives . amortization of intangible assets amortization of intangible assets increased $ 8.5 million due to the acquisitions of norcraft , sentrysafe and anaheim . restructuring charges restructuring charges of $ 16.6 million in 2015 primarily related to relocating a manufacturing facility , including severance costs within our security segment and severance costs to relocate a plumbing manufacturing facility in china . restructuring charges of $ 7.0 million in 2014 related to severance in security , plumbing and corporate , partially offset by a benefit from a foreign currency gain associated with the dissolution of a foreign entity in the plumbing segment . operating income operating income increased $ 92.6 million or 23 % . operating income benefited from higher net sales , including the impact of acquisitions , productivity improvements , and $ 11.2 million in lower defined benefit plan actuarial losses . these benefits were partially offset by investments to support manufacturing capacity increases for long-term growth , higher employee-related costs , higher sales rebates , approximately $ 16 million of unfavorable foreign exchange , $ 15.1 million of norcraft transaction costs and $ 15.0 million of higher restructuring and other charges . interest expense interest expense increased $ 21.5 million to $ 31.9 million due to higher average borrowings and higher average interest rates .
| results by segment cabinets net sales increased $ 385.9 million , or 22 % , due to the benefit of the norcraft acquisition ( approximately $ 258 million ) , higher sales volume including the impact of new product introductions , favorable mix and the benefit of price increases to help mitigate cumulative raw material cost increases . these benefits were partially offset by approximately $ 24 million of unfavorable foreign exchange . operating income increased $ 54.5 million , or 40 % , due to an increase in net sales , productivity improvements and approximately $ 28 million benefit from the acquisition of norcraft , including a $ 2.0 million charge related to an inventory purchase accounting adjustment to fair value . these benefits were partially offset by investments to support manufacturing capacity increases for long-term growth , higher employee-related costs , higher wood-related raw material costs and costs associated with new product introductions . plumbing net sales increased $ 83.5 million , or 6 % , due to higher sales volume in the u.s. driven by improving u.s. market conditions , the acquisition of anaheim ( approximately $ 31 million benefit ) and price increases to help mitigate cumulative raw material cost increases . these benefits were partially offset by unfavorable foreign exchange of approximately $ 29 million and higher sales rebates . 26 operating income increased $ 26.5 million , or 10 % , due to an increase in net sales , and productivity improvements . operating income was unfavorably impacted by higher sales rebates , approximately $ 14 million of unfavorable foreign exchange and $ 5.9 million of higher restructuring and other charges primarily related to severance costs to relocate a manufacturing facility in china . doors net sales increased $ 25.2 million , or 6 % , due to higher sales volume driven primarily by improved conditions in the u.s. home products market , price increases to help mitigate cumulative raw material cost increases and favorable mix . operating income increased $ 14.8
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except for the historical information contained herein , the matters discussed this md & a may be deemed to be forward‑looking statements . forward-looking statement are only predictions based on management 's current views and assumptions and involve risks and uncertainties , and actual results could differ materially from those projected or implied . we make such forward‑looking statements pursuant to the safe harbor provisions of the private securities litigation reform act of 1995 and other federal securities laws . words such as “ may , ” “ expect , ” “ anticipate , ” “ estimate , ” “ intend , ” and similar expressions ( as well as other words or expressions referencing future events , conditions or circumstances ) are intended to identify forward‑looking statements . our actual results and the timing of certain events may differ materially from the results discussed , projected , anticipated , or indicated in any forward‑looking statements . we caution you that forward‑looking statements are not guarantees of future performance and that our actual results of operations , financial condition and liquidity , and the development of the industry in which we operate may differ materially from the forward‑looking statements contained in this md & a . in addition , even if our results of operations , financial condition and liquidity , and the development of the industry in which we operate are consistent with the forward‑looking statements contained in this md & a , they may not be predictive of results or developments in future periods . we caution readers not to place undue reliance on any forward‑looking statements made by us , which speak only as of the date they are made . we disclaim any obligation , except as specifically required by law and the rules of the sec , to publicly update or revise any such statements to reflect any change in our expectations or in events , conditions or circumstances on which any such statements may be based , or that may affect the likelihood that actual results will differ from those set forth in the forward‑looking statements . overview we are a leader in the field of gene therapy , seeking to develop single treatments with potentially curative results for patients suffering from genetic and other devastating diseases . we are advancing a focused pipeline of innovative gene therapies that have been developed both internally and through partnerships , such as our collaboration with bristol myers-squibb focused on cardiovascular diseases . in january 2019 , we commenced the dosing phase of a pivotal study of amt-061 , our lead product candidate for patients with hemophilia b. also , in january 2019 , we received notice from the fda of the clearance of our ind application for amt-130 , our product candidate for patients with huntington 's disease , thereby enabling us to initiate our phase i/ii clinical study . in november 2018 , we announced the expansion of our research pipeline with novel gene therapy approaches to several additional indications , including hemophilia a , fabry disease and sca3 . we believe our gene therapy technology platform and manufacturing capabilities provide us distinct competitive advantages , including the potential to reduce development risk , cost and time to market . we produce our adeno-associated virus based ( “ aav-based ” ) gene therapies in our own facilities with a proprietary , commercial-scale , current good manufacturing practices , or cgmp , compliant , manufacturing process . we believe our lexington , massachusetts-based facility is one of the world 's leading , most versatile , gene therapy manufacturing facilities . 59 business developments below is a summary of our recent significant business developments : hemophilia b program amt-061 amt-061 , our lead gene therapy candidate that includes an aav5 vector incorporating the factor ix-padua variant , is currently enrolling a pivotal study in patients with severe and moderately-severe hemophilia b. amt-061 has been granted breakthrough therapy designation by the united states food and drug administration and access to the prime initiative by ema . in february 2019 , we announced the dosing of the first patient in our phase iii hope-b hemophilia b pivotal trial . the trial is a multinational , multi-center , open-label , single-arm study to evaluate the safety and efficacy of amt-061 . after the six-month lead-in period , patients will receive a single intravenous administration of amt-061 . the primary endpoint of the study will be based on the fix activity level achieved following the administration of amt-061 , and the secondary endpoints will measure annualized fix replacement therapy usage , annualized bleed rates and safety . patients enrolled in the hope-b trial will be tested for the presence of pre-existing neutralizing antibodies to aav5 but will not be excluded from the trial based on their titers . in february 2019 , we presented updated data from our phase iib dose-confirmation study . the phase iib study is an open-label , single-dose , single-arm , multi-center trial being conducted in the united states . the objective of the study was to evaluate the safety and tolerability of amt-061 and confirm the dose based on fix activity at six weeks after administration . three patients with severe hemophilia were enrolled in this study and received a single intravenous infusion of 2x10 13 gc/kg . data from the phase iib study of amt-061 show that all three patients experienced increasing and sustained fix levels after a one-time administration of amt-061 . twelve weeks after administration , mean fix activity for the three patients was 38 % of normal , exceeding threshold fix levels generally considered sufficient to significantly reduce the risk of bleeding events . the first patient achieved fix activity of 48 % of normal at 16 weeks after administration . fix activity in the second patient was 25 % of normal at 14 weeks following administration and in the third patient was 51 % of normal at 12 weeks after administration . story_separator_special_tag in cultured cells and in a study in wild-type mice , amt-190 resulted in clinically relevant gla activity . in a preclinical proof-of-concept study , fabry mice were injected with a single dose of amt-190 , resulting in modified naga expression with subsequent gla-activity in plasma . at two- and four-weeks post-dosing , this gla activity already translated to up to fifty percent reduction in lyso-gb3 levels . these studies demonstrate proof-of-concept of amt-190 as a gene therapy candidate for fabry disease . a one-time administration of amt-190 could potentially lead to long-term expression of gla in the liver , kidneys and heart , with no loss of expression due to inhibitors . we plan to conduct additional pre-clinical tests through 2019 . 61 spinocerebellar ataxia type 3 program amt-150 is a gene therapy for sca3 , a central nervous system disorder . sca3 , also known as machado-joseph disease , is caused by a cag-repeat expansion in the atxn3 gene that results in an abnormal form of the protein ataxin-3 . people with sca3 experience brain degeneration that results in movement disorders , rigidity , muscular atrophy and paralysis . there is currently no treatment available that slows the progressive course of this lethal disease . amt-150 is a one-time , intrathecally-administered , aav gene therapy incorporating the company 's proprietary miqure silencing technology that is designed to halt ataxia in early manifest sca3 patients . in an in-vitro study with human ips derived neurons , amt-150 has been shown to lower the human ataxin-3 protein by 65 % , without any off-target effects . we also performed a proof-of-concept in-life study in sca3 mice demonstrating that amt-150 was able to lower toxic ataxin-3 protein by 65 % in the brain stem after a single administration . further studies in non-human primates demonstrate the ability to distribute and express a reporter gene at a clinically relevant level in the most degenerated brain regions in sca3 . these preclinical studies demonstrate that a single administration of amt-150 results in sustained expression and efficient processing with on-target engagement . they also demonstrate that amt-150 appears to be safe due to the lack of off-target activity . we are currently performing studies in large animals to demonstrate further safety and efficacy and expect results in the fall of 2019. bms collaboration we continue our research collaboration with our collaboration partner , bristol-myers squibb ( “ bms ” ) , which includes research programs focused on cardiovascular and other diseases . bms had designated four research targets to be researched , including s100a1 for congestive heart failure . bms and we recently completed a heart function proof-of-concept study of amt-126 in a pre-clinical animal model of heart failure . the study demonstrated dna delivery and expression of s100a1 in the myocardium , thereby validating our vector delivery platform in the animal model . the data did not show a benefit on heart function at six months , and consequently , the joint steering committee for the collaboration has chosen to discontinue work on s100a1 . we expect that bms will replace the s100a1 collaboration target with another cardiovascular target and that we and bms will continue working on the other collaboration targets under the collaboration . padua-fix patents in 2017 , we acquired intellectual property from dr. simioni . the intellectual property includes u.s. patent number 9,245,405 , which covers compositions of fix-padua nucleic acids and polypeptides ( proteins ) , as well as their therapeutic uses . on may 29 , 2018 , the u.s. patent and trademark office ( “ uspto ” ) granted us a second patent , u.s. patent number 9,982,248 , which covers methods of treating coagulopathies ( bleeding disorders ) , including hemophilia b , using aav-based gene therapy with nucleic acid encoding the hyperactive fix padua variant . the fix padua variant is a factor ix protein carrying a leucine at the r338 position , often called the `` fix-padua '' or `` padua mutant '' . in addition to the u.s. patent , on february 20 , 2018 , the canadian intellectual property office granted patent number 2,737,094 , which covers fix-padua nucleic acids for use in gene therapy and fix-padua polypeptides for use in fix replacement therapy . we are also currently pursuing european and u.s. patents directed toward therapeutic uses of fix-padua nucleic acids and polypeptides . on june 13 , 2018 , we were granted european patent 2337849 directed to a factor ix polypeptide protein . on december 21 , 2018 , we received notice that an opposition was filed by strawman limited in the united kingdom . the opposition seeks revocation of our patent on the grounds that it is not new , does not involve an inventive step and several other reasons . intellectual property portfolio in manufacturing we continue to strengthen the intellectual property related to our proprietary insect cell-based aav manufacturing process . in may 2018 , we announced that the uspto granted u.s. patent number 9,840,694 , which includes claims covering nanofiltration to selectively remove potential residual baculovirus from the product . we believe this nanofiltration step is important for product quality and safety and that nanofiltration generally may be required to comply with viral clearance standards established by global regulatory authorities . related patents were previously granted in europe , japan and several other jurisdictions . 62 the 9,840,694 patent expands our intellectual property portfolio directed to large-scale manufacturing of aav in insect cells using baculovirus vectors . our portfolio includes multiple important molecular and process-related patents , as well as extensive know-how covering essential production , purification , and processing steps that are necessary for the large-scale insect cell-based manufacturing and for compliance with the regulatory authorities . technology platform developments in november 2018 , we presented our miqure gene silencing platform , which is designed to degrade disease-causing genes , without off-target toxicity , and induce silencing of the entire target organ through secondary exosome-mediated delivery .
| 2018 financial highlights key components of our results of operations include the following : replace_table_token_5_th as of december 31 , 2018 , we had cash and cash equivalents of $ 234.9 million ( december 31 , 2017 : $ 159.4 million ) . we had a net loss of $ 83.3 million in 2018 , $ 79.3 million in 2017 and $ 73.4 million in 2016. as of december 31 , 2018 , we had an accumulated deficit of $ 535.5 million ( december 31 , 2017 : $ 475.3 million ) . we anticipate that our loss from operations will increase in the future as we : · execute our pivotal study of amt-061 . in july 2017 , we agreed with chiesi to terminate our hemophilia collaboration agreement . accordingly , all future development expenses will be borne by us ( previously , chiesi was reimbursing 50 % of such costs ) ; · initiate clinical studies for amt-130 for our proprietary huntington 's disease gene therapy program ; · advance multiple research programs related to gene therapy candidates targeting liver-directed , and cns diseases ; · continue to enhance and optimize our technology platform , including our manufacturing capabilities , next-generation viral vectors and promoters , and other enabling technologies ; · seek marketing approval for any product candidates that successfully complete clinical trials ; · acquire or in-license rights to new therapeutic targets or product candidates ; · maintain , expand and protect our intellectual property portfolio , including in-licensing additional intellectual property rights from third parties ; and · build-out our clinical , medical and regulatory capabilities in the u.s. see “ results of operations ” below for a discussion of the detailed components and analysis of the amounts above .
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on december 12 , 2014 , the predecessor entered into a $ 55,000 loan agreement related to the property at 141 livingston street , brooklyn , new york with citigroup global markets inc. on may 11 , 2016 , the company repaid the $ 55,000 loan from the proceeds of a new $ 79,500 loan from new york community bank . the new loan matures on june 1 , story_separator_special_tag and results of operations you should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the caption s “ selected historical financial data , ” “ cautionary note concerning forward-looking statements ” and in our financial statements and the related notes thereto appearing elsewhere in this annual report on form 10-k . the financial statements for periods and as of dates prior to the formation transactions represent consolidated historical financials of the predecessor . overview of our company we are a self-administered and self-managed real estate company that acquires , owns , manages , operates and repositions multi-family residential and commercial properties in the new york metropolitan area , with an initial portfolio in manhattan and brooklyn . the company was formed to continue and expand the commercial real estate business of the predecessor . our primary focus is to continue to own , manage and operate our initial portfolio and to acquire and reposition additional multi-family residential and commercial properties in the new york metropolitan area . the company has been organized and operates in conformity with the requirements for qualification and taxation as a reit under the u.s. federal income tax law and elected to be treated as a reit commencing with the taxable year ended december 31 , 2015. clipper realty was incorporated on july 7 , 2015. on august 3 , 2015 , we closed a private offering of shares of our common stock , in which we raised net proceeds of approximately $ 130.2 million . in connection with the private offering , we consummated a series of investment and other formation transactions that were designed , among other things , to enable us to qualify as a reit for u.s. federal income tax purposes . on february 9 , 2017 and march 10 , 2017 , the company sold 6,390,149 shares of common stock to investors in a public offering at $ 13.50 per share . the proceeds , net of offering costs , were approximately $ 78,173. the company contributed the proceeds to the operating partnership in exchange for units in the operating partnership . the company owns : two neighboring residential/retail rental properties at 50 murray street and 53 park place in the tribeca neighborhood of manhattan ; one residential property complex in the east flatbush neighborhood of brooklyn consisting of 59 buildings ; two primarily commercial properties in downtown brooklyn ( one of which includes 36 residential apartment units ) ; and one residential/retail rental property at 1955 1 st avenue in manhattan . in addition , in february 2017 , the company entered into an agreement to purchase a 161 residential unit building for approximately $ 87.5 million , 65 % to 75 % of which will be funded with mortgage borrowings secured by the property , with the remainder to be funded with available cash resources , including from the net proceeds of this offering . following completion of the acquisition , the company plans to create twelve additional residential units in the columbia heights property by converting various public areas on the property . these properties are located in the most densely populated major city in the united states , each with immediate access to mass transportation . the company 's ownership interest in its initial portfolio of properties , which includes the tribeca house , flatbush gardens and livingston street properties , was acquired in the formation transactions in connection with the private offering . these properties are owned by the llc subsidiaries , which are managed by the company through the operating partnership . the operating partnership 's interest in the llc subsidiaries generally entitles the operating partnership to all cash distributions from , and the profits and losses of , the llc subsidiaries other than the preferred distribution to the continuing investors who hold class b llc units in these llc subsidiaries described below . the continuing investors own an aggregate amount of 26,317,396 class b llc units , representing 68.8 % of the company 's common stock on a fully diluted basis ( 59.0 % immediately following the ipo ) . accordingly , the operating partnership 's interests in the llc subsidiaries entitle the operating partnership to receive approximately 31.2 % of the aggregate distributions from the llc subsidiaries ( 41.0 % immediately following this offering ) . the company , through the operating partnership , owns all of the ownership interests in the aspen property . 45 our primary business objective is to enhance stockholder value by increasing cash flow from operations and total return to stockholders through the following strategies : ● increase existing below-market rents by repositioning of our portfolio and utilize solid market fundamentals at several of our properties . ● acquire additional properties with a focus on premier submarkets and assets utilizing the significant experience of our senior management . ● manage our properties to increase occupancy and rental rates , control operating expenses ● reposition assets through a capital program utilizing cash on hand and proceeds of the above-mentioned offerings . we believe that the following competitive strengths distinguish our company from other owners and operators of commercial and multi-family residential properties : ● diverse portfolio of properties in the new york metropolitan area which is characterized by dense population , supply constraints and generally high rent . ● expertise in repositioning and managing multi-family residential properties . ● experienced management team with proven track record over generations . ● balance sheet well positioned for future growth . story_separator_special_tag for example , continued volatility and uncertainty in the global , national , regional and local economies could make it more difficult for us to lease apartment , commercial and retail space and may require us to lease our apartment , commercial and retail space at lower rental rates than projected and may lead to an increase in resident defaults . in addition , these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices . these conditions , or others we can not predict , could adversely affect our financial condition , results of operations , cash flows and ability to pay distributions on , and the market price of , our common stock . in connection with the purchase of the tribeca house and aspen properties and the private offering , we have incurred substantial , one-time general and administrative expenses . upon us becoming a public company with shares listed on a u.s. exchange , we will incur increased general and administrative expenses , including legal , accounting and other expenses related to corporate governance , public reporting and compliance with various provisions of the sarbanes-oxley act , related regulations of the sec , including compliance with the reporting requirements of the exchange act , and the requirements of the national securities exchange on which our stock is listed . significant accounting policies the accompanying consolidated and combined financial statements include the accounts and operations of the company and its predecessor . the entities that comprised the predecessor have been combined on the basis that , for the periods presented , such entities were under common control . 47 basis of consolidation and combination the consolidated and combined financial statements of the company and its predecessor included elsewhere herein are prepared in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . the effect of all significant intercompany balances and transactions has been eliminated . the consolidated and combined financial statements include the accounts of all entities in which the company and its predecessor has a controlling interest . all significant intercompany transactions and balances are eliminated in consolidation/combination . use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management adjusts such estimates when facts and circumstances dictate . the most significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed and the useful lives of long-lived assets . actual results could materially differ from these estimates . investment in real estate real estate assets held for investment are carried at historical cost and consist of land , buildings and improvements , furniture , fixtures and equipment . expenditures for ordinary repair and maintenance costs are charged to expense as incurred . expenditures for improvements , renovations , and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy . upon acquisition of real estate , the company assesses the fair values of acquired tangible and intangible assets including land , buildings , tenant improvements , above and below-market leases , in-place leases and any other identified intangible assets and assumed liabilities . the predecessor allocates the purchase price to the assets acquired and liabilities assumed based on their fair values . in estimating fair value of tangible and intangible assets acquired , the predecessor assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates , estimates of replacement costs , net of depreciation , and available market information . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . the company records acquired above-market and below-market lease values initially based on the present value , using a discount rate which reflects the risks associated with the leases acquired based on the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases . other intangible assets acquired include amounts for in-place lease values and tenant relationship values ( if any ) that are based on management 's evaluation of the specific characteristics of each tenant 's lease and the predecessor 's overall relationship with the respective tenant . factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases . in estimating carrying costs , management includes 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 , management considers leasing commission , legal and other related expenses . the company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . a property 's value is impaired if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the property is less than the carrying value of the property .
| historical results of operations our focus throughout the years ended december 31 , 2016 , 2015 and 2014 was to manage our properties to optimize revenue and control costs at each property while continuing to renovate and reposition certain properties . the discussions below will identify the specific properties contributing to the changes in the results of operations . the discussion will focus on the properties the company held for the full period in each comparison . results of the tribeca house properties for the years ended december 31 , 2015 and in 2014 , for the 17-day period of ownership , and the aspen property for the 186-day period of ownership during the year ended december 31 , 2016 , are separately identified in the tables that follow . inco me statement for the years ended december 31 , 2016 and 2015 ( in thousands ) replace_table_token_7_th 50 revenue . residential rental revenue , excluding aspen , increased from $ 60,784 for the year ended december 31 , 2015 to $ 64,496 for the year ended december 31 , 2016 due to higher revenues on new leases and routine annual increases on renewed rentals primarily at the flatbush gardens property complex and higher revenues on new leases at tribeca house . base rent per square foot increased at the flatbush gardens property from $ 20.63 ( 97.0 % occupancy ) at december 31 , 2015 to $ 21.24 ( 96.9 % occupancy ) at december 31 , 2016. rent increases on new leases for 2016 were approximately 25 % and routine annual rent increases on renewed leases at flatbush gardens were approximately 3.4 % . commercial rental revenue , excluding aspen , increased from $ 17,256 for the year ended december 31 , 2015 to $ 17,822 for the year ended december 31 , 2016 primarily due to the commencement of the new retail lease at our tribeca house property .
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for testing services where we are performing testing on an asset the customer controls , revenue story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this report . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those 29 anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this report . business overview we are a leader in advanced optical technology , providing high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing products for industries utilizing composite and other advanced materials , such as the automotive , aerospace , energy and infrastructure industries . our distributed fiber optic sensing products help designers and manufacturers more efficiently develop new and innovative products by providing valuable information such as highly detailed stress , strain , and temperature measurements of a new design or manufacturing process . in addition , our distributed fiber optic sensing products are used to monitor the structural integrity or operational health of critical assets , including large civil structures such as bridges . our communications test products accelerate the development of advanced fiber optic components and networks by providing fast and highly accurate characterization of components and networks . we also provide applied research services , typically under research programs funded by the u.s. government , in areas of advanced materials , sensing , and healthcare applications . our business model is designed to accelerate the process of bringing new and innovative products to market . we use our in-house technical expertise across a range of technologies to perform applied research services for companies and for government funded projects . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . we are organized into two main operating segments , our products and licensing segment and our technology development segment . our products and licensing segment develops , manufactures and markets distributed fiber optic sensing products , as well as communications test products . we are continuing to develop and commercialize our fiber optic technology for sensing applications for aerospace , automotive , energy , and infrastructure as well as for test and measurement applications in the telecommunications and data communications industries . our products and licensing segment revenues represented approximately 51 % and 44 % of our total revenues for the years ended december 31 , 2018 and 2017 , respectively . our technology development segment performs applied research principally in the areas of sensing & instrumentation , advanced materials , and health sciences . our technology development segment comprised approximately 49 % and 56 % of our total revenues for the years ended december 31 , 2018 and 2017 , respectively . most of the government funding for our technology development segment is derived from the small business innovation research ( `` sbir '' ) , program coordinated by the u.s. small business administration . our technology development segment revenues have historically accounted for a large portion of our total revenues , and we expect that they will continue to represent a significant portion of our total revenues for the foreseeable future . within the technology development segment , we have historically had a backlog of contracts for which work has been scheduled , but for which a specified portion of work has not yet been completed . we define backlog as the dollar amount of obligations payable to us under negotiated contracts upon completion of a specified portion of work that has not yet been completed , exclusive of revenues previously recognized for work already performed under these contracts , if any . total backlog includes funded backlog , which is the amount for which money has been directly authorized by the u.s. government and for which a purchase order has been received by a commercial customer , and unfunded backlog , representing firm orders for which funding has not yet been appropriated . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . the approximate value of our technology development segment backlog was $ 26.0 million and $ 23.5 million at december 31 , 2018 and 2017 , respectively . the approximate value of our products and licensing segment backlog was $ 5.8 million and $ 6.9 million at december 31 , 2018 and 2017 , respectively . revenues from product sales are mostly derived from the sales of our sensing and test & measurement products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technology in past years , we do not expect license revenues to represent a significant portion of future revenues . over time , however , we do intend to gradually increase such revenues . in the near term , we expect revenues from product sales to continue to be primarily in areas associated with our fiber optic test & measurement and sensing platforms . in the long term , we expect that revenues from product sales will represent a larger portion of our total revenues and that as we develop and commercialize new products , these revenues will reflect a broader and more diversified mix of products . we realized net income attributable to common stockholders of approximately $ 10.7 million for the year ended december 31 , 2018 and net income attributable to common stockholders of approximately $ 14.5 million for the year ended december 31 , 2017 . story_separator_special_tag cost of revenues cost of revenues associated with technology development segment revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to technology development segment activities . cost of revenues associated with products and licensing segment revenues consists of license fees for use of certain technologies , product manufacturing costs including all direct material and direct labor costs , amounts paid to our contract manufacturers , manufacturing , shipping and handling , provisions for product warranties , and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from equity awards , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , marketing , and administrative activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest expense , net we have a term loan with silicon valley bank ( `` svb '' ) which is scheduled to mature in may 2019. the term loan carries interest at a variable rate of prime plus 2 % . at december 31 , 2018 , we had $ 0.6 million in the aggregate outstanding on this term loan . during the years ended december 31 , 2018 and 2017 , interest expense primarily included interest accrued on our outstanding svb debt and interest incurred with respect to our capital lease obligations . critical accounting policies and estimates technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we account for a research contract when a contract has been executed , the rights of the parties are identified , payment terms are identified , the contract has commercial substance , and collectability of the contract price is considered probable . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . under the typical payment terms of our u.s. government contracts , the customer pays us either performance-based payments ( `` pbps '' ) or progress payments . pbps , which are typically used in the firm fixed price contracts , are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones . progress payments , which are typically used in our cost type contracts , are interim payments based on costs incurred as the work progresses . for our u.s. government cost-type contracts , the customer generally pays us during the performance period for 80 % - 90 % of our actual costs incurred . because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs , cost type contracts generally result in revenue recognized in excess of billings which 32 we present as contract assets on the balance sheet . amounts billed and due from our customers are classified as receivables on the balance sheet . for non-u.s. government contracts , we typically receive interim payments as work progresses , although for some contracts , we may be entitled to receive an advance payment . we recognize a liability for these advance payments and pbps paid in advance which are in excess of the revenue recognized and present these amounts as contract liabilities on the balance sheet . to determine the proper revenue recognition method for research and development contracts , we evaluate whether two or more contracts should be combined and accounted for as one single modified contract and whether the combined or single contract should be accounted for as more than one performance obligation . for instances where a contract has options that were bid with the initial contract and awarded at a later date , we combine the options with the original contract when options are awarded . for most of our contracts , the customer contracts for research with multiple milestones that are interdependent . consequently , the entire contract is accounted for as one performance obligation . the effect of the combined or modified contract on the transaction price and measure of progress for the performance obligation to which it relates , is recognized as an adjustment to revenue ( either as an increase in or a reduction of revenue ) on a cumulative catch-up basis . contract revenue recognition is measured over time as we perform because of continuous transfer of control to the customer . for u.s. government contracts which are typically subject to the federal acquisition regulation , this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience , pay us for cost incurred plus a reasonable profit and take control of any work in process .
| results of operations the following table shows information derived from our consolidated statements of operations expressed as a percentage of total revenues for the periods presented . replace_table_token_2_th year ended december 31 , 2018 compared to year ended december 31 , 2017 revenues replace_table_token_3_th our technology development segment revenues increased $ 2.4 million to $ 21.0 million for the year ended december 31 , 2018 compared to $ 18.6 million for the year ended december 31 , 2017 . this increase was attributable primarily to growth in our intelligent systems and biomedical technologies groups . revenues within these groups increased due to additional contract awards , including higher value phase ii sbir contracts . our products and licensing segment revenues increased $ 7.4 million to $ 21.9 million for the year ended december 31 , 2018 compared to $ 14.5 million for the year ended december 31 , 2017 . this increase was primarily driven by an increase in our sales of optical backscatter reflectometer instruments and odisi instruments . in addition , revenues associated with the operations of moi , which we acquired on october 15 , 2018 , were $ 2.6 million for the period from the completion of the acquisition through december 31 , 2018 . cost of revenues 36 replace_table_token_4_th our technology development segment costs increased $ 1.4 million , to $ 15.4 million for the year ended december 31 , 2018 compared to $ 14.0 million for the year ended december 31 , 2017 . the overall increase in technology development segment costs was driven by increases in direct labor and subcontractor costs consistent with the rate of growth in technology development segment revenues . our products and licensing segment costs increased $ 2.4 million to $ 8.1 million for the year ended december 31 , 2018 compared to $ 5.7 million for the year ended december 31 , 2017 .
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million in lieu of cash collateralization . in february 2015 , our available borrowing f-17 capacity was reduced by $ 5.9 million , the amount of a letter of credit issued to our landlord for our beverly , massachusetts headquarter building ( see note 20 ) . note 12. employee benefit plans ( a ) story_separator_special_tag certain statements in `` management 's discussion and analysis of financial condition and results of operations '' are forward-looking statements that involve risks and uncertainties . 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 `` liquidity and capital resources '' and `` risk factors '' and others discussed 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 , except as may be required by law . overview the semiconductor capital equipment industry is subject to significant cyclical swings in capital spending by semiconductor manufacturers . capital spending is influenced by demand for semiconductors and the products using them , the utilization rate and capacity of existing semiconductor manufacturing facilities and changes in semiconductor technology , all of which are outside of our control . as a result , our revenue and gross margins fluctuate from year to year and period to period . our established cost structure does not vary significantly with changes in volume . we may experience fluctuations in operating results and cash flows depending on our revenue as driven by the level of capital expenditures by semiconductor manufacturers . a successful semiconductor equipment manufacturer must not only provide some of the most technically complex products manufactured in the world but also must design its business to thrive during the inevitable low points in the cycle . our financial results in 2014 reflect our investment of a significant portion of our resources in research and development programs related to our new purion ion implantation platform and the market introduction and initial sales of purion systems . these results also reflect our efforts to lower our breakeven revenue levels by maintaining tight control of discretionary spending . in the third quarter of 2014 , we took further aggressive actions to reduce and align manufacturing and operating expense levels to our current business conditions and maintain sufficient liquidity to support operations . in 2014 , we introduced a new high current implanter , the purion h. this system is critically important to the company since it addresses the largest segment of the ion implant market , which represents 60 % of the total $ 800 million to $ 1 billion ion implant market . we shipped two purion h high current ion implanters on evaluation terms in 2014 , the first at the end of the second quarter of 2014 and the second to another customer in the third quarter of 2014. the first customer purchased an additional three purion h high current systems in the fourth quarter of 2014. we expect customer demands for our products to increase through 2015. throughout 2015 , we expect to continue to grow purion system sales while maintaining tight control of our cost structure and improving gross margins , which we expect will yield improved financial results throughout 2015. consolidation and partnering within the semiconductor manufacturing industry has resulted in a smaller number of customers representing a substantial portion of our business . our net revenue from our ten largest customers accounted for 68.1 % of total revenue for the year ended december 31 , 2014 compared to 69.1 % and 70.6 % of revenue for the years ended december 31 , 2013 and 2012 , respectively . operating results for the years presented are not necessarily indicative of the results that may be expected for future interim periods or years as a whole . 17 critical accounting estimates management 's discussion and analysis of our financial condition and results of operations are based upon axcelis ' 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 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 . on an on-going basis , we evaluate our estimates and assumptions . management 's estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following accounting policies are critical in the portrayal of our financial condition and results of operations and require management 's most significant judgments and estimates in the preparation of our consolidated financial statements . for additional accounting policies see notes to consolidated financial statements note 2. summary of significant accounting policies . revenue recognition our revenue recognition policy involves significant judgment by management . as described below , we consider a broad array of facts and circumstances in determining when to recognize revenue , including contractual future service obligations to the customer , the complexity of the customer 's post-delivery acceptance provisions , payment history , customer creditworthiness and the installation process . story_separator_special_tag 19 although we make every effort to ensure the accuracy of our forecasts or product demand and pricing assumptions , any significant unanticipated changes in demand , pricing , or technical developments would significantly impact the value of our inventory and our reported operating results . in the future , if we find that estimates are too optimistic and determine that inventory needs to be written down , the company will recognize such costs in our cost of revenue at the time of such determination . conversely , if we find our estimates are too pessimistic and we subsequently sell product that has previously been written down , our gross margin in that period will be favorably impacted . product warranty we generally offer a one year warranty for all of our systems , the terms and conditions of which vary depending upon the product sold . for all systems sold , we accrue a liability for the estimated cost of standard warranty at the time of system shipment and defer the portion of systems revenue attributable to the relative fair value of non-standard warranty . costs for non-standard warranty are expensed as incurred . factors that affect our warranty liability include the number of installed units , historical and anticipated product failure rates , material usage and service labor costs . we periodically assess the adequacy of our recorded liability and adjust the amount as necessary . share-based compensation stock-based compensation expense with time-based conditions is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period , which generally equals the vesting period , based on the number of awards that are expected to vest . estimating the fair value for stock options requires judgment , including the expected term of our stock options , volatility of our stock , expected dividends , risk-free interest rates over the expected term of the options and the expected forfeiture rate . we are responsible for estimating volatility and have considered a number of factors when estimating volatility . our method of estimating expected volatility for all stock options granted relies on a combination of historical and implied volatility . we believe that this blended volatility results in a more accurate estimate of the grant-date fair value of employee stock options because it more appropriately reflects the market 's current expectations of future volatility . in limited circumstances , we also issue stock option grants with vesting based on market conditions , such as the price of our common stock , or , a combination of time or market conditions . the fair values and derived service periods for all grants that have vesting based on market conditions are estimated using the monte carlo valuation method . for each stock option grant with vesting based on a combination of time or market conditions , where vesting will occur if either condition is met , the related compensation costs are recognized over the shorter of the explicit service period or the derived service period . we use the straight-line attribution method to recognize expense for stock-based awards such that the expense associated with awards is evenly recognized throughout the period . the amount of stock-based compensation recognized is based on the value of the portion of the awards that are ultimately expected to vest . we estimate forfeitures at the time of grant and revise them , if necessary , in subsequent periods if actual forfeitures differ from those estimates . the term `` forfeitures '' is distinct from `` cancellations '' or `` expirations '' and represents only the unvested portion of the surrendered stock-based award . the benefits of tax deductions in excess of recognized compensation cost is reported as a financing cash flow , rather than as an operating cash flow . because the company does not recognize the benefit of tax deductions in excess of recognized compensation cost due to its cumulative net operating loss 20 position , this had no impact on the company 's consolidated statement of cash flows for the years ended december 31 , 2014 , 2013 and 2012. income taxes we record income taxes using the asset and liability method . 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 income tax bases , and net operating loss and tax credit carryforwards . our consolidated financial statements contain certain deferred tax assets which have arisen primarily as a result of operating losses , as well as other temporary differences between financial and income tax accounting . we establish a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized . significant management judgment is required in determining our provision for income taxes , the deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets . we evaluate the weight of all available evidence such as historical losses , projected future taxable income and the expected timing of the reversals of existing temporary differences to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized . based on our level of deferred tax assets as of december 31 , 2014 and our level of historical u.s. losses , we have determined that the current uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against our u.s. net deferred tax assets . we have also determined that a valuation allowance is required on a portion of our foreign deferred tax assets . our income tax expense includes the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position .
| results of operations the following table sets forth our results of operations as a percentage of total revenue : replace_table_token_2_th revenue the following table sets forth our revenue : replace_table_token_3_th 22 2014 compared with 2013 product product revenue which includes new system sales , sales of spare parts , product upgrades and used system sales was $ 179.2 million or 88.3 % of revenue in 2014 , compared with $ 169.6 million , or 86.7 % of revenue in 2013. the increase in product revenue in 2014 is attributable to increased spending by semiconductor manufacturers in 2014 compared to 2013. approximately 18.1 % of systems revenue in 2014 was from sales of 200mm products and 81.9 % was from sales of 300mm products , compared with 23.1 % and 76.9 % for sales of 200mm products and 300mm products in 2013 , respectively . a portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed . the total amount of deferred revenue at december 31 , 2014 and 2013 was $ 7.2 million and $ 4.7 million , respectively . the increase was mainly due to the increase in systems sales in 2014 and the timing of acceptance of deferred system sales . services services revenue , which includes the labor component of maintenance and service contracts and fees for service hours provided by on-site service personnel , was $ 23.8 million , or 11.7 % of revenue for 2014 , compared with $ 26.0 million , or 13.3 % of revenue for 2013. although services revenue should increase with the expansion of the installed base of systems , it can fluctuate from period to period based on capacity utilization at customers ' manufacturing facilities , which affects the need for equipment service . the decrease during 2014 was primarily due to a decrease in fabrication utilization in the semiconductor industry during a portion of 2014 .
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credit facilities credit facilities amendments as a result of covid-19 and the associated disruption to the company 's operating results , during april 2020 , the company anticipated that it may not be able to maintain compliance with certain covenants under each of its unsecured credit facilities described below in future periods . as a story_separator_special_tag the following discussion and analysis should be read in conjunction with item 8 , the consolidated financial statements and notes thereto , the introduction of part i regarding “ forward-looking statements , ” and item 1a , “ risk factors ” appearing elsewhere in this annual report on form 10-k. overview the company is a virginia corporation that has elected to be treated as a reit for federal income tax purposes . the company is self-advised and invests in income-producing real estate , primarily in the lodging sector , in the u.s. as of december 31 , 2020 , the company owned 234 hotels with an aggregate of 29,937 rooms located in urban , high-end suburban and developing markets throughout 34 states , including one hotel with 118 rooms classified as held for sale , which is expected to be sold to an unrelated party in the first quarter of 2021. substantially all of the company 's hotels operate under marriott or hilton brands . the hotels are operated and managed under separate management agreements with 17 hotel management companies , none of which are affiliated with the company . the company 's common shares are listed on the nyse under the ticker symbol “ aple. ” covid-19 and the company 's actions to mitigate its impact the effects of the covid-19 pandemic on the hotel industry are unprecedented . covid-19 has disrupted the industry and has dramatically reduced business and leisure travel , which has had a significant adverse impact on , and management expects will continue to significantly adversely impact and disrupt , the company 's business , financial performance and condition , operating results and cash flows . while the economy has shown signs of recovery as some of the initial restrictions put into place during the first half of 2020 have eased , occupancy and average daily rate are still significantly below 2019 levels . additionally , while vaccines have been developed and were put into distribution beginning in december 2020 , there can be no assurances of how quickly they will slow the spread of the pandemic and allow the economy to recover . the company expects this significant decline in revenue associated with covid-19 and the overall decline in the u.s. economy to negatively impact the company 's revenue and operating results for an extended period of time . the company does not expect a material improvement in results until business travel and general consumer confidence related to the economy and risks associated with covid-19 improve and government restrictions impacting travel and business operations are broadly lifted . the following is a brief summary of certain measures the company , its management companies and its brands have taken to minimize costs and cash outflow to maintain a sound liquidity position : ● beginning in march 2020 , the company 's brands and third-party management companies implemented cost elimination and efficiency initiatives at each of the company 's hotels by reducing labor costs , reducing or eliminating certain amenities and reducing rates under various service contracts . as of december 31 , 2020 , the company continued to intentionally consolidate operations at five hotels , down from 38 hotels as of may 2020 , in certain market clusters to maximize operational efficiencies . the cost structure of the company 's primarily rooms-focused hotels allows them to operate cost effectively even at very low occupancy levels . ● together with its third-party management companies , the company enhanced its sales efforts by focusing on covid-19-specific demand opportunities in certain markets and strategically targeting and maximizing performance based on available demand , such as leisure , government , health care , construction , disaster recovery , insurance , athletics , education , manufacturing and maintenance-focused business . ● the company postponed all non-essential capital improvement projects planned for 2020 , resulting in a reduction of approximately $ 50 million from originally planned capital improvements for the year . ● the company suspended its monthly distributions , with the last distribution paid march 16 , 2020. the company 's board of directors , in consultation with management , will continue to monitor hotel operations and intends to resume distributions at a time and level determined to be prudent in relation to the company 's other cash requirements and as allowed under the company 's amended unsecured credit facilities , as discussed below . ● the company terminated its written trading plan under its share repurchase program in march 2020 and did not engage in any additional repurchases under its share repurchase program for the balance of 2020 . 38 ● the company 's executive chairman voluntarily agreed to forego six months of salary , the chief executive officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the board of directors volunteered as a group to reduce their annual director fees by more than 15 percent , in each case for calendar year 2020 . ● the company entered into amendments to its unsecured credit facilities to temporarily waive the financial covenant testing until june 30 , 2021. see further discussion in note 4 titled “ debt ” in the company 's consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k. despite the cost reduction initiatives discussed above , the company does not expect to be able to fully , or even materially , offset revenue losses from covid-19 . the extent and duration of covid-19 effects are not currently known and these uncertainties continue to make it difficult to predict operating results for the company 's hotels for the near future . story_separator_special_tag as a result , in addition to the impacts of covid-19 , the comparability of results for the years ended december 31 , 2020 and 2019 as discussed below is also impacted by these transactions . in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , adr and revpar , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses described below . the following is a summary of the results from operations of the company 's hotels for their respective periods of ownership by the company : replace_table_token_12_th ( 1 ) effective january 1 , 2019 , the company adopted asu no . 2016-02 , leases ( topic 842 ) , electing to recognize and measure its leases prospectively at the beginning of the period of adoption through a cumulative-effect adjustment to shareholders ' equity without restating the presentation of periods prior to the effective date . under the new lease accounting standard , the company classified four ground leases as finance leases that were previously classified as operating leases in accordance with the previous accounting standard . in 2020 and 2019 , the company recognized approximately $ 6.4 million and $ 4.5 million of amortization expense and approximately $ 11.4 million and $ 8.2 million of interest expense , respectively , associated with these four finance leases . results prior to january 1 , 2019 were not restated and therefore , for the year ended december 31 , 2018 , the company recognized approximately $ 9.5 million of operating ground lease expense associated with these four ground leases . see note 10 titled “ lease commitments ” in part ii , item 8 , of the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k for additional information on the adoption of the new lease accounting standard . ( 2 ) see reconciliation of adjusted hotel ebitda to net income ( loss ) in `` non-gaap financial measures '' below . 40 the following table highlights the quarterly impact of covid-19 on the company 's adr , occupancy , revpar and adjusted hotel earnings before interest , income taxes , depreciation and amortization for real estate ( “ adjusted hotel ebitda ” ) during 2020 as compared to 2019 ( in thousands except statistical data ) : replace_table_token_13_th ( 1 ) see reconciliation of adjusted hotel ebitda to net income ( loss ) in `` non-gaap financial measures '' below . beginning in march 2020 , covid-19 caused widespread cancellations of both business and leisure travel throughout the u.s. , resulting in significant decreases in revpar throughout the company 's hotel portfolio and the hospitality industry as a whole . with the overall uncertainty of the longevity of covid-19 in the u.s. and the resulting economic decline , it is difficult to project the duration of revenue declines for the industry and company ; however , the company currently expects the decline in revenue and operating results as compared to 2019 to continue throughout 2021 and potentially into future years . the company experienced its most significant decline in operating results during the second quarter of 2020 as compared to the second quarter of 2019 , with a 65 % decrease in occupancy and a 75 % decrease in revpar . occupancy and revpar improved in the third and fourth quarters of 2020 , with 39 % and 36 % decreases in occupancy and 54 % and 53 % decreases in revpar , as compared to the third and fourth quarters of 2019 , respectively , led by leisure demand . although the company expects to experience a gradual recovery as vaccines are distributed to the population , future revenues and operating results could be negatively impacted if , among other things , covid-19 cases continue to increase , state and local governments and businesses revert back to tighter mitigation restrictions or consumer sentiment deteriorates . story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > $ 402.3 million and $ 724.4 million or 66 . 8 % and 57.2 % of total revenue for each respective year . included in hotel operating expense for the year ended december 31 , 2020 were approximately $ 2.5 million , net of employee retention credits , in separation and furlough costs for hotel employees as a result of the occupancy declines discussed above . the company has worked and will continue to work with its management companies to optimize staffing models , consolidate operations in markets with multiple properties , and adjust food and beverage offerings and other amenities , among other efficiency initiatives to mitigate the impact of revenue declines on its results of operations . for example , in some markets the company is “ clustering ” hotels , whereby multiple properties in a market have consolidated their operations to increase efficiency ; the company has negotiated relaxation of certain brand standards ; and the company has also successfully reduced rates under various service contracts . although certain operating costs of a hotel are more fixed in nature , such as base utility and maintenance costs , the company has worked and will continue to work to reduce all non-essential costs including service contracts , utilities in areas not utilized and certain maintenance costs . however , the company may continue to see ongoing cost increases related to the supplying of personal protective equipment for employees and guests as well as increased sanitation , social distancing and other measures . property taxes , insurance and other expense property taxes , insurance and other expense for the years ended december 31 , 2020 and 2019 totaled $ 76.7 million and $ 75.8 million , respectively , or 12.7 % and 6.0 % of total revenue for each respective year , which is consistent with comparable hotels expense as a percentage of revenue for the same period .
| comparable hotels operating results the following table reflects certain operating statistics for the company 's 233 hotels owned and held for use as of december 31 , 2020. the company defines metrics from comparable hotels as results generated by the 233 hotels owned and held for use as of the end of the reporting period , and excludes the hotel held for sale . for the hotels acquired during the reporting periods shown , the company has included , as applicable , results of those hotels for periods prior to the company 's ownership using information provided by the properties ' prior owners at the time of acquisition and not adjusted by the company . this information has not been audited , either for the periods owned or prior to ownership by the company . for dispositions and assets held for sale , results have been excluded for the company 's period of ownership . replace_table_token_14_th 41 same store operating results the following table reflects certain operating statistics for the 221 hotels owned and held for use by the company as of january 1 , 2018 and during the entirety of the reporting periods being compared ( “ same store hotels ” ) . this information has not been audited . replace_table_token_15_th as discussed above , hotel performance is impacted by many factors , including the economic conditions in the u.s. as well as each individual locality . covid-19 has been negatively affecting the u.s. hotel industry since march 2020. as a result of covid-19 , the company 's revenue and operating results declined during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , which is consistent with the overall lodging industry .
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patterson added a third component to our business platform in fiscal 2004 when we entered the rehabilitation supply market with the acquisition of abilityone products corp. ( abilityone ) . abilityone is now known as patterson medical . operating margins of the veterinary business are considerably lower than the dental and rehabilitation supply businesses . while operating expenses run at a lower rate in the veterinary business , their gross margin is substantially lower due generally to the low margins on the pharmaceutical products that are distributed . we operate with a 52-53 week accounting convention with our fiscal year ending on the last saturday in april . fiscal years 2013 , 2014 and 2015 ending april 27 , 2013 , april 26 , 2014 and april 25 , 2015 , respectively , included 52 weeks . fiscal year 2016 will end on april 30 , 2016 and consist of 53 weeks . there are several important aspects of patterson 's business that are useful in analyzing it , including : ( 1 ) market growth in the various markets in which we operate ; ( 2 ) internal growth ; ( 3 ) growth through acquisition ; and ( 4 ) continued focus on controlling costs and enhancing efficiency . management defines internal growth as the increase in net sales from period to period , excluding the impact of changes in currency exchange rates , and excluding the net sales , for a period of twelve months following the transaction date , of businesses we have acquired . nvs acquisition . in august 2013 , we completed the acquisition of all the outstanding stock of national veterinary services limited ( nvs ) from dechra pharmaceuticals , plc ( nvs acquisition ) . nvs is the largest veterinary products distributor in the u.k. total cash consideration paid for nvs was £91.2 million ( approximately $ 142.7 million ) . sales in fiscal 2015 were $ 200.2 million higher , and earnings per diluted share were $ 0.02 higher , than fiscal 2014 as a result of this acquisition . the nvs business has lower gross margin and operating expense rates than our historical businesses . medical restructuring . in august 2013 , we announced a plan to divest certain non-core product lines in our medical segment ( medical restructuring ) . as a result of the plan to dispose of these product lines , we incurred a pre-tax restructuring charge of $ 15.4 million or approximately $ 0.13 per diluted share in fiscal 2014 , including . $ 13.8 million in non-cash losses on disposal of assets . we estimate that disposing of these product lines will generate operational savings of approximately $ 2 million beginning in fiscal year 2015. transaction costs . during the fourth quarter of fiscal 2015 , we incurred $ 4.6 million of pre-tax transaction costs , or approximately $ 0.03 per diluted share , related to the june 16 , 2015 acquisition of animal health international and the potential sale of patterson medical . see subsequent events in this item 7 and note 19 to the consolidated financial statements for information regarding our acquisition of animal health international . 41 story_separator_special_tag style= '' font-family : times new roman '' > 43 expenses from information technology initiatives increased operating expense by 30 basis points and the medical restructuring increased operating expenses by 30 basis points resulting in a comparable decrease of 70 basis points from fiscal 2013 of 23.0 % . operating income . fiscal 2014 operating income was $ 345.8 million , or 8.5 % of net sales . in fiscal 2013 , operating income was $ 354.5 million , or 9.7 % of net sales . the decrease in the operating margin was due primarily to the nvs acquisition , the medical restructuring and incremental expenses from the information technology initiatives , which combined reduced the operating margin by 140 basis points , resulting in a comparable operating margin rate of 9.9 % . other ( expense ) income , net . net other expense was $ 32.8 million in fiscal 2014 , a decrease of $ 0.5 million from fiscal 2013. net other expense was comprised primarily of interest expense , partly offset by interest income . foreign currency had a negative impact of $ 2.1 million compared to a negative impact of $ 1.5 million in fiscal 2013. interest income of $ 5.0 million was up from $ 4.5 million in fiscal 2013. income taxes . the effective income tax rate was 35.9 % in fiscal 2014 as compared to 34.5 % in fiscal 2013. the effective tax rate increased in fiscal 2014 as compared to fiscal 2013 due to certain one-time benefits that were included in the fiscal 2013 rate and the unfavorable impact of the medical restructuring in fiscal 2014. net income and earnings per share . net income decreased 4.6 % to $ 200.6 million , compared to $ 210.3 million in fiscal 2013. the decline was the result of the medical restructuring and the incremental expenses incurred in the information technology initiatives partially offset by the earnings contribution from nvs . earnings per diluted share were $ 1.97 in fiscal 2014 compared to $ 2.03 in fiscal 2013. the impact on earnings per diluted share from the medical restructuring was $ 0.13 in fiscal 2014 , and incremental information technology expenditures impacted diluted earnings per share by $ 0.07 in fiscal 2014. weighted average diluted shares in fiscal 2014 were 101,643,000 compared to 103,807,000 in fiscal 2013. the decrease in the weighted average shares is primarily due to share repurchase activity . the fiscal 2014 cash dividend was $ 0.68 per common share compared to $ 0.58 in fiscal 2013. liquidity and capital resources patterson 's operating cash flow has been our principal source of liquidity in the last three fiscal years . during fiscal 2015 and 2014 , we used our revolving credit facility periodically as a source of liquidity in addition to operating cash flow . story_separator_special_tag in august 2011 , fifth third bank ( ftb ) replaced u.s. bank national association as the agent under the contract purchase agreement , which has a capacity of $ 100 million as of april 25 , 2015. our financing business is described in further detail in note 6 customer financing of the notes to the consolidated 45 financial statements in item 8 of this form 10-k. note 6 , discusses the nature and business purpose of the arrangements and the activity under each arrangement during fiscal 2015 , including the amount of finance contracts sold and the deferred purchase price receivable owed to us . contractual obligations a summary of patterson 's contractual obligations as of april 25 , 2015 follows ( in thousands ) : replace_table_token_9_th patterson is unable to determine its contractual obligations by year related to the provisions of asc topic 740 , income taxes , as the ultimate amount or timing of settlement of its reserves for income taxes can not be reasonably estimated . the total liability for unrecognized tax benefits including interest and penalties at april 25 , 2015 is $ 20.9 million . for a more complete description of patterson 's contractual obligations , see notes 7 and 11 to the consolidated financial statements . outlook for the past several years , we have grown revenue and earnings by : delivering value-added , full-service capabilities ; enhancing customer service through technology ; further improving operating efficiencies ; and expanding both organically and through acquisitions . while we expect the recent slow economic growth to continue to affect our performance for the foreseeable future , patterson 's strategy will remain focused on the initiatives above , as well as our current efforts to broaden our view of our markets and focus on our core strengths in our dental and veterinary businesses . we believe this combination of strategies will further optimize our operational platform , expand our growth profile and position patterson to capitalize on the growth opportunities before us . with strong operating cash flow and available credit capacity , we are confident that we will be able to financially support our future growth . asset management the following table summarizes patterson 's days sales outstanding ( dso ) and inventory turnover the past three fiscal years : replace_table_token_10_th ( 1 ) calculation includes approximately $ 12 million , $ 7 million and $ 9 million as of april 25 , 2015 , april 26 , 2014 and april 27 , 2013 , respectively , of receivables from finance contracts received from customers related to certain financing promotions . foreign operations foreign sales derive primarily from patterson dental and patterson medical operations in canada , from patterson veterinary 's operations in the u.k. and from patterson medical operations in the u.k. , france , australia and thailand . fluctuations in currency exchange rates have not significantly impacted earnings . 46 however , changes in exchange rates adversely affected net sales by $ 40.2 million , $ 13.9 million , and $ 5.6 million in fiscal years 2015 , 2014 and 2013 , respectively . changes in currency exchange rates are a risk accompanying foreign operations , but this risk is not considered material with respect to our consolidated operations . critical accounting policies and estimates patterson has adopted various accounting policies to prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states . management believes that our policies are conservative and our philosophy is to adopt accounting policies that minimize the risk of adverse events having a material impact on recorded assets and liabilities . however , the preparation of financial statements requires the use of estimates and judgments regarding the realization of assets and the settlement of liabilities based on the information available to management at the time . changes subsequent to the preparation of the financial statements in economic , technological and competitive conditions may materially impact the recorded values of patterson 's assets and liabilities . therefore , the users of the financial statements should read all the notes to the consolidated financial statements and be aware that conditions currently unknown to management may develop in the future . this may require a material adjustment to a recorded asset or liability to consistently apply to our significant accounting principles and policies that are discussed in note 1 to the consolidated financial statements . the financial performance and condition of patterson may also be materially impacted by transactions and events that we have not previously experienced and for which we have not been required to establish an accounting policy or adopt a generally accepted accounting principle . revenue recognition revenues are generated from the sale of consumable products , equipment , software products and services , technical service parts and labor , freight and delivery charges , and other sources . revenues are recognized when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable , and there is reasonable assurance of collection of the sale . estimates for returns , damaged goods , rebates , loyalty programs and other revenue allowances are made at the time the revenue is recognized based on the historical experience for such items . in addition to revenues generated from the distribution of consumable products under conventional arrangements ( buy/sell agreements ) where the full market value of the product is recorded as revenue , the veterinary segment may earn a small amount of commission income for services provided under agency agreements with certain pharmaceutical manufacturers . the services generally consist of detailing the product and taking the customer 's order . the agency agreement contrasts to a buy/sell agreement in that the veterinary segment does not purchase and handle the product or bill and collect from the customer in an agency relationship with a vendor . consumable product sales are recorded upon delivery , except in those circumstances where terms of the sale are fob shipping point .
| results of operations the following table summarizes our consolidated results of operations over the past three fiscal years as a percent of sales : replace_table_token_8_th fiscal 2015 compared to fiscal 2014 net sales . consolidated net sales in fiscal 2015 were $ 4,375.0 million , an increase of 7.7 % , from $ 4,063.7 million in fiscal 2014. the growth in sales includes a 5.4 % contribution from acquisitions and a 1.0 % unfavorable impact of changes in foreign currency translation rates . dental segment sales in fiscal 2015 rose 3.0 % to $ 2,454.3 million from $ 2,382.1 million in fiscal 2014. the growth included a 0.2 % contribution from acquisitions and a 0.8 % unfavorable impact from changes in foreign currency translation rates . consumable sales increased 2.5 % . dental equipment and software sales increased 2.9 % in fiscal 2015 to $ 818.3 million with strong contributions from both basic equipment and technology sales , led by new users of cerec cad/cam systems . other dental sales , consisting primarily of technical service parts and labor , software support services and artificial teeth , increased 6.2 % in fiscal 2015. veterinary segment sales grew 21.1 % to $ 1,456.6 million , with the nvs acquisition responsible for 17.1 percentage points of such growth over the prior year . consumables increased 2.9 % , equipment and software sales increased 5.5 % and other increased 1.5 % . we believe that our equipment and technology strategy , which includes enhancing our infrastructure and becoming a national technical service provider , is driving the increases in equipment , software and services . medical segment sales of $ 464.2 million decreased 3.0 % from fiscal 2014. sales were negatively affected by 4.3 % due to reduced sales from the non-core product lines that were divested in fiscal 2014 , and by 0.7 % due to an unfavorable impact of changes in foreign currency translation rates . gross margin .
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our success depends upon , among other factors , trends affecting national and local economies , the financial condition and operating results of current and prospective tenants , the availability and cost of capital , interest rates , construction and renovation costs , taxes , governmental regulations and legislation , population trends , zoning laws , and our ability to lease , sublease or sell our properties , at profitable levels . our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due . kings plaza regional shopping center on november 28 , 2012 , we completed the sale of the kings plaza regional shopping center ( “ kings plaza ” ) located in brooklyn , new york , to the macerich company ( nyse : mac ) ( “ macerich ” ) , for $ 751,000,000. net proceeds from the sale , after repaying the existing loan and closing costs , were $ 479,000,000 , of which $ 30,000,000 was in macerich common shares . the financial statement gain was $ 601,976,000 , of which $ 599,628,000 was recognized in the fourth quarter and the remaining $ 2,348,000 was deferred and will be recognized upon the disposition of the macerich common shares . prior to the sale , in november 2012 , we acquired the remaining 75 % interest in our consolidated subsidiary , the kings plaza energy plant joint venture ( which was sold with kings plaza ) , for $ 7,800,000 in cash . special dividend on november 30 , 2012 , our board of directors declared a special long-term capital gain dividend of $ 122.00 per share , or $ 623,178,000 in the aggregate , to distribute the tax gain resulting from the sale of kings plaza . year ended december 31 , 2012 financial results summary net income attributable to common stockholders for the year ended december 31 , 2012 was $ 674,387,000 , or $ 132.04 per diluted share , compared to $ 79,423,000 , or $ 15.55 per diluted share for the year ended december 31 , 2011. the year ended december 31 , 2012 includes $ 599,628,000 , or $ 117.40 per diluted share for the net gain on sale of kings plaza . net income from continuing operations was $ 50,041,000 , or $ 9.80 per diluted share for the year ended december 31 , 2012 , compared to $ 54,831,000 , or $ 10.74 per diluted share for the year ended december 31 , 2011. funds from operations attributable to common stockholders ( “ ffo ” ) for the year ended december 31 , 2012 was $ 107,616,000 , or $ 21.07 per diluted share , compared to $ 112,894,000 , or $ 22.11 per diluted share for the prior year . ffo from continuing operations was $ 78,680,000 , or $ 15.40 per diluted share for the year ended december 31 , 2012 , compared to $ 82,747,000 , or $ 16.21 per diluted share for the prior year . quarter ended december 31 , 2012 financial results summary net income attributable to common stockholders for the quarter ended december 31 , 2012 was $ 617,157,000 , or $ 120.82 per diluted share , compared to $ 20,634,000 , or $ 4.04 per diluted share for the quarter ended december 31 , 2011. the quarter ended december 31 , 2012 includes $ 599,628,000 , or $ 117.39 per diluted share for the net gain on sale of kings plaza . net income from continuing operations was $ 12,033,000 , or $ 2.36 per diluted share for the quarter ended december 31 , 2012 , compared to $ 13,318,000 , or $ 2.61 per diluted share for the quarter ended december 31 , 2011. ffo for the quarter ended december 31 , 2012 was $ 24,723,000 , or $ 4.84 per diluted share , compared to $ 29,145,000 , or $ 5.71 per diluted share for the prior year 's quarter . ffo from continuing operations was $ 19,227,000 , or $ 3.76 per diluted share for the quarter ended december 31 , 2012 , compared to $ 20,429,000 , or $ 4.00 per diluted share for the prior year 's quarter . 24 overview – continued leasing activity , square footage and occupancy as of december 31 , 2012 and 2011 , our portfolio was comprised of six properties aggregating 2,179,000 square feet that had occupancy rates of 99.1 % and 98.7 % , respectively . in the year ended december 31 , 2012 , we leased 9,799 square feet that was placed into service at our rego park ii shopping center , at an initial rent of $ 70.00 per square foot for a 21-year lease term . significant tenants bloomberg l.p. ( “ bloomberg ” ) accounted for $ 86,468,000 , $ 84,526,000 and $ 83,137,000 , or 45 % , 46 % and 48 % of our total revenues in the years ended december 31 , 2012 , 2011 and 2010 , respectively . no other tenant accounted for more than 10 % of our total revenues in any of the last three years . if we were to lose bloomberg as a tenant , or if bloomberg were to fail or become unable to perform its obligations under its lease , it would adversely affect our financial condition and results of operations . we receive and evaluate certain confidential financial information and metrics from bloomberg on a semi-annual basis . in addition , we access and evaluate financial information regarding bloomberg from private sources , as well as publicly available data . recently issued accounting literature in may 2011 , the financial accounting standards board ( “ fasb ” ) issued update no . 2011-04 , fair value measurements ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss ( “ asu no . 2011-04 ” ) . asu no . story_separator_special_tag in addition , in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant , we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease . · percentage rent – revenue arising from retail tenant leases that is contingent upon the sales of tenants exceeding defined thresholds . these rents are recognized only after the contingency has been removed ( i.e. , when tenant sales thresholds have been achieved ) . · expense reimbursements – revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective properties . this revenue is accrued in the same periods as the expenses are incurred . · parking income – revenue arising from the rental of parking space at our properties . this income is recognized as cash is received . before we recognize revenue , we assess , among other things , its collectibility . if our assessment of the collectibility of revenue changes , the impact on our consolidated financial statements could be material . income taxes we operate in a manner intended to enable us to continue to qualify as a real estate investment trust ( “ reit ” ) under sections 856 – 860 of the internal revenue code of 1986 , as amended ( the “ code ” ) . in order to maintain our qualification as a reit under the code , we must distribute at least 90 % of our taxable income to stockholders each year . we distribute to our stockholders 100 % of our taxable income and therefore , no provision for federal income taxes is required . if we fail to distribute the required amount of income to our stockholders , or fail to meet other reit requirements , we may fail to qualify as a reit , which may result in substantial adverse tax consequences . 27 results of operations – year ended december 31 , 2012 compared to december 31 , 2011 property rentals property rentals were $ 134,847,000 in the year ended december 31 , 2012 , compared to $ 133,682,000 in the prior year , an increase of $ 1,165,000. expense reimbursements tenant expense reimbursements were $ 56,465,000 in the year ended december 31 , 2012 , compared to $ 51,564,000 in the prior year , an increase of $ 4,901,000. this increase was primarily due to higher real estate taxes and reimbursable operating expenses . operating expenses operating expenses were $ 61,755,000 in the year ended december 31 , 2012 , compared to $ 55,481,000 in the prior year , an increase of $ 6,274,000. this increase was primarily comprised of higher ( i ) real estate taxes of $ 4,395,000 , ( ii ) reimbursable operating expenses of $ 622,000 and ( iii ) bad debt expense of $ 1,041,000. depreciation and amortization depreciation and amortization was $ 28,815,000 in the year ended december 31 , 2012 , compared to $ 28,083,000 in the prior year , an increase of $ 732,000. story_separator_special_tag vornado steven roth is the chairman of our board of directors and chief executive officer , the managing general partner of interstate properties ( “ interstate ” ) , a new jersey general partnership , and the chairman of the board of trustees of vornado . at december 31 , 2012 , mr. roth , interstate and its other two general partners , david mandelbaum and russell b. wight , jr. ( who are also directors of the company and trustees of vornado ) owned , in the aggregate , 26.3 % of our outstanding common stock , in addition to the 2.1 % they indirectly own through vornado . michael d. fascitelli , our president and a member of our board of directors , is the president , chief executive officer and a member of the board of trustees of vornado . joseph macnow , our executive vice president and chief financial officer , holds the same position with vornado . at december 31 , 2012 , vornado owned 32.4 % of our outstanding common stock . we are managed by , and our properties are leased and developed by , vornado , pursuant to various agreements , which expire in march of each year and are automatically renewable . these agreements are described in note 3 – related party transactions , to our consolidated financial statements in this annual report on form 10-k. 32 liquidity and capital resources property rental income is our primary source of cash flow and is dependent on a number of factors including the occupancy level and rental rates of our properties , as well as our tenants ' ability to pay their rents . our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses , interest expense , recurring capital expenditures and cash dividends to stockholders . other sources of liquidity to fund cash requirements include our existing cash , proceeds from financings , including mortgage or construction loans secured by our properties and proceeds from asset sales . we anticipate that cash flows from continuing operations over the next twelve months , together with existing cash balances , will be adequate to fund our business operations , cash dividends to stockholders , debt amortization and maturities , and recurring capital expenditures . dividends on january 16 , 2013 , we adjusted our regular quarterly dividend to $ 2.75 per share ( a new indicated annual rate of $ 11.00 per share ) . the regular quarterly dividend was adjusted to reflect the sale of the kings plaza regional shopping center in november 2012 , which resulted in a special long-term capital gain dividend of $ 122.00 per share .
| general and administrative expenses general and administrative expenses were $ 5,162,000 in the year ended december 31 , 2012 , compared to $ 3,996,000 in the prior year , an increase of $ 1,166,000. this increase was primarily due to an $ 807,000 reversal of a portion of the litigation loss accrual at our flushing property in the prior year . interest and other income , net interest and other income , net was $ 177,000 in the year ended december 31 , 2012 , compared to $ 1,001,000 in the prior year , a decrease of $ 824,000. this decrease was primarily due to $ 740,000 of income in the prior year resulting from the collection of prior period real estate tax billings . interest and debt expense interest and debt expense was $ 45,652,000 in the year ended december 31 , 2012 , compared to $ 43,898,000 in the prior year , an increase of $ 1,754,000. this increase was primarily due to a $ 2,561,000 reversal of previously recognized interest expense related to our income tax liability in the prior year , due to the expiration of the applicable statute of limitations , partially offset by savings of $ 621,000 from lower average debt balances . 28 results of operations – year ended december 31 , 2012 compared to december 31 2011 - continued income tax ( expense ) benefit in the year ended december 31 , 2012 , we had income tax expense of $ 64,000 , compared to a $ 42,000 income tax benefit in the prior year , an increase in expense of $ 106,000. this increase resulted from a true-up of our estimated income tax liability in the prior year .
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these statements may be identified by such forward-looking terminology as “ expect , ” “ look , ” “ believe , ” “ anticipate , ” “ may , ” or similar statements or variations of such terms . actual results may differ materially from such forward-looking statements . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include , but are not limited to : our inability to successfully grow our business and implement our strategic plan , including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan ; the impact of anticipated higher operating expenses in 2021 and beyond ; our inability to successfully integrate wealth management firm acquisitions ; our inability to manage our growth ; our inability to successfully integrate our expanded employee base ; an unexpected decline in the economy , in particular in our new jersey and new york market areas ; declines in our net interest margin caused by the interest rate environment and or our highly competitive market ; declines in value in our investment portfolio ; higher than expected increases in our allowance for loan and lease losses ; higher than expected increases in loan and lease losses or in the level of nonperforming loans ; changes in interest rates ; decline in real estate values within our market areas ; legislative and regulatory actions ( including the impact of the dodd-frank wall street reform and consumer protection act , basel iii and related regulations ) that may result in increased compliance costs ; successful cyberattacks against our it infrastructure and that of our it and third-party providers ; higher than expected fdic insurance premiums ; adverse weather conditions ; our inability to successfully generate new business in new geographic markets ; our inability to execute upon new business initiatives ; our lack of liquidity to fund our various cash obligations ; reduction in our lower-cost funding sources ; our inability to adapt to technological changes ; claims and litigation pertaining to fiduciary responsibility , environmental laws and other matters ; our inability to retain key employees ; demand for loans and deposits in our market areas ; adverse changes in securities markets ; changes in accounting policies and practices ; and other unexpected material adverse changes in our operations or earnings . further , given its ongoing and dynamic nature , it is difficult to predict the full impact of the covid-19 pandemic on our business . the extent of such impact will depend on future developments , which are highly uncertain , including when the coronavirus can be controlled and abated and when and whether the gradual reopening of businesses will result in a meaningful increase in economic activity . as the result of the covid-19 pandemic and the related adverse local and national economic consequences , we could be subject to any of the following risks , any of which could have a material , adverse effect on our business , financial condition , liquidity , and results of operations : demand for our products and services may decline , making it difficult to grow assets and income ; if the economy is unable to substantially reopen , and high levels of unemployment continue for an extended period of time , loan delinquencies , problem assets , and foreclosures may increase , resulting in increased charges and reduced income ; 25 collateral for loans , especially real estate , may decline in value , which could cause loan losses to increase ; our allowance for loan losses may have to be increased if borrowers experience financial difficulties , which will adversely affect our net income ; the net worth and liquidity of loan guarantors may decline , impairing their ability to honor commitments to us ; as the result of the decline in the federal reserve board 's target federal funds rate to near 0 % , the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities , reducing our net interest margin and spread and reducing net income ; a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend ; our wealth management revenues may decline with continuing market turmoil ; a worsening of business and economic conditions or in the financial markets could result in an impairment of certain intangible assets , such as goodwill ; the unanticipated loss or unavailability of key employees due to the outbreak , which could harm our ability to operate our business or execute our business strategy , especially as we may not be successful in finding and integrating suitable successors ; we may face litigation , regulatory enforcement and reputation risk as a result of our participation in the paycheck protection program ( “ ppp ” ) and the risk that the sba may not fund some or all ppp loan guaranties ; our cyber security risks are increased as the result of an increase in the number of employees working remotely ; and fdic premiums may increase if the agency experience additional resolution costs . except as may be required by applicable law or regulation , the company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company 's expectations . although we believe that the expectations reflected in the forward-looking statements are reasonable , the company can not guarantee future results , levels of activity , performance or achievements . overview : the following discussion and analysis is intended to provide information about the financial condition and results of operations of the company and its subsidiaries on a consolidated basis and should be read in conjunction with the consolidated financial statements and the related notes and supplemental financial information appearing elsewhere in this report . story_separator_special_tag 32 the effect of volume and rate changes on net interest income ( on a fte ) for the periods indicated are shown below : replace_table_token_9_th 2020 compared to 2019 net interest income , on a fully tax-equivalent basis , grew $ 6.5 million , or 5 percent , in 2020 to $ 129.3 million from $ 122.9 million in 2019. the net interest margin was 2.31 percent and 2.63 percent for the years ended december 31 , 2020 and 2019 , respectively , a decrease of 32 basis points year over year . the growth in net interest income was due to increases in the average balance of the company 's interest-earning assets , especially c & i loans ( including ppp loans ) , and a decrease in the average cost of interest-bearing liabilities , offset by an increase in the average balance of interest-bearing liabilities and by a decrease in the average yield on interest-earning assets . on a fully tax-equivalent basis , interest income on average interest-earning assets decreased $ 15.8 million , or 9 percent , to $ 167.5 million in 2020 from $ 183.3 million in 2019. average interest- earning assets for the year ended december 31 , 2020 totaled $ 5.59 billion compared to $ 4.67 billion for 2019 , an increase of $ 923.5 million or 20 percent . the average rate earned on earning assets was 3.00 percent in 2020 , compared to 3.93 percent in 2019 , a decrease of 93 basis points . the decrease in average yields on interest-earning assets for the year ended december 31 , 2020 was due to a declining rate environment , lower yielding ppp loans and elevated levels of interest-bearing cash and investment securities at lower yields . the one-month london interbank offered rate ( “ libor ” ) has declined by approximately 150 basis points from the beginning of the year . the federal open market committee also reduced the target federal funds rate to 0 percent from 0.25 percent in march 2020 due to the economic disruption caused by covid-19 . with the transformation to a commercial bank balance sheet and business model , the company 's interest rate sensitivity models indicate the company is asset sensitive as of december 31 , 2020 , and that net interest income would improve in a rising rate environment as our adjustable rate assets have little room to re-price in this low rate environment . the company believes that our adjustable rate assets will not reprice lower given the floors instituted on our portfolio . the increase in the average balance of interest-earning assets for the year ended december 31 , 2020 , as compared to 2019 reflects an increase in the average balance of loans , particularly , in the average balance of c & i and commercial mortgage portfolios . for the year ended december 31 , 2020 , the average balance of the commercial portfolio increased $ 471.0 million , or 31 percent , from 2019 . the increase in this portfolio was primarily attributable to the company 's participation in the ppp program . the company originated $ 596.0 million of ppp loans during the second quarter of 2020 , which was partially offset by the sale of $ 355.0 million of ppp loans in the third quarter of 2020. the company has also supported growth in the c & i portfolio through : the addition of seasoned bankers including a new evp , head of commercial banking and an equipment finance team in 2017 ; a 33 continued focus on client service and value-added aspects of the lending process ; and a continued focus on markets outside of the immediate branch service area , including markets around the teaneck and princeton private banking offices . the average balance of the commercial mortgage portfolio was $ 1.96 billion for the year ended december 31 , 2020 compared to $ 1.86 billion in the same period of 2019. the increase in the commercial mortgage portfolio for the year ended dec ember 3 1 , 2020 w as to maintain the size of the portfolio in anticipation of maturities in the portfolio in the latter part of 2020. these increases were partially offset by a decrease in the average balance of the residential mortgage portfolio of $ 37.2 million to $ 528.7 million for the year ended december 31 , 2020. the average balance of investment securities totaled $ 519.7 million for 2020 compared to $ 406.6 million for 2019 , reflecting an increase of $ 113.1 million , or 28 percent . the increase in the average balance of investment securities was due to the purchase of securities to maintain the size of the portfolio in anticipation of maturities for the fourth quarter of 2020 and to utilize excess liquidity generated by the sale of ppp loans in the third quarter of 2020. the average balance of interest-earning deposits totaled $ 504.8 million for 2020 compared to $ 223.6 million for 2019 , reflecting an increase of $ 281.1 million or 126 percent . the increase in the average balance of interest-earning deposits for 2020 was primarily to increase the company 's balance sheet liquidity in the event of significant depositor withdrawals and or significant borrower draws on existing unused credit lines due to the environment created by the covid-19 pandemic . the company plans on reducing the level of interest-earning deposits in 2021 through increased loan originations and investment purchases as liquidity has become less of a concern .
| earnings summary : the following table presents certain key aspects of our performance for the years ended december 31 , 2020 , 2019 and 2018. replace_table_token_4_th 2020 compared to 2019 the company recorded net income of $ 26.19 million and diluted earnings per share of $ 1.37 for the year ended december 31 , 2020 compared to net income of $ 47.43 million and diluted earnings per share of $ 2.44 for the year ended december 31 , 2019. these results produced a return on average assets of 0.45 percent and 0.99 percent for 2020 and 2019 , respectively , and a return on average shareholders ' equity of 5.11 percent and 9.70 percent for 2020 and 2019 , respectively . the decrease in net income for 2020 was due to a $ 32.40 million provision for loan losses primarily due to the economic environment created by the covid-19 pandemic , which led to increased qualitative loss factors when calculating the allowance for loan losses and increased operating expenses . this $ 32.40 million compared to a $ 4.00 million provision for 2019. this was partially offset by a tax benefit of $ 3.2 million recorded in the first quarter of 2020 caused by the changes in the treatment of tax net operating losses ( “ nol ” ) under the provisions of the coronavirus aid , relief , and economic security ( “ cares ” ) act . increased operating expenses were due to the 28 point view wealth management acquisition in 2019 , prepayment of fhlb a dvances ( $ 4.78 million ) , valuation allowance for a loan held for sale ( $ 4.43 million ) and the consolidation of two private banking offices ( $ 210,000 ) . higher operating expenses were also due to costs associated with the implementation of the strategic plan , described in the “ overview ” section above .
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to the story_separator_special_tag the following discussion analyzes our financial condition and results of operations and should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements , in which wes is fully consolidated , which are included under part ii , item 8 of this form 10-k , and the information set forth in risk factors under part i , item 1a of this form 10-k. the term “ wes assets ” includes both the assets indirectly owned and the interests accounted for under the equity method by us through our partnership interests in wes as of december 31 , 2018 ( see note 10—equity investments in the notes to consolidated financial statements under part ii , item 8 of this form 10-k ) . because anadarko controls wes through its control of us , and because we own the entire interest in wes gp , each of wes 's acquisitions of wes assets from anadarko has been considered a transfer of net assets between entities under common control . as such , wes assets acquired from anadarko were initially recorded at anadarko 's historic carrying value , which did not correlate to the total acquisition price paid by wes . further , after an acquisition of assets from anadarko , we ( by virtue of our consolidation of wes ) and wes are required to recast our financial statements to include the activities of such wes assets from the date of common control . for those periods requiring recast , the consolidated financial statements for periods prior to the acquisition of wes assets from anadarko have been prepared from anadarko 's historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if wes had owned the wes assets during the periods reported . for ease of reference , we refer to the historical financial results of the wes assets prior to the acquisitions from anadarko as being “ our ” historical financial results . executive summary we were formed by anadarko in september 2012 by converting wgr holdings , llc into an mlp and changing its name to western gas equity partners , lp . we closed our ipo in december 2012 and own wes gp and a significant limited partner interest in wes , a growth-oriented delaware mlp formed by anadarko to acquire , own , develop and operate midstream assets . our consolidated financial statements include the consolidated financial results of wes due to our 100 % ownership interest in wes gp and wes gp 's control of wes . our only cash-generating assets consist of our partnership interests in wes , and we currently have no independent operations . wes currently owns or has investments in assets located in the rocky mountains ( colorado , utah and wyoming ) , north-central pennsylvania , texas and new mexico . wes is engaged in the business of gathering , compressing , treating , processing and transporting natural gas ; gathering , stabilizing and transporting condensate , ngls and crude oil ; and gathering and disposing of produced water . in addition , in its capacity as a processor of natural gas , wes also buys and sells natural gas , ngls and condensate on behalf of itself and as agent for its customers under certain of its contracts . wes provides these midstream services for anadarko , as well as for third-party customers . as of december 31 , 2018 , wes 's assets and investments consisted of the following : replace_table_token_9_th ( 1 ) includes the dbm water systems . 78 significant financial and operational events during the year ended december 31 , 2018 , included the following : we raised our distribution to $ 0.60250 per unit for the fourth quarter of 2018 , representing a 1 % increase over the distribution for the third quarter of 2018 and a 10 % increase over the distribution for the fourth quarter of 2017 , and resulting in a full-year 2018 distribution increase of 12 % over full-year 2017. in february 2018 , we voluntarily reduced the aggregate commitments of the lenders under the wgp rcf to $ 35.0 million . in august 2018 , wes completed an offering of $ 400.0 million aggregate principal amount of 4.750 % senior notes due 2028 and $ 350.0 million aggregate principal amount of 5.500 % senior notes due 2048. the net proceeds were used to repay the maturing 2.600 % senior notes due august 2018 , repay amounts outstanding under the wes rcf and for wes 's general partnership purposes , including to fund capital expenditures . see liquidity and capital resources within this item 7 for additional information . in june 2018 , wes acquired a 20 % interest in whitethorn and a 15 % interest in cactus ii , both from third parties . see acquisitions and divestitures under part i , items 1 and 2 of this form 10-k for additional information . in march 2018 , wes completed an offering of $ 400.0 million aggregate principal amount of 4.500 % senior notes due 2028 and $ 700.0 million aggregate principal amount of 5.300 % senior notes due 2048. the net proceeds were used to repay amounts outstanding under the wes rcf and for wes 's general partnership purposes , including to fund capital expenditures . see liquidity and capital resources within this item 7 for additional information . in february 2018 , wes entered into the five-year $ 1.5 billion ( expandable to $ 2.0 billion ) wes rcf by amending and restating the $ 1.2 billion credit facility wes originally entered into in february 2014. in december 2018 , wes amended the wes rcf to ( i ) subject to consummation of the merger ( see merger transactions below ) , increase the size of the wes rcf to $ 2.0 billion , and ( ii ) extend the maturity date of the wes rcf to february 2024. see liquidity and capital resources within this item 7 for additional information . story_separator_special_tag the separate existence of a limited liability company is disregarded for u.s. federal income tax purposes , resulting in the treatment of wgr holdings , llc as a division of anadarko and its inclusion in anadarko 's consolidated income tax return for federal and state tax purposes . the income tax expense recorded on the financial statements of wgr holdings , llc , and now included in our consolidated financial statements , reflects our income tax expense and liability on a separate-return basis . the deferred federal and state income taxes included in our consolidated financial statements are primarily attributable to the temporary differences between the financial statement carrying amount of our investment in wes and our outside tax basis with respect to our partnership interests in wes . when determining the deferred income tax asset and liability balances attributable to our partnership interests in wes , we applied an accounting policy that looks through our investment in wes . the application of such accounting policy resulted in no deferred income taxes being created on the difference between the book and tax basis on the non-tax deductible goodwill portion of our investment in wes in our consolidated financial statements . upon the completion of our ipo in december 2012 , we became a publicly traded limited partnership for u.s. federal and state income tax purposes and therefore are not subject to u.s. federal and state income taxes , except for texas margin tax . 80 general and administrative expenses . as a separate publicly traded partnership , we incur general and administrative expenses which are separate from , and in addition to , those incurred by wes . the following table summarizes the amounts we reimbursed to anadarko , separate from , and in addition to , those reimbursed by wes : replace_table_token_10_th noncontrolling interests . the interest in chipeta held by a third-party member is already reflected as a noncontrolling interest in wes 's consolidated financial statements . in addition , the limited partner interests in wes held by other subsidiaries of anadarko , private investors ( up to the final conversion date of the series a preferred units on may 2 , 2017 ) and the public are reflected as noncontrolling interests in the consolidated financial statements ( see note 1—summary of significant accounting policies in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for further information ) . when wes issues equity , the carrying amount of the noncontrolling interest reported by wgp is adjusted to reflect the noncontrolling ownership interest in wes . the resulting impact of such noncontrolling interest adjustment on wgp 's interest in wes is reflected as an adjustment to wgp 's partners ' capital . distributions . our partnership agreement requires that we distribute all of our available cash ( as defined in our partnership agreement ) within 55 days of the end of each quarter . our only cash-generating assets are our partnership interests in wes , consisting of general partner units , common units and idrs , on which we expect to receive quarterly distributions from wes . our cash flow and resulting ability to make cash distributions are therefore completely dependent upon wes 's ability to make cash distributions with respect to our partnership interests in wes . generally , our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter . wgp ltip . concurrently with the wgp ipo , wgp gp adopted the wgp ltip . equity-based compensation expense attributable to grants made under the wgp ltip impacts cash flows from operating activities only to the extent cash payments are made to a participant in lieu of issuance of wgp common units to the participant . see note 6—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for further information . wgp rcf . in fe bruary 2018 , wgp voluntarily reduced the aggregate commitments of the lenders under the wgp rcf to $ 35.0 million . in december 2018 , wgp amended the wgp rcf to extend the maturity date from march 2019 to the earlier of ( i ) june 14 , 2019 , or ( ii ) three business days following the consummation of the merger ( see executive summary– merger transactions within this item 7 ) . the wgp rcf may be used to buy wes common units and for general partnership purposes . as of december 31 , 2018 , the outs tanding borrowings under the wgp rcf were classified as short-term debt on the consolidated balance sheet . the wgp rcf contains certain customary affirmative and negative covenants , including the maintenance of a consolidated leverage ratio of not more than 3.50 to 1.00 and limitations on the ability of us and wes gp to , among other things , ( i ) materially alter the character of their business on a consolidated basis from the midstream business , ( ii ) create , assume or suffer to exist liens on their assets , ( iii ) enter into transactions with affiliates , ( iv ) make distributions upon the occurrence of certain events of default , ( v ) create , incur or assume indebtedness , ( vi ) make dispositions of their assets , ( vii ) enter into sale and leasebacks and ( viii ) consolidate with or merge into any other entity or convey , transfer or lease their properties and assets substantially as an entirety to any person or entity . as of december 31 , 2018 , we had $ 28.0 million in outstanding borrowings , resulting in $ 7.0 million available for borrowing under the wgp rcf . at december 31 , 2018 , the interest rate was 4.53 % , the commitment fee rate was 0.30 % and we were in compliance with all covenants under the wgp rcf .
| operating results within this item 7 for a discussion of wes 's results of operations as compared to the prior periods . gathering and processing agreements . certain of the gathering agreements for the west texas complex and springfield system allow for rate resets that target an agreed-upon rate of return over the life of the agreement . see note 6—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. commodity price swap agreements . during all periods presented , the consolidated statements of operations and consolidated statements of equity and partners ' capital included the impacts of commodity price swap agreements . the commodity price swap agreements with anadarko expired without renewal on december 31 , 2018. see note 6—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for further information . income taxes . with respect to assets acquired from anadarko , wes records anadarko 's historic current and deferred income taxes for the periods prior to its ownership of the assets . for periods subsequent to its acquisitions from anadarko , wes is not subject to tax except for the texas margin tax and , accordingly , does not record current and deferred federal income taxes related to such assets . acquisitions and divestitures . for the year ended december 31 , 2018 , there was a net increase in adjusted gross margin of $ 40.5 million related to wes 's asset acquisitions and divestitures during 2018. for the year ended december 31 , 2017 , there was a net decrease in adjusted gross margin of $ 48.2 million related to wes 's asset acquisitions and divestitures during 2017. see note 3—acquisitions and divestitures in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for additional information . dbm complex .
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the flight support group consists of heico aerospace holdings corp. ( “ heico aerospace ” ) and heico flight support corp. and their collective subsidiaries , which primarily : designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the flight support group designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the parts and services are approved by the federal aviation administration ( “ faa ” ) . the flight support group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the united states government . additionally , the flight support group is a leading supplier , distributor , and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the united states . the electronic technologies group consists of heico electronic technologies corp. ( “ heico electronic ” ) and its subsidiaries , which primarily : designs and manufactures electronic , microwave and electro-optical equipment , high-speed interface products , high voltage interconnection devices and high voltage advanced power electronics . the electronic technologies group designs , manufactures and sells various types of electronic , microwave and electro-optical equipment and components , including power supplies , laser rangefinder receivers , infrared simulation , calibration and testing equipment ; power conversion products serving the high-reliability military , space and commercial avionics end-markets ; underwater locator beacons used to locate data and voice recorders utilized on aircraft and marine vessels ; electromagnetic interference shielding for commercial and military aircraft operators , traveling wave tube amplifiers and microwave power modules used in radar , electronic warfare , on-board jamming and countermeasure systems , electronics companies and telecommunication equipment suppliers ; advanced high-technology interface products that link devices such as telemetry receivers , digital cameras , high resolution scanners , simulation systems and test systems to computers ; high voltage energy generators interconnection devices , cable assemblies and wire for the medical equipment , defense and other industrial markets ; high frequency power delivery systems for the commercial sign industry ; high voltage power supplies found in satellite communications , ct scanners and in medical and industrial x-ray systems ; three-dimensional microelectronic and stacked memory products that are principally integrated into larger subsystems equipping satellites and spacecraft ; harsh environment connectivity products and custom molded cable assemblies ; rf and microwave amplifiers , transmitters and receivers used to support military communications 31 index on unmanned aerial systems , other aircraft , helicopters and ground-based data/communications systems and wireless cabin control systems , solid state power distribution and management systems and fuel level sensing systems for business jets and for general aviation , as well as for the military/defense market segments . our results of operations during each of the past three fiscal years have been affected by a number of transactions . this discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included herein . all applicable share and per share information has been adjusted retrospectively to reflect the 5-for-4 stock splits effected in april 2012 , 2011 and 2010. see note 1 , summary of significant accounting policies – stock splits , of the notes to consolidated financial statements for additional information regarding these stock splits . for further information regarding the acquisitions discussed below , see note 2 , acquisitions , of the notes to consolidated financial statements . acquisitions are included in our results of operations from the effective dates of acquisition . in february 2010 , we acquired , through heico electronic , substantially all of the assets and assumed certain liabilities of db control corp. db control corp. produces high-power devices used in both defense and commercial applications . in december 2010 , we acquired , through heico aerospace , 80.1 % of the assets and assumed certain liabilities of blue aerospace llc ( “ blue aerospace ” ) . blue aerospace is a supplier , distributor , and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the united states . the remaining 19.9 % interest continues to be owned by certain members of blue aerospace 's management team . in september 2011 , we acquired , through heico electronic , all of the outstanding capital stock of 3d plus sa ( “ 3d plus ” ) . 3d plus is a leading designer and manufacturer of three-dimensional microelectronic and stacked memory products used predominately in satellites and also utilized in medical equipment . on november 22 , 2011 , we acquired , through heico electronic , switchcraft , inc. ( “ switchcraft ” ) through the purchase of all of the stock of switchcraft 's parent company , switchcraft holdco , inc. , for approximately $ 142.7 million , net of cash acquired . switchcraft is a leading designer and manufacturer of high performance , high reliability and harsh environment electronic connectors and other interconnect products . in march 2012 , we acquired , through heico electronic , the business and substantially all of the assets of ramona research , inc. ( “ ramona research ” ) . ramona research designs and manufactures rf and microwave amplifiers , transmitters and receivers primarily used to support military communications on unmanned aerial systems , other aircraft , helicopters and ground-based data/communications systems . 32 index in april 2012 , we acquired , through heico electronic , certain aerospace assets of moritz aerospace , inc. ( “ moritz aerospace ” ) in an aerospace product line acquisition . the moritz aerospace product line designs and manufactures next generation wireless cabin control systems , solid state power distribution and management systems and fuel level sensing systems for business jets and for general aviation , as well as for the military/defense market segments . the purchase price of this acquisition was paid using cash provided by operating activities . story_separator_special_tag as of october 31 , 2012 , we have no remaining obligation to pay additional purchase consideration for acquisitions consummated prior to fiscal 2010. we allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values , with any excess recorded as goodwill . determining the fair value of assets acquired and liabilities assumed requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , discount rates , asset lives and market multiples , among other items . we determine the fair values of such assets , principally intangible assets , generally in consultation with third-party valuation advisors . valuation of goodwill and other intangible assets we test goodwill for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable . in evaluating the recoverability of goodwill , we compare the fair value of each of our reporting units to its carrying value to determine potential impairment . if the carrying value of a reporting unit exceeds its fair value , the implied fair value of that reporting unit 's goodwill is to be calculated and an impairment loss is recognized in the amount by which the carrying value of the reporting unit 's goodwill exceeds its implied fair value , if any . the fair values of our reporting units were determined using a weighted average of a market approach and an income approach . under the market approach , fair values are estimated using published market multiples for comparable companies . we calculate fair values under the income approach by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital . based on the annual goodwill impairment test as of october 31 , 2012 , 2011 and 2010 , we determined there was no impairment of our goodwill . the fair value of each of our reporting units as of october 31 , 2012 significantly exceeded its carrying value . we test each non-amortizing intangible asset ( principally trade names ) for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the asset might be impaired . during fiscal 2012 , we adopted new accounting guidance which permits an entity the option to perform a qualitative evaluation about the likelihood that an indefinite-lived intangible asset is impaired in order to determine whether it should calculate the fair value of the asset . accordingly , in performing our fiscal 2012 annual review we first 35 index assessed qualitative factors for certain trade names to determine whether it was more likely than not that the asset 's fair value was less than its carrying amount and if necessary , performed a quantitative analysis comparing the asset 's current fair value to its carrying amount . to derive the fair value of our trade names , we utilize an income approach , which relies upon management 's assumptions of royalty rates , projected revenues and discount rates . we also test each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be impaired . the test consists of determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows . if the total of the undiscounted future cash flows is less than the carrying amount of those assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . the determination of fair value requires us to make a number of estimates , assumptions and judgments of such factors as projected revenues and earnings and discount rates . based on the intangible impairment tests conducted , we did not recognize any impairment losses in fiscal 2012 ; however , we recognized pre-tax impairment losses related to the write-down of certain customer relationships of $ 4.3 million and $ 1.1 million during fiscal 2011 and 2010 , respectively , the write-down of certain trade names of $ .2 million and $ .3 million during fiscal 2011 and 2010 , respectively , and the write-down of certain intellectual property of $ .5 million during fiscal 2011 , within the etg to their estimated fair values . the impairment losses pertaining to certain customer relationships and trade names were recorded as a component of selling , general and administrative expenses in the company 's consolidated statements of operations and the impairment losses pertaining to intellectual property were recorded as a component of costs of goods sold . assumptions utilized to determine fair value in the goodwill and intangible assets impairment tests are highly judgmental . if there is a material change in such assumptions or if there is a material change in the conditions or circumstances influencing fair value , we could be required to recognize a material impairment charge . see item 1a. , risk factors , for a list of factors of which any may cause our actual results to differ materially from anticipated results . 36 index story_separator_special_tag style= '' font-family : inherit ; font-size:12pt ; font-style : italic ; '' > operating income operating income for fiscal 2012 increased by 18 % to a record $ 163.3 million as compared to operating income of $ 138.4 million for fiscal 2011. the increase in operating income reflects an $ 18.0 million increase ( a 30 % increase ) to a record $ 77.4 million in operating income of the etg for fiscal 2012 , up from $ 59.5 million in fiscal 2011 and an $ 8.9 million increase ( a 9 % increase ) in operating income of the fsg to a record $ 103.9 million for fiscal 2012 , up from $ 95.0 million for fiscal 2011 , partially offset by a $
| results of operations the following table sets forth the results of our operations , net sales and operating income by segment and the percentage of net sales represented by the respective items in our consolidated statements of operations ( in thousands ) : replace_table_token_9_th comparison of fiscal 2012 to fiscal 2011 net sales our net sales in fiscal 2012 increased by 17 % to a record $ 897.3 million , as compared to net sales of $ 764.9 million in fiscal 2011. the increase in net sales reflects an increase of $ 103.8 million ( a 46 % increase ) to a record $ 331.6 million in net sales within the etg as well as an 37 index increase of $ 30.8 million ( a 6 % increase ) to a record $ 570.3 million in net sales within the fsg . the net sales increase in the etg reflects additional net sales of approximately $ 87.4 million from the acquisitions of 3d plus in september 2011 , switchcraft in november 2011 , ramona research in march 2012 and moritz aerospace in april 2012 , as well as organic growth of approximately 7 % . the organic growth in the etg principally reflects an increase in demand and market penetration for certain defense , space , electronic , aerospace and medical products , resulting in a $ 6.2 million , $ 3.5 million , $ 2.6 million , $ 2.1 million and $ 1.8 million increase in net sales from these product lines , respectively .
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on june 27 , 2016 , we issued and sold 100 shares of our common stock to ab private credit investors llc , our adviser , for an aggregate purchase price of $ 1,000. on may 26 , 2017 , we issued 2,400 shares of our common stock to the adviser , for an aggregate purchase price of $ 24,000. on october 6 , 2016 , we filed with the sec an election to be treated as a bdc under the 1940 act . we also intend to elect for our taxable year ending in 2017 , and to qualify annually thereafter , as a ric under subchapter m of the code for u.s. federal income tax purposes . to the extent that we have net taxable income prior to our qualification as ric , we will be subject to u.s. federal income tax on such income . as a bdc and a ric , respectively , we are and will be required to comply with various regulatory requirements , such as the requirement to invest at least 70 % of our assets in qualifying assets , source of income limitations , asset diversification requirements , and the requirement to distribute annually at least 90 % of our taxable income and tax-exempt interest . our investment activities are managed by our external investment adviser , ab private credit investors llc , an investment adviser that is registered under the advisers act . our required administrative services are provided by state street bank and trust company . we are an emerging growth company , as defined in the jobs act . we will remain an emerging growth company for up to five years following an initial public offering , if any , although if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of any june 30 before that time , we would cease to be an emerging growth company as of the following december 31. for so long as we remain an emerging growth company under the jobs act , we will be subject to reduced public company reporting requirements . the fund is conducting private offerings of its common stock to investors in reliance on exemptions from the registration requirements of the securities act . at the closing of any private offering , each investor will make a capital commitment to purchase shares of the fund 's common stock pursuant to a subscription agreement entered into with the fund . investors will be required to fund drawdowns to purchase shares of the fund 's common stock up to the amount of their respective capital commitment on an as needed basis each time the fund delivers a notice to its investors . on september 29 , 2017 , the fund completed the initial closing of its private offering after entering into the subscription agreements with several investors , including the adviser , providing for the private placement of the fund 's common shares . under the terms of the subscription agreements , investors are required to fund drawdowns to purchase the fund 's common shares up to the amount of their respective capital commitments on an as-needed basis upon the issuance for a capital drawn-down notice . at december 31 , 2017 , the fund had total capital commitments of $ 121,430,978. capital commitments may be drawn down by the fund on a pro rata basis , as needed ( including follow-on investments ) , for paying the fund 's expenses , including fees under the advisory agreement , and or maintaining a reserve account for the payment of future expenses or liabilities . revenues our investment objective is to generate current income and prioritize capital preservation through a portfolio that primarily invests in directly-sourced , privately-negotiated , secured , middle market loans . we intend to primarily invest in middle market businesses based in the united states . we expect that the primary use of proceeds by the companies in which we invest will be for leveraged buyouts , recapitalizations , mergers and acquisitions and growth capital . we will seek to build the fund 's portfolio in a defensive manner that minimizes cyclical and correlated risks across individual names and sector verticals by targeting companies with strong underlying business models and durable intrinsic value . 67 we will primarily hold secured loans , which encompass traditional first lien , unitranche and second lien loans , but may also invest in mezzanine , structured preferred stock and non-control equity co-investment opportunities . we will seek to deliver attractive risk adjusted returns with lower volatility and low correlation relative to the public credit markets . the adviser believes our flexibility to invest across the capital structure and liquidity spectrum will allow us to optimize investor risk-adjusted returns . expenses expenses for the year ended december 31 , 2017 , were as follows : expenses for the year ended december 31 , 2017 , were $ 2,140,625 , which consisted of $ 870,872 in organizational and offering expenses , $ 179,063 in directors ' fees and $ 775,330 in professional fees . pursuant to the expense support and conditional reimbursement agreement , our adviser provided expense support of $ 2,029,545 and voluntarily waived the fund 's management fee of $ 23,745 , reducing our expenses to $ 87,335. see item 1 . notes to financial statements note 3. agreements and related party transactions expense support and conditional reimbursement agreement. organization and offering costs as of december 31 , 2017 , the adviser and its affiliates have incurred or expect to incur organizational costs of $ 817,503 and offering costs of $ 209,458 , of which $ 53,369 has been amortized , on behalf of the fund . organization costs include , among other things , the cost of organizing as a maryland corporation , including the cost of legal services , directors ' fees and other fees , including travel-related expenses , pertaining to our organization , all of which are expensed as incurred . story_separator_special_tag story_separator_special_tag of our common stock at an aggregate offering price of $ 3,546,403.02. the sale closed on november 30 , 2017. on december 21 , 2017 , we delivered a capital call notice to investors relating to the sale of shares of our common stock at an aggregate offering price of $ 6,457,252.23. the sale closed on december 31 , 2017. we have not had any other equity transactions as of december 31 , 2017 . 73 contractual obligations we commenced investment operations on november 15 , 2017. we have entered into certain contracts under which we have future commitments . payments under the advisory agreement with the adviser consist of ( i ) a base management fee equal to a percentage of the average outstanding assets of the fund ( which equals the gross value of equity and debt instruments , including investments made utilizing leverage ) , excluding cash and cash equivalents , during such fiscal quarter and ( ii ) an incentive fee based on our performance . the cost of both the base management fee and the incentive fee will ultimately be borne by our stockholders . under the administration agreement , we will reimburse the adviser an amount equal to our allocable portion ( subject to the review of our board ) of its overhead resulting from its obligations under the expense reimbursement agreement , including the allocable portion of the cost of our chief compliance officer and chief financial officer and their respective staffs . stockholder approval is not required to amend the administration agreement or expense reimbursement agreement . any new investment advisory agreement would be subject to approval by our stockholders . the following table shows our contractual obligations as of december 31 , 2017 : payments due by period ( millions ) total less than 1 year 1 3 years 3 5 years more than 5 years credit agreement $ 23.5 $ 23.5 $ $ $ see notes to financial statements note 4. credit facility , for a discussion of the terms of the credit agreement . off-balance sheet arrangements as of december 31 , 2017 , the fund had unfunded capital commitments related to subscription agreements of $ 97,241,711. we may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies . these instruments may include commitments to extend credit and involve , to varying degrees , elements of liquidity and credit risk in excess of the amount recognized in the statements of assets and liabilities . as of december 31 , 2017 , our off-balance sheet arrangements consisted of the following : replace_table_token_16_th ( 1 ) commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics . these amounts may remain outstanding until the commitment period of an applicable loan expires , which may be shorter than its maturity . 74 co-investment exemptive order on october 11 , 2016 , the sec granted us relief sought in an exemptive application that expands our ability to co-invest in portfolio companies with affiliated funds in a manner consistent with our investment objective , positions , policies , strategies and restrictions as well as regulatory requirements and other pertinent factors , subject to compliance with the order . pursuant to the order , we are permitted to co-invest with affiliated funds if , among other things , a required majority ( as defined in section 57 ( o ) of the 1940 act ) of our independent directors make certain conclusions in connection with a co-investment transaction , including that ( 1 ) the terms of the transactions , including the consideration to be paid , are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned , and ( 2 ) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies . we intend to co-invest with affiliated funds , subject to the conditions included in the order . credit facility agreement on november 15 , 2017 , the fund entered into a credit agreement ( the credit agreement ) to establish a revolving credit facility ( the credit facility ) with hsbc bank usa , national association ( hsbc ) as administrative agent ( the administrative agent ) and any other lender that becomes a party to the credit facility in accordance with the terms of the credit facility , as lenders . the initial maximum principal amount ( the maximum commitment ) of the credit facility is $ 30 million . the maximum commitment amount may be increased upon request of the fund to an amount agreed upon by the fund and the administrative agent . such increase may be done in one or more requested increases , each in a minimum amount of $ 10 million and in $ 5 million increments thereof , or such lesser amount to be determined by the administrative agent , subject to certain terms and conditions . so long as no request for borrowing is outstanding , the fund may terminate the lenders ' commitments ( the commitments ) or reduce the maximum commitments by giving prior irrevocable written notice to the administrative agent . any reduction of the maximum commitments shall be in an amount equal to $ 10 million or multiples thereof ; and in no event shall a reduction by the fund reduce the commitments to $ 35 million or less ( in each case , except for a termination of all the commitments ) .
| results of operations as of december 31 , 2017 , we completed the initial closing of our private offering . operating results are as follows : replace_table_token_14_th ( 1 ) the fund commenced investment operations on november 15 , 2017 . 71 investment income during the year ended december 31 , 2017 , the fund 's investment income was comprised of $ 136,933 of interest income , which includes $ 4,246 from the accretion of discounts . the fund commenced investment operations on november 15 , 2017. we did not start earning interest from investments , which includes income from accretion of discounts , amortization of premiums and origination fees , until november 15 , 2017. operating expenses the composition of our operating expenses was as follows : replace_table_token_15_th ( 1 ) the fund commenced investment operations on november 15 , 2017. interest and debt financing expenses interest and debt financing expenses includes interest , amortization of deferred financing costs , upfront commitment fees and unused fees on the unused portion of the revolving credit facility with hsbc . the fund first drew on the revolving credit facility on november 15 , 2017. as of december 31 , 2017 , the revolving credit facility had an outstanding balance of $ 23,500,000. interest and debt financing expenses for the year ended december 31 , 2017 were $ 63,591. the weighted average interest rate ( excluding deferred upfront financing costs and unused fees ) on our debt outstanding was 3.94 % . net realized gain ( loss ) on investments during the year ended december 31 , 2017 , we had principal repayments of $ 0 , resulting in no net realized gains ( losses ) . 72 net change in unrealized appreciation ( depreciation ) on investments for the year ended december 31 , 2017 we had $ 4,246 in unrealized depreciation on $ 23,877,276 of investments in 8 portfolio companies .
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” the following discussion should also be read in conjunction with the consolidated financial statements and notes included herein . business overview nephros is a commercial stage medical device and commercial products company that develops and sells high performance liquid purification filters and hemodiafiltration ( “ hdf ” ) systems . our filters , which are generally classified as ultrafilters , are primarily used in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate , and used in hospitals for the prevention of infection from water borne pathogens , such as legionella and pseudomonas . because our ultrafilters capture contaminants as small as 0.005 microns in size , they minimize exposure to a wide variety of bacteria , viruses , fungi , parasites and endotoxins . our ultrafilters olpūr h2h hemodiafiltration system , used in conjunction with a standard hemodialysis machine , is the only fda 510 ( k ) cleared medical device that enables nephrologists to provide hemodiafiltration treatment to patient with end stage renal disease ( “ esrd ” ) . additionally , we sell hemodiafilters , which serve the same purpose as dialyzers in an hd treatment , and other disposables used in the hemodiafiltration treatment process . we were founded in 1997 by healthcare professionals affiliated with columbia university medical center/new york-presbyterian hospital to develop and commercialize an alternative method to hemodialysis ( “ hd ” ) . we have extended our filtration technologies to meet the demand for liquid purification in other areas , in particular water purification . the following trends , events and uncertainties may have a material impact on our potential sales , revenue and income from operations : ● the market acceptance of our products in the united states and of our technologies and products in each of our target markets ; ● our ability to effectively and efficiently manufacture , market and distribute our products ; ● our ability to sell our products at competitive prices which exceed our per unit costs ; ● the consolidation of dialysis clinics into larger clinical groups ; and ● the current u.s. healthcare plan is to bundle reimbursement for dialysis treatment which may force dialysis clinics to change therapies due to financial reasons . to the extent we are unable to succeed in accomplishing the foregoing , our sales could be lower than expected and dramatically impair our ability to generate income from operations . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2014-09 , “ revenue from contracts with customers , ” related to revenue recognition . the underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to be entitled to in exchange for the goods or services . the standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance . asu 2014-09 provides alternative methods of initial adoption , and was effective for fiscal years beginning after december 15 , 2016 , and interim periods within those fiscal years . early adoption was not permitted . in august , 2015 , the fasb issued asu no . 2015-14 , “ revenue from contracts with customers : deferral of the effective date ” . the amendment in this asu defers the effective date of asu no . 2014-09 for all entities for one year . public business entities , certain not-for-profit entities , and certain employee benefit plans should apply the guidance in asu 2014-09 to fiscal years beginning december 15 , 2017 , including interim reporting periods within that fiscal year . earlier application is permitted only as of fiscal years beginning after december 31 , 2016 , including interim reporting periods with that fiscal year . we are currently reviewing the revised guidance and assessing the potential impact on our consolidated financial statements . 24 in august 2014 , the fasb issued asu no . 2014-15 , “ presentation of financial statements - going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern. ” asu 2014-15 provides guidance about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern and sets rules for how this information should be disclosed in the financial statements . asu 2014-15 is effective for annual periods ending after december 15 , 2016 and interim periods thereafter . early adoption is permitted . we are currently evaluating any impact the adoption of asu 2014-15 might have on our consolidated financial statements . in april 2015 , the fasb issued asu no . 2015-03 , “ interest - imputation of interest ( subtopic 2015-03 ) : simplifying the presentation of debt issuance costs ” related to the presentation requirements for debt issuance costs and debt discount and premium . asu 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected by asu 2015-03. asu 2015-03 is effective for annual and interim periods beginning after december 15 , 2015. early adoption of the amendments in asu 2015-03 is permitted for financial statements that have not been previously issued . we do not believe that the adoption of asu 2015-03 will have a significant impact on our consolidated financial statements . in july 2015 , the fasb issued asu no . 2015-11 , “ simplifying the measurement of inventory , ” that requires inventory be measured at the lower of cost and net realizable value and options that currently exist for market value be eliminated . story_separator_special_tag deferred revenue on the accompanying december 31 , 2015 consolidated balance sheet is approximately $ 417,000 and is related to the bellco license agreement . we have recognized approximately $ 2,659,000 of revenue related to this license agreement to date and approximately $ 70,000 for the year ended december 31 , 2015 , resulting in $ 417,000 being deferred over the remainder of the expected obligation period . we amortize the deferred revenue monthly over the expected obligation period which ends on december 31 , 2021. as a result , expected revenue to be recognized will be approximately $ 70,000 in each of the next six years . stock-based compensation the fair value of stock options is recognized as stock-based compensation expense in net income . we calculate employee stock-based compensation expense in accordance with asc 718. we account for stock option grants to consultants under the provisions of asc 505-50 , and as such , these stock options are revalued at each reporting period through the vesting period . the fair value of our stock option awards are estimated using a black-scholes option valuation model . this model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . in addition , the calculation of compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period . the fair value of stock-based awards is amortized over the vesting period of the award . for stock awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . warrants we account for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement . stock warrants that allow for cash settlement or provide for modification of the warrant exercise price under certain conditions are accounted for as derivative liabilities . we classify derivative warrant liabilities on the balance sheet as a liability , which is revalued using a binomial options pricing model at each balance sheet date subsequent to the initial issuance . a binomial options pricing model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . the changes in fair value of the derivative warrant liabilities resulting from their remeasurement at each balance sheet date are recorded in current period earnings . accounts receivable we provide credit terms to our customers in connection with purchases of our products . we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential collection issues and returns . factors considered include economic conditions , each customer 's payment and return history and credit worthiness . adjustments , if any , are made to reserve balances following the completion of these reviews to reflect our best estimate of potential losses . inventory reserves our inventory reserve requirements are based on factors including the products ' expiration date and estimates for the future sales of the product . if estimated sales levels do not materialize , we will make adjustments to our assumptions for inventory reserve requirements . 26 accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . this process involves identifying services which have been performed on our behalf , and the level of service performed and the associated cost incurred for such service as of each balance sheet date in our consolidated financial statements . examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for the preclinical development of our products , the manufacturing of clinical materials , and clinical trials , as well as legal and accounting services provided by professional organizations . in connection with such service fees , our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs , which have begun to be incurred , or we under- or over-estimate the level of services performed or the costs of such services , our reported expenses for such period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . story_separator_special_tag ● to pursue business development opportunities with respect to our chronic renal treatment system ; and ● for working capital purposes . we operate under an investment , risk management and accounting policy adopted by our board of directors . such policy limits the types of instruments or securities in which we may invest our excess funds : u.s. treasury securities ; certificates of deposit issued by money center banks ; money funds by money center banks ; repurchase agreements ; and eurodollar certificates of deposit issued by money center banks . this policy provides that our primary objectives for investments shall be the preservation of principal and achieving sufficient liquidity to meet our forecasted cash requirements . in addition , provided that such primary objectives are met , we may seek to achieve the maximum yield available under such constraints . at december 31 , 2015 , we had an accumulated deficit of approximately $ 117,253,000 , and we expect to incur additional operating losses from operations in the foreseeable future at least until such time , if ever , that we are able to increase product sales or licensing revenue .
| results of operations fluctuations in operating results our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future . we anticipate that our annual results of operations will be impacted for the foreseeable future by several factors including the progress and timing of expenditures related to our research and development efforts , marketing expenses related to product launches , timing of regulatory approval of our various products and market acceptance of our products . due to these fluctuations , we believe that the period to period comparisons of our operating results are not a good indication of our future performance . the fiscal year ended december 31 , 2015 compared to the fiscal year ended december 31 , 2014 revenues total revenues for the year ended december 31 , 2015 were approximately $ 1,944,000 compared to approximately $ 1,748,000 for the year ended december 31 , 2014. total revenues increased approximately $ 196,000 , or 11.2 % . increases of approximately $ 856,000 , or 96 % , in ultrafilter sales and approximately $ 84,000 in bellco royalties were partially offset by a decrease of approximately $ 764,000 in revenue recognized under the bellco license agreement . cost of goods sold cost of goods sold was approximately $ 884,000 for the year ended december 31 , 2015 compared to approximately $ 549,000 for the year ended december 31 , 2014. the increase of approximately $ 335,000 , or 61 % , in cost of goods sold was primarily related to an increase in ultrafilter sales .
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revenue is recognized when delivery has occurred , persuasive evidence of an arrangement exists , fees are fixed or determinable and collectability of the related receivable is probable . for product revenue , delivery has occurred upon shipment provided title and risk of loss have passed to the customer . services and supplies revenue are considered to be delivered as the services are performed or over the estimated life of the supply agreement . the company recognizes revenue from the sale of its digital , film-based cad and cancer therapy products and services in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) update no . 2009-13 , multiple-deliverable revenue arrangements ( asu 2009-13 ) and asc update no . 2009-14 , certain arrangements that contain software elements ( asu 2009-14 ) and asc 985-605 , software ( asc 985-605 ) . revenue from the sale of certain cad products is recognized in accordance with asc 840 leases ( asc 840 ) . for multiple element arrangements , revenue is allocated to all deliverables based on their relative selling prices . in such circumstances , a hierarchy is used to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) and ( iii ) best estimate of the selling price ( besp ) . vsoe generally exists only when the deliverable is sold separately and is the price actually charged for that deliverable . the process for determining besp for deliverables without vsoe or tpe considers multiple factors including relative selling prices ; competitive prices in the marketplace , and management judgment ; however , these may vary depending upon the unique facts and circumstances related to each deliverable . the company uses customer purchase orders that are subject to the company 's terms and conditions or , in the case of an original equipment manufacturer ( oem ) are governed by distribution agreements . in accordance with the company 's distribution agreements , the oem does not have a right of return , and title and risk of loss passes to the oem upon shipment . the company generally ships free on board shipping point and uses shipping documents and third-party proof of delivery to verify delivery and transfer of title . in addition , the company assesses whether collection is probable by considering a number of factors , including past transaction history with the customer and the creditworthiness of the customer , as obtained from third party credit references . if the terms of the sale include customer acceptance provisions and compliance with those provisions can not be demonstrated , all revenue is deferred and not recognized until such acceptance occurs . the company considers all relevant facts and circumstances in determining when to recognize revenue , including contractual obligations to the customer , the customer 's post-delivery acceptance provisions , if any , and the installation process . the company has determined that icad 's digital and film based sales generally follow the guidance of fasb asc topic 605 revenue recognition ( asc 605 ) as the software has been considered essential to the functionality of the product per the guidance of asu 2009-14. typically , the responsibility for the installation process lies with the oem partner . on occasion , when icad is responsible for product installation , the installation element is considered a separate unit of accounting because the delivered product has stand-alone value to the customer . 50 in these instances , the company allocates revenue to the deliverables based on the framework established within asu 2009-13. therefore , the installation and training revenue is recognized as the services are performed according to the besp of the element . revenue from the digital and film based equipment , when there is installation , is recognized based on the relative selling price allocation of the besp , when delivered . revenue from certain cad products is recognized in accordance with asc 985-605. sales of this product include training , and the company has established vsoe for this element . product revenue is determined based on the residual value in the arrangement and is recognized when delivered . revenue for training is deferred and recognized when the training has been completed . sales of the company 's therapy segment products typically include a controller , accessories , source agreements and services . the company allocates revenue to the deliverables in the arrangement based on the besp in accordance with asu 2009-13. product revenue is generally recognized when the product has been delivered and service and source revenue is typically recognized over the life of the service and source agreement . the company includes the following in service and supplies revenue : the sale of physics and management services , the lease of electronic brachytherapy equipment , development fees , supplies and the right to use the company 's axxenthub software . physics and management services revenue and development fees are considered to be delivered as the services are performed or over the estimated life of the agreement . the company typically bills items monthly over the life of the agreement except for development fees , which are generally billed in advance or over a 12 month period and the fee for treatment supplies which is generally billed in advance . the company defers revenue from the sale of certain service contracts and recognizes the related revenue on a straight-line basis in accordance with asc topic 605-20 , services . the company provides for estimated warranty costs on original product warranties at the time of sale . allowance for doubtful accounts the company 's policy is to maintain allowances for estimated losses from the inability of its customers to make required payments . credit limits are established through a process of reviewing the financial results , stability and payment history of each customer . story_separator_special_tag as a result of external factors and general uncertainty related to reimbursement for non-melanoma skin cancer and in conjunction with the long-lived asset impairment testing , the company performed an impairment assessment of the therapy reporting unit as of june 30 , 2015. as a result the company recorded a goodwill impairment charge of $ 14.0 million during the quarter ended june 30 , 2015. the company determines the fair value of reporting units based on the present value of estimated future cash flows , discounted at an appropriate risk adjusted rate . this approach was selected as it measures the income producing assets , primarily technology and customer relationships . this method estimates the fair value based upon the ability to generate future cash flows , which is particularly applicable when future profit margins and growth are expected to vary significantly from historical operating results . the company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on the most recent views of the long-term forecast for the reporting unit . accordingly , actual results can differ from those assumed in the forecasts . discount rates are derived from a capital asset pricing model and analyzing published rates for industries relevant to the reporting unit to estimate the cost of equity financing . the company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in the internally developed forecasts . 53 other significant assumptions include terminal value margin rates , future capital expenditures , and changes in future working capital requirements . while there are inherent uncertainties related to the assumptions used and to the application of these assumptions to this analysis , the income approach provides a reasonable estimate of the fair value of the therapy reporting unit . the company performed the annual impairment assessment at october 1 , 2017 and compared the fair value of each of reporting unit to its carrying value as of this date . fair value exceeded the carrying value for the detection reporting unit , and the carrying value approximated fair value of the therapy reporting unit after the impairment as of september 30 , 2017. the carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities , to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units ' revenues and operating expenses compared to the company as a whole . the determination of reporting units also requires management judgment . fair values for the reporting units are based on a weighting of the income approach and the market approach . for purposes of the income approach , fair value is determined based on the present value of estimated future cash flows , discounted at an appropriate risk adjusted rate . the company uses internal forecasts to estimate future cash flows and includes estimates of long-term future growth rates based on our most recent views of the long-term forecast for each segment . accordingly , actual results can differ from those assumed in our forecasts . discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing . the company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts . in the market approach , the company uses a valuation technique in which values are derived based on market prices of publicly traded companies with similar operating characteristics and industries . a market approach allows for comparison to actual market transactions and multiples . it can be somewhat limited in its application because the population of potential comparable publicly-traded companies can be limited due to differing characteristics of the comparative business and ours , as well as the fact that market data may not be available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable , and the specific circumstances surrounding a market transaction ( e.g. , synergies between the parties , terms and conditions of the transaction , etc . ) may be different or irrelevant with respect to our business . the company corroborates the total fair values of the reporting units using a market capitalization approach ; however , this approach can not be used to determine the fair value of each reporting unit value . the blend of the income approach and market approach is more closely aligned to our business profile , including markets served and products available . in addition , required rates of return , along with uncertainties inherent in the forecast of future cash flows , are reflected in the selection of the discount rate . equally important , under the blended approach , reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price . the company assesses each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and weights the methodologies appropriately . 54 long lived assets in accordance with fasb asc topic 360 , property , plant and equipment , ( asc 360 ) , the company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than the carrying value of the asset group . asc 360-10-35 uses events and circumstances criteria to determine when , if at all , an asset ( or asset group ) is evaluated for recoverability . thus , there is no set interval or frequency for recoverability evaluation .
| results of operations overview icad , inc. is an industry-leading provider of advanced image analysis , workflow solutions and radiation therapy for the early identification and treatment of cancer . the company reports in two segments cancer detection ( detection ) and cancer therapy ( therapy ) . the company has grown primarily through acquisitions to become a broad player in the oncology market . in the detection segment , the company 's solutions include advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier , a comprehensive range of high-performance , upgradeable computer-aided detection ( cad ) systems and workflow solutions for mammography , magnetic resonance imaging ( mri ) and computed tomography ( ct ) . the company intends to continue the extension of its superior image analysis and clinical decision support solutions for mammography , mri and ct imaging . icad believes that advances in digital imaging techniques should bolster its efforts to develop additional commercially viable cad/advanced image analysis and workflow products . in the therapy segment the company offers an isotope-free cancer treatment platform technology . the xoft electronic brachytherapy system ( xoft system ) can be used for the treatment of early-stage breast cancer , endometrial cancer , cervical cancer and skin cancer . we believe the xoft system platform indications represent strategic opportunities in the united states and international markets to offer differentiated treatment alternatives . in addition , the xoft system generates additional recurring revenue for the sale of consumables and related accessories which will continue to drive growth in this segment . on january 4 , 2018 , the company adopted a plan to discontinue offering radiation therapy professional services to practices that provide the company 's electronic brachytherapy solution for the treatment of nmsc under the subscription service model within the therapy segment . as a result , the company will no longer offer the subscription service model to customers .
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risk factors , item 6. selected financial data and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. business overview ametek 's operations are affected by global , regional and industry economic factors . however , the company 's strategic geographic and industry diversification , and its mix of products and services , have helped to limit the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results . in 2015 , the company established records for operating income , operating income margins , net income and diluted earnings per share . contributions from recent acquisitions , combined with successful operational excellence initiatives , had a positive impact on 2015 results . the company also benefited from its strategic initiatives under ametek 's four key strategies : operational excellence , strategic acquisitions , global & market expansion and new products . highlights of 2015 were : operating income was $ 907.7 million or 22.8 % of net sales for 2015 , an increase of $ 9.1 million or 1.0 % , compared with $ 898.6 million or 22.3 % of net sales in 2014. net income for 2015 was $ 590.9 million , an increase of $ 6.4 million or 1.1 % , compared with $ 584.5 million in 2014. diluted earnings per share for 2015 were $ 2.45 , an increase of $ 0.08 or 3.4 % , compared with $ 2.37 per diluted share in 2014. during 2015 , the company recorded pre-tax realignment costs totaling $ 36.6 million . the realignment costs had the effect of reducing net income for 2015 by $ 24.7 million ( $ 0.10 per diluted share ) . see below for further discussion . during 2015 , the company spent $ 356.5 million in cash , net of cash acquired , to acquire two businesses : in may 2015 , ametek acquired global tubes , a manufacturer of high-precision , small-diameter metal tubing ; and in july 2015 , ametek acquired surface vision , formerly referred to as the surface inspection systems division of cognex corporation . surface vision develops and manufactures software-enabled vision systems used to inspect surfaces of continuously processed materials for flaws and defects . the company continued its emphasis on investment in research , development and engineering , spending $ 200.8 million in 2015 before customer reimbursement of $ 6.9 million . sales from products introduced in the past three years were $ 952.6 million or 24.0 % of net sales . 22 in august 2015 , the company obtained the third funding of $ 150 million under the third quarter of 2014 private placement agreement ( the 2014 private placement ) , consisting of $ 100 million in aggregate principal amount of 3.96 % senior notes due august 2025 and $ 50 million in aggregate principal amount of 4.45 % senior notes due august 2035. in june 2015 , the company obtained the second funding of $ 50 million in aggregate principal amount of 3.91 % senior notes due june 2025 under the 2014 private placement . the first funding under the 2014 private placement occurred in september 2014 for $ 500 million , consisting of $ 300 million in aggregate principal amount of 3.73 % senior notes due september 2024 , $ 100 million in aggregate principal amount of 3.83 % senior notes due september 2026 and $ 100 million in aggregate principal amount of 3.98 % senior notes due september 2029. the 2014 private placement senior notes carry a weighted average interest rate of 3.88 % and are subject to certain customary covenants , including financial covenants that , among other things , require the company to maintain certain debt-to-ebitda ( earnings before interest , income taxes , depreciation and amortization ) and interest coverage ratios . the proceeds from the third funding of the 2014 private placement were used to pay down senior notes that matured in the third quarter of 2015 described further below . the proceeds from the second funding of the 2014 private placement were used to pay down domestic borrowings under the company 's revolving credit facility . in the third quarter of 2015 , the company paid in full , at maturity , $ 90 million in aggregate principal amount of 6.59 % private placement senior notes and a 50 million euro ( $ 56.4 million ) 3.94 % senior note . in the fourth quarter of 2015 , the company paid in full , at maturity , $ 35 million in aggregate principal amount of 6.69 % private placement senior notes . results of operations the following table sets forth net sales and income by reportable segment and on a consolidated basis : replace_table_token_10_th ( 1 ) after elimination of intra- and intersegment sales , which are not significant in amount . ( 2 ) segment operating income represents net sales less all direct costs and expenses ( including certain administrative and other expenses ) applicable to each segment , but does not include interest expense . 23 results of operations for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 in 2015 , the company established records for operating income , operating income margins , net income and diluted earnings per share . contributions from the acquisitions completed in 2015 and the acquisitions of amptek , inc. in august 2014 and zygo corporation in june 2014 , as well as the company 's operational excellence initiatives had a positive impact on 2015 results . the full year impact of the 2015 acquisitions and continued focus on and implementation of operational excellence initiatives , including the 2015 realignment actions ( described further throughout the results of operations for the fourth quarter and year ended december 31 , 2015 ) , are expected to have a positive impact on the company 's 2016 results . the company expects the challenging global economic environment across many of its markets and geographies to continue in 2016. story_separator_special_tag segment operating income , as a percentage of net sales , increased to 24.1 % in 2015 , compared with 23.6 % in 2014. the increase in segment operating margins resulted primarily from the benefits of the company 's operational excellence initiatives , partially offset by the impact of the 2015 realignment costs noted above . segment operating margins for 2014 were negatively impacted by approximately 40 basis points due to the zygo integration costs noted above . cost of sales , excluding depreciation expense for 2015 was $ 2,549.3 million or 64.1 % of net sales , a decrease of $ 47.7 million or 1.8 % , compared with $ 2,597.0 million or 64.6 % of net sales for 2014. the cost of sales , excluding depreciation expense decrease and the corresponding decrease in cost of sales , excluding depreciation expense as a percentage of sales were primarily due to the net sales decrease noted above , the impact of foreign currency translation , as well as cost containment initiatives , which offset the 2015 realignment costs described above . cost of sales , excluding depreciation expense for 2014 included $ 18.9 million of zygo integration costs described above . selling , general and administrative ( sg & a ) expenses for 2015 were $ 448.6 million , a decrease of $ 14.0 million or 3.0 % , compared with $ 462.6 million in 2014. as a percentage of net sales , sg & a expenses were 11.3 % for 2015 , compared with 11.5 % in 2014. selling expenses for 2015 were $ 399.5 million , a decrease of $ 14.3 million or 3.5 % , compared with $ 413.8 million in 2014. selling expenses , as a percentage of net sales , decreased to 10.1 % for 2015 , compared with 10.3 % in 2014. the selling expenses decrease and the corresponding decrease in selling expenses as a percentage of sales were primarily due to cost containment initiatives and the impact of foreign currency translation . corporate administrative expenses for 2015 were $ 49.1 million or essentially flat , compared with $ 48.8 million in 2014. as a percentage of net sales , corporate administrative expenses were 1.2 % for both 2015 and 2014 . 25 consolidated operating income was $ 907.7 million or 22.8 % of net sales for 2015 , an increase of $ 9.1 million or 1.0 % , compared with $ 898.6 million or 22.3 % of net sales in 2014. interest expense was $ 91.8 million for 2015 , an increase of $ 11.9 million or 14.9 % , compared with $ 79.9 million in 2014. the increase was due to the impact of private placement senior notes funded in the second and third quarters of 2015 and the third quarter of 2014. other expenses , net were $ 9.5 million for 2015 , a decrease of $ 4.3 million , compared with $ 13.8 million in 2014. other expenses , net for 2015 benefited by lower acquisition-related expenses and the favorable impact from foreign currency translation . other expenses , net for 2014 included an $ 8.0 million insurance policy gain in the fourth quarter of 2014 and a $ 5.5 million reversal of an insurance policy receivable related to a specific uncertain tax position liability of an acquired entity in the third quarter of 2014. the effective tax rate for 2015 was 26.7 % , compared with 27.4 % in 2014. the effective tax rates for 2015 and 2014 reflect the impact of foreign earnings , which are taxed at lower rates . the 2015 effective tax rate reflects the first quarter of 2015 release of uncertain tax position liabilities related to the conclusion of an advance thin capitalization agreement in the european union , the second quarter of 2015 effective settlement of the u.s. research and development tax credit from the completion of an internal revenue service examination for 2010 and 2011 , and the third quarter of 2015 $ 7.5 million of tax benefits related to the closure of an international subsidiary . the 2014 effective tax rate reflects a release of $ 12.9 million of uncertain tax position liabilities related to an acquired entity due to the final closure of a tax year and foreign tax credit benefit on amounts repatriated during the year . see note 8 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . net income for 2015 was $ 590.9 million , an increase of $ 6.4 million or 1.1 % , compared with $ 584.5 million in 2014. the 2015 realignment costs reduced 2015 net income by $ 24.7 million . the zygo integration costs reduced 2014 net income by $ 13.9 million . diluted earnings per share for 2015 were $ 2.45 , an increase of $ 0.08 or 3.4 % , compared with $ 2.37 per diluted share in 2014. the 2015 realignment costs had the effect of reducing 2015 diluted earnings per share by $ 0.10. the zygo integration costs had the effect of reducing 2014 diluted earnings per share by $ 0.05. segment results eig 's net sales totaled $ 2,417.2 million for 2015 , a decrease of $ 4.4 million or essentially flat on a percentage basis , compared with $ 2,421.6 million in 2014. the net sales decrease was due to an unfavorable 3 % effect of foreign currency translation and 1 % internal sales decline , offset by a 4 % increase from the 2015 acquisition of surface vision and the 2014 acquisitions of amptek and zygo . eig 's operating income was $ 639.4 million for 2015 , an increase of $ 26.4 million or 4.3 % , compared with $ 613.0 million in 2014. eig 's increase in operating income was primarily due to the group 's operational excellence initiatives , partially offset by the 2015 realignment costs . eig 's 2014 operating income included $ 18.9 million of zygo integration costs .
| segment results eig 's net sales totaled $ 628.4 million for the fourth quarter of 2015 , a decrease of $ 16.0 million or 2.5 % , compared with $ 644.4 million for the fourth quarter of 2014. the net sales decrease was due to an unfavorable 3 % effect of foreign currency translation and 2 % internal sales decline , partially offset by a 2 % increase from the 2015 acquisition of surface vision . eig 's operating income was $ 161.7 million for the fourth quarter of 2015 , a decrease of $ 1.2 million or 0.7 % , compared with $ 162.9 million for the fourth quarter of 2014. eig 's decrease in operating income was 27 primarily due to the lower sales noted above and included $ 9.3 million of fourth quarter of 2015 realignment costs , partially offset by the benefits of the group 's operational excellence initiatives . eig 's fourth quarter of 2014 operating income included $ 5.2 million of zygo integration costs . eig 's operating margins were 25.7 % of net sales for the fourth quarter of 2015 , compared with 25.3 % of net sales for the fourth quarter of 2014. eig 's increase in operating margins resulted primarily from the benefits of the group 's operational excellence initiatives , partially offset by the approximate 150 basis point negative impact from the fourth quarter of 2015 realignment costs noted above . eig 's fourth quarter of 2014 operating margins were negatively impacted by approximately 80 basis points due to the fourth quarter of 2014 zygo integration costs noted above .
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14. retirement plans and postretirement benefits we sponsor various defined benefit and defined contribution retirement story_separator_special_tag this 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 and other financial information appearing elsewhere in this form 10-k. the following discussion includes statements that are forward-looking statements that are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . overview general lp is a leading manufacturer of sustainable , quality engineered wood building materials including osb , structural framing products , and exterior siding for use in residential , industrial and light commercial construction . our products are used primarily in new home construction , repair and remodeling , and outdoor structures . we also market and sell our products in light industrial and commercial construction and we have a modest export business . our manufacturing facilities are primarily located in the u.s. and canada , but we also operate two facilities in chile and one facility in brazil . to serve these markets , we operate in four segments : siding ; north america oriented strand board ( osb ) ; engineered wood products ( ewp ) ; and south america . story_separator_special_tag used in accounting for our pension plans would have a $ 1.2 million impact on pension expense and a 50 basis point change in the discount rate would have a $ 0.4 million impact on pension expense . it is not possible to forecast or predict whether there will be actuarial gains and losses in future periods , and if required , the magnitude of any such adjustment . these gains and losses are driven by differences in actual experience or changes in the assumptions that are beyond our control , such as changes in interest rates and the actual return on pension plan assets . for our u.s. plans , we used a long term rate of return assumption of 5.75 % and discount rate of 3.45 % . for our canadian plans , we used a long term rate of return assumption of 4.06 % and discount rate of 3.25 % income taxes in accordance with gaap , we establish deferred tax liabilities or assets for temporary differences between financial and tax reporting bases and subsequently adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse . we record a valuation allowance reducing deferred tax assets when it is more likely than not that such assets will not be realized . we record liabilities for uncertain income tax positions based on a two-step process . the first step is recognition , where we evaluate whether an individual tax position has a likelihood of greater than 50 % of being sustained upon examination based on the technical merits of the position , including resolution of any related appeals or litigation processes . for tax positions that are currently estimated to have a less than 50 % likelihood of being sustained , no tax benefit is recorded . for tax positions that have met the recognition threshold in the first step , we perform the second step of measuring the benefit ( expense ) to be recorded . the actual benefits ( expense ) ultimately realized may differ from our estimates . in future periods , changes in facts , circumstances , and new information may require us to change the recognition and measurement estimates with regard to individual tax positions . changes in recognition and measurement estimates are recorded in the consolidated statement of income and consolidated balance sheet in the period in which such changes occur . as of december 31 , 2017 , we had liabilities for unrecognized tax benefits pertaining to uncertain tax positions totaling $ 40.3 million . customer program costs customer programs and incentives are a common practice in our businesses . our businesses incur customer program costs to obtain favorable product placement , to promote sales of products and to maintain competitive pricing . customer program costs and incentives , including rebates and promotion and volume allowances , are accounted for in either net sales or the category selling and administrative expenses at the time the program is initiated and or the revenue is recognized . the costs are predominantly recognized in net sales and include , but are not limited to , volume allowances and rebates , promotional allowances , and cooperative advertising programs . these costs are recorded at the later of the time of sale or the implementation of the program based on management 's best estimates . estimates are based on historical and projected experience for each type of program or customer . volume allowances are accrued based on management 's estimates of customer volume achievement and other factors incorporated into customer agreements , such as new products , store sell-through , merchandising support and customer training . management periodically reviews accruals for these rebates and allowances , and adjusts accruals when circumstances indicate ( typically as a result of a change in volume expectations ) . as of december 31 , 2017 and 2016 , we had $ 24.2 million and $ 19.3 million accrued as customer rebates . warranty obligations customers are provided with a limited warranty against certain defects associated with our products for periods of up to fifty years . we estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time product revenue is recognized . factors that affect our warranty liability include the historical 20 and anticipated rates of warranty claims and the cost of resolving such . we periodically assess the adequacy of our recorded warranty liability for each product and adjust the amounts as necessary . while we believe we have a reasonable basis for these assumptions , actual warranty costs in the future could differ from our estimates . story_separator_special_tag segment sales , operating profits and adjusted ebitda from continuing operations for this segment were as follows : replace_table_token_12_th sales in this segment by product line were as follows : replace_table_token_13_th percent changes in average sales prices and unit shipments are as follows : 24 replace_table_token_14_th for the year ended december 31 , 2017 compared to 2016 , sales volumes increased in our smartside siding line based upon increased demand in our key markets . sales prices in our smartside siding product line for the year ended december 31 , 2017 as compared to 2016 were due to changes in product mix as well as a price increase , which was implemented in the second quarter of 2017 . for canexel , sales volumes increased in the year ended december 31 , 2017 as compared to 2016 due to increased demand in canada as well as demand related to the introduction of several new colors . sales prices were higher for the year ended december 31 , 2017 as compared to 2016 due to changes in our product mix and the fluctuations in the u.s. to canadian dollar as majority of these sales are denominated in canadian dollars . for our osb produced in the siding segment for the year ended december 31 , 2017 compared to 2016 , sales prices increased as compared to the same periods in the prior year , as discussed in the osb segment below . the increase in selling price favorably impacted operating results and adjusted ebitda from continuing operations by approximately $ 14.2 million for the year ended december 31 , 2017 as compared to 2016. overall , the improvement in the siding segment for the year ended december 31 , 2017 compared to 2016 was primarily due to increased siding sales volumes and price and higher osb prices partially offset by increases in raw materials ( primarily resins ) and cost associated with our planned conversion of our dawson creek osb mill to a siding mill in 2018. osb our osb segment manufactures and distributes osb structural panel products in north america and certain export markets . osb is an innovative , affordable and environmentally smart product . osb is manufactured through the use of wood strands arranged in layers and bonded with resins and wax . significant cost inputs to produce osb and approximate breakdown percentages for the year ended december 31 , 2017 include wood fiber ( 30 % ) , resin and wax ( 20 % ) , labor and burden ( 17 % ) , utilities ( 5 % ) and manufacturing and other ( 29 % ) . segment sales , operating profits ( losses ) and adjusted ebitda from continuing operations for this segment were as follows : replace_table_token_15_th 25 sales in this segment by product line were as follows : replace_table_token_16_th percent changes in average sales prices and unit shipments are as follows : 2017 versus 2016 2016 versus 2015 average net selling price unit shipments average net selling price unit shipments osb 29 % ( 1 ) % 25 % 3 % for the year ended december 31 , 2017 as compared to 2016 , osb prices increased . the increase in osb prices was likely due to higher demand compared to the supply available in the market and the continued focus on higher value products which results in a higher average selling price . the increase in selling price favorably impacted operating results and adjusted ebitda from continuing operations by $ 293 million . osb sales volumes were essentially flat between periods . overall operating results for osb for the year ended december 31 , 2017 as compared to 2016 increased due to higher sales prices offset by increases in raw material costs ( primarily resins ) , manufacturing costs due to downtime related to capital and maintenance projects and increases in business related marketing costs . engineered wood products our ewp segment manufactures and distributes lvl , lsl , i-joists and other related products . this segment also includes the sale of i-joist and lvl products produced by our joint venture with resolute forest products and under a sales and marketing arrangement with murphy plywood . included in this segment is a plywood mill , which primarily produces plywood as a by-product from the lvl production process . osb is also produced by our lsl facility . segment sales , operating losses and adjusted ebitda from continuing operations for this segment were as follows : replace_table_token_17_th sales in this segment by product line were as follows : 26 replace_table_token_18_th percent changes in average sales prices and unit shipments are as follows : replace_table_token_19_th for the year ended december 31 , 2017 as compared to 2016 , sales volumes increased in lvl , lsl , i-joist and plywood due to improved market demand due to increased housing starts . net average selling prices increased due to changes in product mix and price increases implemented across all product lines . osb prices changed due to changes in product based on the decision to produce a higher percentage of commodity osb in our houlton , maine facility . plywood prices increased likely due to higher demand compared to the supply available in the market . the increase in selling prices for plywood favorably impacted operating results and adjusted ebitda from continuing operations by $ 3.2 million as compared to 2016 . the change in osb pricing had a minimal impact due to the change in product mix . overall operating results for ewp for the year ended december 31 , 2017 as compared to 2016 improved due to increased sales prices and volume offset by increases in raw material costs ( primarily lumber and veneer ) . south america our south america segment manufactures and distributes osb and siding products and other related products in south america . we operate in two geographic areas of south america , chile and brazil . we have sales offices located in chile , brazil and peru .
| executive summary we recorded a 22 % increase in sales to $ 2.7 billion for the year ended december 31 , 2017 from $ 2.2 billion reported for the year ended december 31 , 2016 . we recorded income from operations of $ 523.4 million during 2017 compared to $ 204.0 million during the prior year . we recorded net income of $ 389.8 million ( $ 2.66 per diluted share ) during 2017 compared to $ 149.8 million ( $ 1.03 per diluted share ) during the prior year . we reported an increase of $ 320.7 million in adjusted ebitda between years . improvements in osb pricing in all north american operations had a positive impact of $ 307.3 million for 2017 as compared to 2016 for operating results . we recorded an 18 % increase in sales to $ 2.2 billion for the year ended december 31 , 2016 from $ 1.9 billion reported for the year ended december 31 , 2015 . we recorded income from operations of $ 204.0 million during 2016 compared a loss of $ 63.3 million during the prior year . we recorded net income of $ 149.8 million ( $ 1.03 per diluted share ) during 2016 compared to a loss of $ 88.1 million ( $ 0.62 per diluted share ) during the prior year . we reported an increase of $ 279.1 million in adjusted ebitda between years . improvements in osb pricing in all north american operations had a positive impact of $ 215.2 million for 2016 as compared to 2015 operating results . the following tables provides a breakdown of our sales for the last three years by product category .
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you should carefully read the “ cautionary note regarding forward-looking statements ” and “ risk factors ” in this form 10-k. overview our operations are entirely focused on the manufacture and marketing of concrete reinforcing products for the concrete construction industry . our business strategy is focused on : ( 1 ) achieving leadership positions in our markets ; ( 2 ) operating as the lowest cost producer ; and ( 3 ) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint . on august 15 , 2014 , we , through our wholly-owned subsidiary , iwp , purchased substantially all of the assets associated with the pc strand business of asw for a final adjusted purchase price of $ 33.5 million . asw manufactured pc strand at facilities located in houston , texas and newnan , georgia ( see note 4 to the consolidated financial statements ) . we acquired , among other assets , the accounts receivable and inventories related to asw 's pc strand business , production equipment at its facilities in houston , texas and newnan , georgia , and the newnan facility . we also entered into an agreement to lease the houston facility from asw with an option to purchase it in the future . subsequent to the acquisition , we elected to consolidate our pc strand operations with the closure of the newnan facility , which was completed in march 2015. critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . our discussion and analysis of our financial condition and results of operations are based on these consolidated financial statements . the preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information , actuarial estimates , historical results and other assumptions believed to be reasonable . actual results could differ from these estimates . the following critical accounting policies are both important to the depiction of our financial condition and results of operations and require judgments , assumptions and estimates . revenue recognition . we recognize revenue from product sales when products are shipped and risk of loss and title has passed to the customer . sales taxes collected from customers are excluded from revenues and recorded on a net basis . concentration of credit risk . financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable . our cash is concentrated primarily at one financial institution , which at times exceeds federally insured limits . we are exposed to credit risk in the event of default by institutions in which our cash and cash equivalents are held and by customers to the extent of the amounts recorded on the balance sheet . we invest excess cash primarily in money market funds , which are highly liquid securities that bear minimal risk . 12 most of our accounts receivable are due from customers that are located in the u.s. and are generally not secured by collateral depending upon the creditworthiness of the account . we provide an allowance for doubtful accounts based upon our assessment of the credit risk of specific customers , historical trends and other information . there is no disproportionate concentration of credit risk . allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments on outstanding balances owed to us . significant management judgments and estimates are used in establishing the allowances . these judgments and estimates consider such factors as the financial position , cash flows and payment history of our customers as well as current and expected business conditions . it is reasonably likely that actual collections will differ from our estimates , which may result in increases or decreases in the allowances . adjustments to the allowances may also be required if there are significant changes in the financial condition of our customers . inventory valuation . we periodically evaluate the carrying value of our inventory . this evaluation includes assessing the adequacy of allowances for losses in the normal course of operations , providing for excess and obsolete inventory , and ensuring that inventory is valued at the lower of cost or estimated net realizable value . our evaluation considers such factors as the cost of inventory , future demand , our historical experience and market conditions . in assessing the realization of inventory values , we are required to make judgments and estimates regarding future market conditions . because of the subjective nature of these judgments and estimates , it is reasonably likely that actual outcomes will differ from our estimates . adjustments to these reserves may be required if actual market conditions are substantially different than the assumptions underlying our estimates . long-lived assets . we review long-lived assets , which consist principally of property , plant and equipment and finite-lived intangibles , for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be fully recoverable . recoverability of long-lived assets to be held and used is measured based on the future net undiscounted cash flows expected to be generated by the related asset or asset group . if it is determined that an impairment loss has been incurred , the impairment loss is recognized in the period in which it is incurred and is calculated based on the difference between the carrying value and the present value of estimated future net cash flows or comparable market values . assets to be disposed of by sale are recorded at the lower of carrying value or fair value less selling cost when we have committed to a disposal plan , and are reported separately as assets held for sale on our balance sheet . story_separator_special_tag changes in this assumption can result in the recognition of a materially different pension cost over different periods and a materially different liability amount in our consolidated financial statements . a reduction in the assumed discount rate generally results in an actuarial loss , as the actuarially-determined present value of estimated future benefit payments will increase . conversely , an increase in the assumed discount rate generally results in an actuarial gain . however , any actuarial gains generated in future periods reduce the negative amortization effect of any cumulative unamortized actuarial losses , while any actuarial losses generated in future periods reduce the favorable amortization effect of any cumulative unamortized actuarial gains . the projected benefit obligations and net periodic pension cost for the serps are based in part on expected increases in future compensation levels . our assumption for the expected increase in future compensation levels is based upon our average historical experience and our intentions regarding future compensation increases , which generally approximates average long-term inflation rates . we currently expect net periodic pension cost for fiscal 2017 to be $ 856,000 for the serps . cash contributions to the serps during fiscal 2017 are expected to be $ 290,000. a 0.25 % decrease in the assumed discount rate for our serps would have increased our projected and accumulated benefit obligations as of october 1 , 2016 by approximately $ 290,000 and $ 224,000 , respectively , and our expected net periodic pension cost for fiscal 2017 by approximately $ 30,000. see note 11 to our consolidated financial statements for the related accounting and disclosures surrounding our terminated pension plan , the insteel wire products company retirement income plan for hourly employees , wilmington , delaware ( the “ delaware plan ” ) . recent accounting pronouncements . the nature and impact of recent accounting pronouncements is discussed in note 3 to our consolidated financial statements and incorporated herein by reference . 14 story_separator_special_tag line-height : 1.25 '' > acquisition costs acquisition costs of $ 0.6 million were incurred in 2014 for legal , accounting and other professional fees related to the asw acquisition , which were expensed as required under the provisions of asc topic 805 , business combinations . other expense ( income ) other income for 2015 was $ 1.1 million compared to $ 1.9 million in 2014. the other income for 2015 was primarily related to a $ 1.7 million net gain from insurance proceeds attributable to the replacement of property and equipment damaged in the fire at our gallatin , tennessee pc strand facility in 2014 , partially offset by a $ 0.7 million charge related to the settlement of a customer dispute . the other income for 2014 was largely related to a net gain from insurance proceeds attributable to the replacement of property and equipment damaged in the gallatin fire . interest expense interest expense increased 27.0 % to $ 320,000 in 2015 from $ 252,000 in 2014 primarily due to higher average borrowings on our revolving credit facility during 2015. income taxes our effective income tax rate for 2015 was essentially unchanged at 34.1 % compared with 34.0 % in 2014. net earnings net earnings increased to $ 21.7 million ( $ 1.15 per diluted share ) in 2015 from $ 16.6 million ( $ 0.89 per diluted share ) in 2014 primarily due to the increase in gross profit partially offset by higher sg & a expense . liquidity and capital resources selected financial data ( dollars in thousands ) replace_table_token_4_th operating activities operating activities provided $ 54.5 million of cash in 2016 primarily from net earnings adjusted for non-cash items and a reduction in the net working capital components of accounts receivable , inventories , and accounts payable and accrued expenses . net working capital provided $ 3.2 million of cash due to a $ 9.0 million increase in accounts payable and accrued expenses partially offset by a $ 5.2 million increase in inventories and a $ 0.6 million increase in accounts receivable . the increases in accounts payable and accrued expenses and inventories were largely related to higher raw material purchases near the end of the period . the increase in accounts receivable was primarily due to an increase in days sales outstanding partially offset by lower selling prices . operating activities provided $ 35.8 million of cash in 2015 primarily from net earnings adjusted for non-cash items and a reduction in the net working capital components of accounts receivable , inventories , and accounts payable and accrued expenses . net working capital provided $ 2.3 million of cash due to a $ 15.9 million decrease in inventories and a $ 4.3 million decrease in accounts receivable partially offset by a $ 17.9 million decrease in accounts payable and accrued expenses . the decrease in inventories and accounts payable and accrued expenses was primarily due to lower raw material purchases and unit costs . the decrease in accounts receivable was related to lower selling prices . 17 operating activities provided $ 29.2 million of cash in 2014 primarily from net earnings adjusted for non-cash items and a reduction in the net working capital components of accounts receivable , inventories , and accounts payable and accrued expenses . net working capital provided $ 2.4 million of cash due to a $ 21.3 million increase in accounts payable and accrued expenses partially offset by a $ 16.8 million increase in inventories and a $ 2.1 million increase in accounts receivable . the increases in accounts payable and accrued expenses and inventories were largely related to higher raw material purchases driven by the increase in sales . the increase in accounts receivable was primarily due to the increase in sales . we may elect to adjust our operating activities as there are changes in the conditions in our construction end-markets , which could materially impact our cash requirements . while a downturn in the level of construction activity affects sales to our customers , it generally reduces our working capital requirements .
| results of operations statements of operations – selected data ( dollars in thousands ) replace_table_token_3_th 2016 compared with 2015 net sales net sales decreased 6.5 % to $ 418.5 million in 2016 from $ 447.5 million in 2015 as a 2.6 % increase in shipments was offset by an 8.8 % reduction in average selling prices . shipments for the prior year benefited from an extra week based on our fiscal calendar . on a pro forma basis adjusting both years to reflect the same 52-week period as 2016 , the year-over-year shipment increase was 4.8 % . the increase in shipments was primarily due to improved market conditions and increased demand for our products relative to the prior year . the decrease in average selling prices was driven by competitive pricing pressures . gross profit gross profit increased 46.0 % to $ 85.2 million , or 20.4 % of net sales , in 2016 from $ 58.3 million , or 13.0 % of net sales , in 2015. the year-over-year increase was primarily due to higher spreads between average selling prices and raw material costs ( $ 22.3 million ) , lower unit conversion costs ( $ 2.3 million ) and the increase in shipments ( $ 1.6 million ) . the increase in spreads was driven by lower raw material costs ( $ 62.4 million ) and freight expense ( $ 0.5 million ) partially offset by lower average selling prices ( $ 40.6 million ) .
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however , due to the sharp increase in demand that began in the latter part of the second quarter of 2020 and several divestitures and closures of operations using the lifo method in the last three years , our lifo inventories have been lower than historical levels , and currently represent about one-third of our total inventories . over those years , the decreases in inventories valued using the lifo story_separator_special_tag highlights as with most companies , we faced a wide variety of challenges in 2020 stemming from the covid-19 pandemic . the impact began in january , directly affecting our operations in china . the crisis accelerated , impacting virtually all geographies by mid-march . we quickly took action to align our variable cost structure to demand levels , significantly reduce fixed costs and cut capital expenditures , prioritize accounts receivable and inventory management , and amend the financial covenant in our revolving credit facility to provide additional liquidity . these efforts helped to strengthen cash flow and protect our balance sheet . by mid-second quarter , we began to see rapid recovery in businesses serving home-related markets . this benefited our bedding , home furniture , flooring , and textiles businesses . as sales recovered , we maintained most of the fixed cost reductions , adding costs only to support higher volumes and future growth opportunities . ebit margins benefited from this cost discipline . sales decreased 10 % in 2020 , primarily from pandemic-related economic declines across most of our businesses . acquisitions added 1 % to sales . organic sales ( as defined below ) were down 11 % , on 10 % lower volume and raw material-related selling price decreases of 1 % . earnings decreased primarily from the impact of lower sales , a change in lifo impact , and a goodwill impairment charge , partially offset by fixed cost reductions . in 2020 , we generated operating cash flow of $ 603 million , a $ 65 million decrease versus a record $ 668 million in 2019. the decrease was driven primarily by lower earnings . we generated more than enough operating cash flow to fund dividends and capital expenditures , something we have accomplished each year for over 30 years . because of the economic impacts of the covid-19 pandemic on our business , we amended our revolving credit agreement in may to change our financial covenant to a 4.75x net debt to trailing 12-month ebitda metric ( from 3.5x total debt ) . this change increased availability under our revolving credit facility , which serves as back-up for our commercial paper program . we ended 2020 with full availability under the $ 1.2 billion credit facility . we also continued our focus on deleveraging in 2020 by limiting acquisitions and share repurchases and using operating cash flow to repay debt . we reduced debt by $ 228 million in 2020 and expect to further reduce debt levels in 2021. our financial base remains strong . we increased the annual dividend in 2020 to $ 1.60 per share from $ 1.58 per share in 2019 and extended our record of consecutive annual increases to 49 years . consistent with our deleveraging plan , share repurchases were limited in 2020. for the full year , we repurchased 240,000 shares of our stock , primarily surrendered for employee benefit plans . portfolio management remains a strategic priority . over the past several years we have enhanced our business portfolio and improved margins by growing our stronger businesses and exiting or restructuring businesses that consistently struggled to deliver acceptable returns . during 2020 , we divested two businesses in our bedding products segment : a small operation in our former fashion bed business and a small specialty wire operation in our drawn wire business . total capital expenditures were $ 66 million , 54 % lower than 2019 , reflecting our sharp focus on optimizing cash flow as we navigated the effects of the covid-19 pandemic . we incurred the following pretax charges in 2020 : replace_table_token_5_th 33 the $ 25 million goodwill impairment charge related to our hydraulic cylinders business . the $ 8 million impairment charge related to a note receivable . the $ 4 million stock write-off was associated with a prior year divestiture that filed bankruptcy in 2020. the restructuring-related charges are primarily attributable to pandemic-related severance costs . these topics are discussed in more detail in the sections that follow . introduction total shareholder return total shareholder return ( tsr ) , relative to peer companies , is a primary financial measure that we use to assess long-term performance . tsr = ( change in stock price + dividends ) ÷ beginning stock price . our goal is to achieve tsr in the top third of the s & p 500 companies over the long term through an approach that employs four tsr sources : revenue growth , margin expansion , dividends , and share repurchases . we monitor our tsr performance relative to the s & p 500 on a rolling three-year basis . our tsr was below the 11-14 % target over the most recent 3-year period . over those same years , the tsr of the s & p 500 at 14 % was well above historical averages . as a result , our recent 3-year averages did not meet our top-third goal . for the 3-year period that ended on december 31 , 2020 , our tsr performance of 1 % placed us in the bottom third of the s & p 500. we believe our disciplined growth strategy , portfolio management , and prudent use of capital will support achievement of our goal over time . the table below shows the components of our tsr targets . long term , accomplishing this level of performance over rolling three-year periods should enable us to consistently attain our top-third tsr goal . story_separator_special_tag in an effort to manage supply chain risks , we are engaging with customers to work through these issues . the shortages have resulted in higher pricing for nonwoven fabrics . if we are unable to obtain the fabrics , can not pass the cost along to our customers , are required to modify existing contracts to accommodate customers , or pay damage claims to customers , our results of operations may be negatively impacted . as demand has improved , we also have experienced some temporary labor shortages . we are in the process of hiring additional employees and adding equipment , particularly in our u.s. spring business , to meet this demand . because of the shift of production by semiconductor microchip manufacturers to consumer electronics , such as laptops and tablets for home-schooling and home-offices , and away from automotive applications during the covid-19 related automotive industry shutdowns in 2020 , currently there is a shortage of microchips in the automotive industry . our automotive group uses the microchips in seat comfort products , and to a lesser extent in motors and actuators . although , to date , our automotive group has been able to obtain an adequate supply of microchips , we are dependent on our suppliers to deliver these microchips in accordance with our production schedule , and a shortage of the microchips can disrupt our operations and our ability to deliver products to our customers . also , because of the industry shortage , automotive oems and other suppliers have not been able to secure an adequate supply of microchips , and as a result have reduced their production of automobiles or parts , which in turn has recently reduced , and may continue to reduce our sale of products . if we can not secure an adequate supply of microchips in our supply chain , and the microchips can not be sourced from a different supplier , or the automotive oems and other suppliers continue to reduce their production as a result of such shortage , this may negatively impact our sales , earnings and financial condition . some facilities have experienced problems delivering products to customers because of travel restrictions and disruption in logistics necessary to import , export , or transfer products across borders . our inability to keep our manufacturing operations open , build and maintain appropriate labor levels , obtain necessary raw materials and parts , and ship finished products to customers may increase labor and commodity costs and otherwise negatively impact our results of operations . the company has implemented comprehensive safety protocols focused on protecting our employees and ensuring a safe work environment . where possible , our employees are working remotely . however , most of our production employees have returned to work . when employees test positive for covid-19 , we follow adopted protocols which include enhanced disinfecting that targets areas that have likely exposure to covid-19 . the employee is required to observe a quarantine period , monitor symptoms , and follow medical guidance prior to returning to work . contact tracing is performed to identify any other employees who had direct contact with the employee who tested positive for covid-19 . if any direct contacts are identified , those employees must also self-isolate , monitor symptoms , and follow medical guidance prior to returning to work . a significant increase in covid-19 cases among our employees may disrupt our ability to maintain necessary labor levels and produce and deliver products to our customers if we are unable to shift production to other manufacturing facilities . severance costs related to workforce reductions . to align our variable cost structure to reduced demand for our products in certain business units , we decreased the size of our workforce . we incurred severance costs of $ 7 million in 2020 and we do not expect any additional material charges . however , if circumstances change because of lack of demand , mandatory governmental closure of our facilities , or otherwise , we may incur future material separation costs . collection of trade and notes receivables . some of our customers and other third parties have been adversely affected by the social and governmental restrictions and limitations related to the covid-19 pandemic . if these parties suffer significant financial difficulty , they may be unable to pay their debts to us , they may reject their contractual obligations to us under bankruptcy laws or otherwise , or we may have to negotiate significant discounts and or extend financing terms with these parties . if we are unable to collect trade receivables and other notes receivables on a timely basis , this inability will require larger provisions for bad debt . we are closely monitoring accounts receivable and collections . however , at december 31 , 2020 , the level of our accounts receivable in current status was above pre-covid-19 levels . 36 part ii impairment of goodwill and long-lived assets . a significant portion of our assets consists of goodwill and other long-lived assets , the carrying value of which may be reduced if we determine that those assets are impaired . at december 31 , 2020 , goodwill and other intangible assets represented $ 2.1 billion , or 44 % of our total assets . the 2020 annual goodwill impairment testing resulted in a $ 25 million non-cash goodwill impairment charge in the second quarter of 2020 with respect to our hydraulic cylinders reporting unit , which is a part of the specialized products segment . demand for hydraulic cylinders is dependent upon capital spending for material handling equipment . the impairment charge reflects the complete write-off of the goodwill associated with the hydraulic cylinders reporting unit and will not result in future cash expenditures . the anticipated longer-term economic impacts of covid-19 lowered expectations of future revenue and profitability causing its fair value to fall below its carrying value . in connection with the preparation and review of the second quarter financial statements we concluded that an impairment charge was required with respect to this reporting unit .
| consolidated results the following table shows the changes in sales and earnings during 2019 , and identifies the major factors contributing to the changes . replace_table_token_9_th 1 calculations impacted by rounding full-year trade sales grew 11 % , to $ 4.75 billion , and organic sales decreased 3 % . volume declined 3 % , with gains in most of our businesses , including u.s. spring , automotive , work furniture , and aerospace , more than offset by the planned exit of business in fashion bed and home furniture which reduced sales 3 % and weak trade demand for steel rod and wire . raw material-related selling price inflation from increases implemented in late 2018 were offset by a negative currency impact . acquisitions contributed 14 % to sales growth . as indicated in the table above , earnings increased from the non-recurrence of a note impairment charge in 2018 and lower restructuring-related and acquisition-related transaction costs . operationally , earnings improved primarily from lower raw material costs ( including lifo benefit ) , the ecs acquisition , and improved earnings performance from the 2018 restructuring plan . lifo impact at december 31 , 2019 , approximately 40 % of our inventories were valued on the lifo method . these were primarily our domestic , steel-related inventories . in 2019 , decreasing steel costs resulted in a full-year pretax lifo benefit of $ 32 million . in 2018 , increasing steel costs resulted in a full-year pretax lifo expense of $ 31 million . for further discussion of inventories , see note a on page 82 of the notes to consolidated financial statements . interest and income taxes net interest expense in 2019 was higher by $ 30 million primarily due to debt increases in early 2019 to fund the ecs acquisition .
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the increase in goodwill from january 1 , 2012 to december 31 , 2012 is due to the acquisitions of frs in the first quarter of 2012 and etm in the fourth quarter of 2012. note 6 — other intangible assets information regarding other intangible assets as of december 31 , 2014 and december 31 , 2013 follows : december 31 , 2014 december 31 , 2013 weighted average useful life ( years ) acquisition costs accumulated amortization net acquisition costs accumulated amortization net ( in millions ) non-contractual customer relationships 11.9 $ 77.3 $ 13.2 $ 64.1 $ 61.1 $ 8.7 $ 52.4 indefinite-lived tradenames * 14.0 * 14.0 11.7 * 11.7 other 17.5 12.3 2.3 10.0 3.9 1.8 2.1 total $ 103.6 $ 15.5 $ 88.1 $ 76.7 $ 10.5 $ 66.2 * not meaningful , tradenames have an indefinite life . 61 park-ohio holdings corp. and subsidiaries notes to consolidated financial story_separator_special_tag our consolidated financial statements include the accounts of park-ohio holdings corp. and its subsidiaries . all significant intercompany transactions have been eliminated in consolidation . the historical financial information discussed below is not directly comparable on a year-to-year basis , primarily due to acquisitions and litigation costs in 2014 , 2013 and 2012 , dispositions in 2013 and a refinancing in 2012. executive overview general we are an industrial total supply management and diversified manufacturing business , operating in three segments : supply technologies , assembly components and engineered products . our supply technologies business provides our customers with total supply management , a proactive solutions approach that manages the efficiencies of every aspect of supplying production parts and materials to our customers ' manufacturing floor , from strategic planning to program implementation . total supply management includes such services as engineering and design support , part usage and cost analysis , supplier selection , quality assurance , bar coding , product packaging and tracking , just-in-time and point-of-use delivery , electronic billing services and ongoing technical support . our supply technologies business services customers in the following principal industries : heavy-duty truck ; automotive , truck and vehicle parts ; power sports and recreational equipment ; bus and coaches ; electrical distribution and controls ; agricultural and construction equipment ; consumer electronics ; hvac ; lawn and garden ; semiconductor equipment ; aerospace and defense ; and plumbing . assembly components manufactures parts and assemblies and provides value-added design , engineering and assembly services that are incorporated into our customer 's end products . our product offerings include cast and machined aluminum engine , transmission , brake , suspension and other components , such as pump housings , clutch retainers/pistons , control arms , knuckles , master cylinders , pinion housings , brake calipers , oil pans and flywheel spacers , industrial hose and injected molded rubber components , gasoline direct injection systems and fuel filler assemblies . our products are primarily used in the following industries : automotive ; agricultural ; construction ; heavy-duty truck ; and marine oems , primarily on a sole-source basis . engineered products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of highly-engineered products including induction heating and melting systems , pipe threading systems , industrial oven systems , and forged and machined products . engineered products also produces and provides services and spare parts for the equipment it manufactures . the principal customers of engineered products are oems , sub-assemblers and end users in the ferrous and non-ferrous metals , silicon , coatings , forging , foundry , heavy-duty truck , construction equipment , automotive , oil and gas , locomotive and rail manufacturing , and aerospace and defense industries . story_separator_special_tag taxes of $ 19.4 million provided in 2013 , a 32.2 % effective income tax rate . the increase in the effective tax rate in 2014 is primarily due to various non-deductible items . net income from continuing operations : net income from continuing operations increased $ 6.0 million to $ 46.9 million in 2014 , compared to $ 40.9 million in 2013 , due to the reasons described above . income ( loss ) from discontinued operations : in september 2013 , the company sold all of the outstanding equity interests of a non-core business unit in the supply technologies segment for $ 8.5 million in cash , which resulted in a net gain of approximately $ 3.8 million , after taxes of $ 1.5 million . the income from discontinued operations of $ 3.0 million in 2013 is predominantly comprised of the gain on sale , but also includes the operating losses , net of tax , of the business unit sold . net income : net income increased $ 3.0 million to $ 46.9 million in 2014 , compared to $ 43.9 million in 2013 , due to the reasons described above . net income attributable to noncontrolling interest : as a result of the sale of the 25 % equity interest in a small forging business in 2013 , the income of $ 1.3 million attributable to the noncontrolling interest is deducted from net income to derive net income attributable to parkohio common shareholders . net income attributable to parkohio common shareholders : net income attributable to parkohio common shareholders increased $ 2.2 million to $ 45.6 million in 2014 , compared to $ 43.4 million in 2013 , due to the reasons described above . 2013 compared with 2012 net sales : net sales increased $ 75.0 million , or 7 % , to $ 1,203.2 million in 2013 , compared to $ 1,128.2 million in 2012 . the increase in net sales is primarily attributable to the strategic acquisitions in 2012 and 2013. the 2012 acquisition of fluid routing solutions llc ( “ frs ” ) and the 2013 acquisitions of bates , henry halstead and qef were the primary drivers of the 2013 revenue growth . combined , these acquisitions contributed $ 82.1 million of the increase in net sales . story_separator_special_tag this growth was driven by the heavy-duty truck market , which was up 30 % ; the power sports and recreational equipment market , which increased 21 % ; the semiconductor market , which was up 56 % ; and the hvac market , which was up 15 % . in addition our fastener manufacturing division generated sales increases of 9 % in 2014. segment operating income : with increases in net sales , segment operating income increased $ 7.5 million , or 21 % , to $ 42.5 million . segment operating income margin was 7.6 % , which was a 20 basis point increase compared to the operating margin of 7.4 % in 2013. the increase in margin is primarily due to increased operational leverage as a result of our acquisitions of henry halstead , qef and apollo and overall customer product mix swings in 2014 and less acquisition-related costs associated with the inventory step-up in purchase accounting for acquisitions , offset by increased professional service fees . 2013 compared with 2012 net sales : the decrease in net sales in 2013 compared with the prior year was primarily due to a 13 % decline in volume associated with the heavy-duty truck market and a 25 % decline in volume associated with the defense industry market combined with the exit of low margin business approximating $ 11.0 million . these unfavorable impacts to revenues were partially offset by approximately $ 8.5 million in sales from our two fourth-quarter 2013 acquisitions , henry halstead and qef , greater volume in our power sports and recreational equipment market of 7 % and increased tooling sales in our small fastener manufacturing division . 31 segment operating income : included in 2013 cost of sales was $ 1.6 million of acquisition-related costs associated with the inventory step-up in purchased accounting for the henry halstead and qef acquisitions . excluding these acquisition-related costs , segment operating income remained comparable with the prior year , even though revenues were slightly down compared to prior year . while the acquisition-related costs unfavorably impacted segment operating income by 30 basis points , our overall segment operating margin only decreased 20 basis points to 7.6 % in 2013 compared with the prior year as a result of effective cost control management and the pairing of low margin business . assembly components segment replace_table_token_10_th 2014 compared with 2013 net sales : the significant increase in net sales in 2014 is primarily due to the incremental sales from new programs with our automotive customers in our aluminum business . the aluminum business revenues increased 35 % . also contributing to the overall increase in net sales was the incremental revenues in 2014 associated with the acquisitions of bates of approximately $ 15.5 million and autoform of approximately $ 13.1 million . these revenue increases were slightly offset by the expected reduced volumes in the fuel filler business of frs as programs completed their life cycles in the second half of 2013. segment operating income : on the strength of the aluminum business incremental contribution from the new program launches with our automotive customers in 2013 and the bates and autoform acquisitions , segment operating income increased 32 % in 2014 compared to 2013. our segment operating income margin was 8.6 % , which was a 90 basis point increase compared to operating income margin of 7.7 % in 2013. the increase in margin is primarily attributable to the volume increase in our aluminum business . 2013 compared with 2012 net sales : the significant increase in net sales is primarily due to the incremental revenues in 2013 associated with the frs and bates acquisitions that combined to total approximately $ 73.6 million . in addition , aluminum business revenues increased 29 % as new programs with our automotive customers were launched in 2013. in total , approximately 72 % of our revenue growth is attributable to acquisitions and the remainder of the growth is organic . segment operating income : on the strength of our acquisitions , segment operating income increased 60 % in 2013 compared with the prior year . furthermore , our segment operating income margin increased 120 basis points based on the contribution of the frs and bates acquisitions . as the aluminum business was still ramping up to full capacity in 2013 , this business has had only a small favorable impact on segment operating income improvement . engineered products segment replace_table_token_11_th 2014 compared with 2013 32 net sales : the increase in net sales of 3 % in 2014 is primarily attributable to a 5 % increase in the capital equipment business within our industrial equipment business unit . global economic uncertainty in 2013 caused many industrial customers to defer orders . the aftermarket volume in the industrial equipment business was up less than 1 % in 2014 compared to 2013. offsetting these net sales increases , our forging business sales declined 2 % in 2014 as sales were unfavorably impacted by reduced demand for some of its aircraft forging products . segment operating income : segment operating income decreased 9 % in 2014. the decrease in operating income dollars and the 180 basis point decline in segment operating income margin are associated with the sales mix in 2014 and the associated reduction in overhead absorption related to the decline in volume in our forging business . 2013 compared with 2012 net sales : the decline in net sales of 6 % in 2013 is primarily attributable to an 18 % decline in capital equipment business within our industrial equipment business unit . global economic uncertainty in 2013 caused many industrial customers to defer orders . the aftermarket volume in the industrial equipment business was just 2 % less in 2013 compared to 2012. offsetting these net sales declines , our forging business demand continued to be very strong in 2013 led by our rail business , and net sales increased 7 % over the prior year .
| primary factors affecting 2014 results the following factors most affected our consolidated 2014 results : the net sales growth in 2014 was driven significantly by strategic acquisitions in 2013 and 2014. our 2014 and 2013 strategic bolt-on acquisitions of saet , autoform , apollo , qef global holdings limited ( “ qef ” ) , henry halstead limited ( “ henry halstead ” ) and bates rubber inc. ( “ bates ” ) added a combined $ 70.8 million of incremental revenues in 2014. these acquisitions have been successfully integrated into our segments , and the earnings results of these combined acquisitions have been accretive to us for the year ended december 31 , 2014. in addition to our net sales growth associated with acquisitions , our organic net sales growth was $ 104.7 , or 8.7 % , in 2014. our organic net sales growth for 2014 is primarily due to strong performance in the supply technologies segment and our aluminum business unit of the assembly components segment . overall , we had net sales growth of 14.6 % for 2014 when compared to the prior year . however , our unfavorable sales mix for 2014 , compared to 2013 , lead to a decrease in our gross margin percentage of 50 basis points . 24 due to the incremental selling , general and administrative ( “ sg & a ” ) expenses primarily related to our acquisitions , increased professional service fees and the incurrence of foreign currency exchange losses on non-permanent intercompany loans in 2014 , our sg & a expenses increased 13.6 % when compared to the prior year . still , given our net sales increases , sg & a , as a percentage of net sales , decreased 10 basis points in 2014 compared to 2013. subsequent events on february 9 , 2015 , the company 's board of directors declared a quarterly dividend of $ 0.125 per common share .
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director compensation plan on december 12 , 2013 , the compensation committee of the board of directors of the company adopted changes to the director compensation plan of 2010 ( the “ director plan ” ) effective december 1 , 2013. under the director plan , independent directors of the company are entitled to an annual award of a five-year option to purchase 8,333 shares of the company 's common stock , and the chairman of the board of the company is entitled to an annual award of a five years option to purchase 16,667 shares of the company 's common stock . independent directors who serve as chairperson of a committee will also receive an annual grant of a five-year option to purchase 1,667 shares of the company 's common stock . all options issued under the director plan vest quarterly at a rate of 25 % . option grants will typically be issued after the annual shareholder meeting which will generally be held in october of each year . new directors will receive a grant upon joining the board equal to the pro-rata annual grant for the remainder of the year . options issued under the director plan are issued pursuant to the 2010 equity plan . stock option grants black-scholes assumptions used to calculate the fair value of options granted during the years ended april 30 , 2018 and 2017 were as follows : replace_table_token_15_th the weighted average fair value of stock options granted during the years ending april 30 , 2018 and 2017 , was $ 2.19 and $ 1.71 , respectively . the company 's stock options activity and related information as of and for the years ended april 30 , 2018 and 2017 is as follows : f-16 champions oncology notes to consolidated financial statements ( continued ) replace_table_token_16_th replace_table_token_17_th on june 30 , 2017 , the board of directors extended the expiration terms of a previous employee 's vested grants to november 2018. as a result of this modification , the company had an additional stock option expense of $ 56,529 , which was expensed under the `` general and administrative `` line item on the income statement . included in the forfeited balance in the fiscal 2017 table above are 203,043 options ( which vest based on performance criteria ) granted to each of the company 's chief executive officer and its president as of november 5 , 2013 as part of their employment agreements . performance-based options are expensed on an accelerated basis once the company determines it is probable that the performance-based conditions will be met . it was determined the performance conditions will not be set and as such the 203,043 options have been forfeited . additionally , included in the forfeited balance in the table above are 209,383 options which were granted to the previous chief executive officer as part of his yearly compensation beginning in november 2016. the chief executive officer has transitioned to chairman of the board of directors as of january 31 , 2017. on april 24 , 2017 , the board of directors extended the expiration terms of the previous chief executive officer 's vested grants to its contractual life . as a result of this modification , the company had an additional stock option expense of $ 612,534 which was expensed under the `` general and administrative `` line item on the income statement . f-17 champions oncology notes to consolidated financial statements ( continued ) on july 21 , 2016 , the company and certain members of its senior management team agreed to exchange existing options to purchase shares of the company 's common stock with new options . the new options have a lower exercise price for fewer shares and have the same vesting schedules and the same termination expiration dates as the existing options . the company used the black scholes valuation method to determine if the modification created additional stock option expense . as a result of the option exchange , an aggregate of 1,793,781 existing options with exercise prices ranging from $ 4.55 to $ 6.96 per share were exchanged for an aggregate of 1,568,191 new options with exercise prices of $ 2.10 per share . due to the modification the company had an additional stock option expense of $ 414,756 of which $ 39,920 related to the performance awards that have been forfeited as noted above , $ 373,069 of which was recognized during the current fiscal year and $ 1,767 of which will be recognized over the next year as the options continue to vest . stock purchase warrants as of april 30 , 2018 , the company had warrants outstanding for the purchase of 2,004,284 shares of its common stock , all of which were exercisable . activity related to these warrants , which expire at various dates through january 2019 , is summarized as follows : replace_table_token_18_th replace_table_token_19_th note 6. common stock on story_separator_special_tag results of operations you should read the following discussion and analysis together with our consolidated financial statements and the related notes included elsewhere in this annual report . this discussion contains forward-looking statements that are based on our current expectations , estimates , and projections about our business and operations . our actual results may differ materially from those 13 currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under item 1a – “ risk factors ” and elsewhere in this annual report . overview and recent developments we are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs . story_separator_special_tag although we believe our goodwill is not impaired , changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill . we use a two-step process to test for goodwill impairment . the first step is to screen for potential impairment , while the second step measures the amount of the impairment , if any . the first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired . if the carrying value of the reporting unit 's net assets , including goodwill , exceeds the fair value of the reporting unit , then we determine the implied fair value of goodwill . if the carrying value of goodwill exceeds its implied fair value , then an impairment of goodwill has occurred and an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income . the implied fair value of goodwill is calculated by subtracting the fair value of tangible and intangible assets associated with the reporting unit from the fair value of the unit . in addition , we evaluate impairment if events or circumstances change between the annual assessments , indicating a possible impairment . examples of such events or circumstances include : ( i ) a significant adverse change in legal factors or in the business climate ; ( ii ) an adverse action or assessment by a regulator ; or ( iii ) a significant decline in market capitalization as compared to book value . we have one reportable segment . the company evaluated its tos and pos business operations and determined that the pos operations no longer qualified as a separate reportable segment primarily due to its revenue representing only 7 % of total revenue . the company assesses goodwill by business unit . the estimated fair value of each business unit , as calculated for the april 30 , 2018 impairment test , exceeded the carrying value of the business unit . judgments regarding the existence of impairment indicators are based on legal factors , market conditions and operational performance of the acquired businesses . future events , including but not limited to continued declines in economic activity , loss of contracts or a significant number of customers or a rapid increase in costs or capital expenditures , could cause us to conclude that impairment indicators exist and that goodwill is impaired . any resulting goodwill impairment could have a material adverse impact on our financial condition and results of operations . accounting for income taxes we use the asset and liability method to account for income taxes . significant management judgment is required in determining the provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets . in preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items , such as deferred revenue , depreciation on property , plant and equipment , goodwill and losses for tax and accounting purposes . these differences result in deferred tax assets , which include tax loss carry-forwards , and liabilities , which are included within the consolidated balance sheet . we then assess the likelihood that deferred tax assets will be recovered from future taxable income , and to the extent that recovery is not likely or there is insufficient operating history , a valuation allowance is established . to the extent a valuation allowance is established or increased in a period , we include an expense within the tax provision of the consolidated statements of operations . as of april 30 , 2018 and 2017 , we have established a full valuation allowance for all deferred tax assets . as of april 30 , 2018 and 2017 , we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of $ 151,000 and $ 121,000 , respectively . we do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months . any interest or penalties related to unrecognized tax benefits is recognized in income tax expense . the company has not accrued for any penalties and interest . recent accounting pronouncements 17 in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , “ revenue from contracts with customers ” ( “ asu 2014-09 ” ) , which supersedes nearly all existing revenue recognition guidance under gaap . the core principle of asu 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu 2014-09 defines a five-step process to achieve this core principle and , in doing so , more judgment and estimates may be required within the revenue recognition process than are required under existing gaap . in addition , this guidance requires new or expanded disclosures related to the judgments made by companies when following this framework and additional quantitative disclosures regarding contract balances and remaining performance obligations .
| results of operations the following table summarizes our operating results for the periods presented below ( dollars in thousands ) : replace_table_token_3_th operating revenues operating revenues for the years ended april 30 , 2018 and 2017 were $ 20.2 million and $ 15.4 million , respectively , an increase of $ 4.8 million , or 31.3 % , driven by the increase in tos revenue of $ 5.1 million offset by a decrease in pos revenue of $ 265,000. the increase is tos revenue is due to increased sales , both in number and size of studies , and growth of the platform . 14 cost of oncology solutions cost of oncology solutions were $ 10.6 million and $ 9.7 million for the years ended april 30 , 2018 and 2017 , respectively , an increase of $ 850,000 or 8.8 % . for the years ended april 30 , 2018 and 2017 , gross margins were 47.9 % and 37.0 % , respectively . the increase in cost of sales was due to an increase in the number of tos studies . gross margin varies based on timing differences between expense and revenue recognition ; however , the improvement can be attributed to aggressively managing our costs and leveraging cost of sales against a growing revenue base . research and development research and development expense was $ 4.4 million and $ 4.3 million for the years ended april 30 , 2018 and 2017 , respectively , an increase of $ 108,000 or 2.5 % . sales and marketing sales and marketing expense was $ 2.6 million and $ 3.3 million for the years ended april 30 , 2018 and 2017 , respectively , a decrease of $ 692,000 or ( 21.2 % ) . the decrease is mainly due to a reduction in payroll and travel expenses .
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our focus is on niche markets and developing unique products that are tailored to customers ' needs . we hire underwriters and claim examiners with deep expertise and provide exceptional customer service and support . we maintain a highly diverse product portfolio and underwrite for profit in all market conditions . in 2020 , we achieved our 25th consecutive year of underwriting profitability . over the 25-year period , we averaged an 88.4 combined ratio . this drives our ability to provide shareholder returns in three different ways : the underwriting income itself , net investment income from our investment portfolio and long-term appreciation in our equity portfolio . we measure the results of our insurance operations by monitoring growth and profitability across three distinct business segments : casualty , property and surety . growth is measured in terms of gross premiums written , and profitability is analyzed through combined ratios , which are further subdivided into their respective loss and expense components . gaap , non-gaap and performance measures throughout this annual report , we include certain non-generally accepted accounting principles ( non-gaap ) financial measures . management believes that these non-gaap measures further explain the company 's results of operations and allow for a more complete understanding of the underlying trends in the company 's business . these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles in the united states of america ( gaap ) . in addition , our definitions of these items may not be comparable to the definitions used by other companies . following is a list of non-gaap measures found throughout this report with their definitions , relationships to gaap measures and explanations of their importance to our operations . underwriting income underwriting income or profit represents one measure of the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses , policy acquisition costs and insurance operating expenses from net premiums earned , which are all gaap financial measures . each of these captions is presented in the statements of earnings but is not subtotaled . however , this information is available in total and by segment in note 12 to the consolidated financial statements within item 8 , financial statements and supplementary data . the nearest comparable gaap measure is earnings before income taxes which , in addition to underwriting income , includes net investment income , net realized gains or losses , net unrealized gains or losses on equity securities , general corporate expenses , debt costs and our portion of earnings from unconsolidated investees . a reconciliation of net earnings to underwriting income follows : replace_table_token_13_th combined ratio the combined ratio , which is derived from components of underwriting income , is a common industry performance measure of profitability for underwriting operations and is calculated in two components . first , the loss ratio is losses and settlement expenses divided by net premiums earned . the second component , the expense ratio , reflects the sum of policy acquisition costs and insurance operating expenses divided by net premiums earned . all items included in these components of the combined ratio are presented in our gaap consolidated financial statements . the sum of the loss and expense ratios is the combined ratio . the difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss . 32 critical accounting policies in preparing the consolidated financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period . actual results could differ significantly from those estimates . the most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and settlement expenses , investment valuation , recoverability of reinsurance balances , deferred policy acquisition costs and deferred taxes . losses and settlement expenses overview loss and loss adjustment expense ( lae ) reserves represent our best estimate of ultimate payments for losses and related settlement expenses from claims that have been reported but not paid , and those losses that have occurred but have not yet been reported to the company . loss reserves do not represent an exact calculation of liability , but instead represent our estimates , generally utilizing individual claim estimates , actuarial expertise and estimation techniques at a given accounting date . the loss reserve estimates are expectations of what ultimate settlement and administration of claims will cost upon final resolution . these estimates are based on facts and circumstances then known to the company , review of historical settlement patterns , estimates of trends in claims frequency and severity , projections of loss costs , expected interpretations of legal theories of liability and many other factors . in establishing reserves , we also take into account estimated recoveries from reinsurance , salvage and subrogation . the reserves are reviewed regularly by a team of actuaries we employ . the process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables . these variables can be affected by both internal and external events , such as changes in claim handling procedures , claim personnel , economic inflation , legal trends and legislative changes , among others . the impact of many of these items on ultimate costs for loss and lae is difficult to estimate . loss reserve estimations also differ significantly by coverage due to differences in claim complexity , the volume of claims , the policy limits written , the terms and conditions of the underlying policies , the potential severity of individual claims , the determination of occurrence date for a claim and reporting lags ( the time between the occurrence of the policyholder event and when it is actually reported to the insurer ) . story_separator_special_tag no deductions for paid or case reserves are made . this alternative method of determining initial ibnr allows incurred losses and alae to react more rapidly to the actual emergence , and is more appropriate for our property products where final claim resolution occurs over a shorter period of time . we do not reserve for natural or man-made catastrophes until an event has occurred . shortly after such occurrence , we review insured locations exposed to the event and industry loss estimates of the event . we also consider our knowledge of frequency and severity from early claim reports to determine an appropriate reserve for the catastrophe . these reserves are reviewed frequently to consider actual losses reported and appropriate changes to our estimates are made to reflect the new information . the initial loss and alae ratios that are applied to earned premium are reviewed at least semi-annually . prospective estimates are made based on historical loss experience adjusted for exposure mix , price change and loss cost trends . the initial loss and alae ratios also reflect our judgment as to estimation risk . we consider estimation risk by product and coverage within product , if applicable . a product with greater volatility and uncertainty has greater estimation risk . products or coverages with higher estimation risk include , but are not limited to , the following characteristics : significant changes in underlying policy terms and conditions , a new business or one experiencing significant growth and or high turnover , small volume or lacking internal data requiring significant utilization of external data , unique reinsurance features including those with aggregate stop-loss , reinstatement clauses , commutation provisions or clash protection , longer emergence patterns with exposures to latent unforeseen mass tort , assumed reinsurance businesses where there is an extended reporting lag and or a heavier utilization of ceding company data and claims and product expertise , 34 high severity and or low frequency , operational processes undergoing significant change and or high sensitivity to significant swings in loss trends , economic change or judicial change . the historical and prospective loss and alae estimates , along with the risks listed , are the basis for determining our initial and subsequent carried reserves . adjustments in the initial loss ratio by product and segment are made where necessary and reflect updated assumptions regarding loss experience , loss trends , price changes and prevailing risk factors . the lrc approves changes in the initial loss and alae ratios . loss and lae reserve estimation process estimates of the expected value of the unpaid loss and lae are derived using standard actuarial methodologies on a quarterly basis . in addition , an emergence analysis is completed quarterly to determine if further adjustments are necessary . these estimates are then compared to the carried loss reserves to determine the appropriateness of the current reserve balance . the process of estimating ultimate payment for claims and claim expenses begins with the collection and analysis of current and historical claim data . data on individual reported claims , including paid amounts and individual claim adjuster estimates , are grouped by common characteristics . there is judgment involved in this grouping . considerations when grouping data include the volume of the data available , the credibility of the data available , the homogeneity of the risks in each cohort and both settlement and payment pattern consistency . we use this data to determine historical claim reporting and payment patterns , which are used in the analysis of ultimate claim liabilities . in some analyses , including business without sufficiently large numbers of policies or that have not accumulated sufficient historical statistics , our own data is supplemented with external or industry average data as available and when appropriate . for liabilities arising out of directors and officers , management liability , workers ' compensation and medical errors and omissions exposures , we utilize external data extensively . in addition to the review of historical claim reporting and payment patterns , we also incorporate estimated losses relative to premium ( loss ratios ) by year into the analysis . the expected loss ratios are based on a review of historical loss performance , trends in frequency and severity and price level changes . the estimates are subject to judgment including consideration given to available internal and industry data , growth and policy turnover , changes in policy limits , changes in underlying policy provisions , changes in legal and regulatory interpretations of policy provisions and changes in reinsurance structure . for the most current year , these are equivalent with the ratios used in the initial ibnr generation process . increased recognition is given to actual emergence as the years age . we use historical development patterns , expected loss ratios and standard actuarial methods to derive an estimate of the ultimate level of loss and lae payments necessary to settle all the claims occurring as of the end of the evaluation period . our reserve processes include multiple standard actuarial methods for determining estimates of ibnr reserves . other supplementary methodologies are incorporated as necessary . mass tort and latent liabilities are examples of exposures for which supplementary methodologies are used . each method produces an estimate of ultimate loss by accident year . we review all of these various estimates and assign weights to each based on the characteristics of the product being reviewed . our estimates of ultimate loss and lae reserves are subject to change as additional data emerges . this could occur as a result of change in loss development patterns , a revision in expected loss ratios , the emergence of exceptional loss activity , a change in weightings between actuarial methods , the addition of new actuarial methodologies , new information that merits inclusion or the emergence of internal variables or external factors that would alter our view . there is uncertainty in the estimates of ultimate losses .
| results of operations this section of this form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in item 7 , management 's discussion and analysis of financial condition and results of operations of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 , incorporated herein by reference . consolidated revenue for 2020 decreased $ 20.0 million from 2019. net premiums earned for the group increased 3 percent , driven by growth from our property and casualty segments , but performance in the equity portfolio was not able to match the return generated in 2019. net investment income decreased by 1 percent in 2020 , primarily due to lower reinvestment rates relative to the prior year . additionally , we recorded net realized gains on our investment portfolio in 2020 and 2019 , due to portfolio rebalancing . replace_table_token_14_th net earnings for 2020 totaled $ 157.1 million , down from $ 191.6 million in 2019. improved underwriting income was offset by a decline in unrealized gains on equity securities . 39 replace_table_token_15_th underwriting results gross premiums written increased $ 71.4 million , or 7 percent , in 2020 when compared to 2019. excluding the decline in commercial transportation , which was impacted by the covid-19 pandemic , written premium increased by 12 percent . positive rate movement across most of the casualty and property portfolio and an expansion of distribution channels provided for growth opportunities in established lines . underwriting results for 2020 were impacted by significant catastrophe activity , including $ 51.5 million of pretax losses and $ 1.5 million of reinstatement premium from hurricanes , as well as $ 6.5 million of other storm and civil unrest losses .
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· improving profitability by expanding our product offerings to customers and investing in technology to increase the productivity and efficiency of our staff . · continuing to emphasize commercial real estate and other commercial business lending as well as consumer lending . the bank will also continue to focus on increasing secondary market lending as a source of noninterest income . with our integration of peoples now complete , management intends to continue to focus on growth in the loan portfolio as well as the implementation of a secondary market lending program in the bullitt county , kentucky market . · growing commercial and personal demand deposit accounts which provide a low-cost funding source . · evaluating vendor contracts for potential cost savings and efficiencies . · continuing our capital management strategy to enhance shareholder value through the repurchase of company stock and the payment of dividends . · evaluating growth opportunities to expand the bank 's market area and market share through acquisitions of other financial institutions or branches of other institutions . the acquisition of peoples in december 2015 expanded our market area into bullitt county , kentucky , where peoples was the leader in deposit account market share among fdic-insured institutions . we also expect to open our new river ridge office in clark county , indiana in april 2017. our focus in 2017 will be to continue the enhancement and expansion of our customer relationships in these new markets . · ensuring that the company attracts and retains talented personnel and that an optimal level of performance and customer service is promoted at all levels of the company . 44 critical accounting policies and estimates the accounting and reporting policies of the company comply with u.s. gaap and conform to general practices within the banking industry . the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions . the financial position and results of operations can be affected by these estimates and assumptions , which are integral to understanding reported results . critical accounting policies are those policies that require management to make assumptions about matters that are highly uncertain at the time an accounting estimate is made ; and different estimates that the company reasonably could have used in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , would have a material impact on the company 's financial condition , changes in financial condition or results of operations . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of financial statements . these factors include , among other things , whether the estimates are significant to the financial statements , the nature of the estimates , the ability to readily validate the estimates with other information including third parties or available prices , and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under u.s. gaap . significant accounting policies , including the impact of recent accounting pronouncements , are discussed in note 1 of the accompanying notes to consolidated financial statements , which is incorporated herein by reference . those policies considered to be critical accounting policies are described below . allowances for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the occ , as an integral part of its examination process , periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . note 1 and note 5 of the accompanying notes to consolidated financial statements , which are incorporated herein by reference , describe the methodology used to determine the allowance for loan losses . the company has not made any substantive changes to its methodology for determining the allowance for loan losses during the year ended december 31 , 2016 , and there have been no material changes in the assumptions or estimation techniques compared to the prior year . valuation methodologies . in the ordinary course of business , management applies various valuation methodologies to assets and liabilities that often involve a significant degree of judgment , particularly when active markets do not exist for the items being valued . generally , in evaluating various assets for potential impairment , management compares the fair value to the carrying value . quoted market prices are referred to when estimating fair values for certain assets , such as certain investment securities . story_separator_special_tag the provisions were recorded to bring the allowance to the level determined in applying the allowance methodology after reduction for net charge-offs during the year . 46 provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan losses based on management 's evaluation of the collectability of the loan portfolio , including the nature of the portfolio , credit concentrations , trends in historical loss experience , specified impaired loans and economic conditions . although management uses the best information available , future adjustments to the allowance may be necessary due to changes in economic , operating , regulatory and other conditions that may be beyond the bank 's control . while the bank maintains the allowance for loan losses at a level that it considers adequate to provide for estimated losses , there can be no assurance that further additions will not be made to the allowance for loan losses and that actual losses will not exceed the estimated amounts . noninterest income . noninterest income increased $ 1.0 million to $ 6.2 million for 2016. service charges on deposit accounts , gains on the sale of loans and gains on the sale of securities increased by $ 521,000 , $ 336,000 and $ 176,000 , respectively , when comparing the two periods . the increase service charges on deposit accounts was primarily attributable to the new accounts acquired in the peoples acquisition . noninterest expense . noninterest expense increased $ 3.9 million , or 24.7 % , to $ 19.5 million for 2016 compared to $ 15.6 million for 2015 primarily due to the increased expenses associated with operating the five offices acquired from peoples , partially offset by the $ 1.0 million in costs related to the 2015 acquisition . compensation and benefits increased $ 2.6 million primarily due to normal salary increases and the retained peoples personnel . other operating expense and data processing expense also increased $ 1.0 million and $ 708,000 , respectively , when comparing the two periods . income tax expense . the company recognized income tax expense of $ 2.5 million for 2016 compared to $ 2.0 million for 2016. the effective tax rate decreased from 27.4 % for 2015 to 26.8 % for 2016. average balances and yields . the following table sets forth certain information for the periods indicated regarding average balances of assets and liabilities , as well as the total dollar amounts of interest income from average interest-earnings assets and interest expense on average interest-bearing liabilities and average yields and costs . such yields and costs for the periods indicated are derived by dividing income or expense by the average historical cost balances of assets or liabilities , respectively , for the periods presented and do not give effect to changes in fair value that are included as a separate component of stockholders ' equity . average balances are derived from daily balances . tax-exempt income on loans and investment securities has been adjusted to a tax equivalent basis using the federal marginal tax rate of 34 % . replace_table_token_20_th ( 1 ) interest income on loans includes fee income of $ 919,000 , $ 756,000 and $ 707,000 for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . ( 2 ) average loan balances include loans held for sale and nonperforming loans . ( 3 ) interest income on loans includes net accretion on acquired loans of $ 623,000 and $ 74,000 for the years ended december 31 , 2016 and 2015 , respectively . ( 4 ) includes taxable debt and equity securities and fhlb stock . ( 5 ) includes interest-bearing deposits with banks , federal funds sold and interest-bearing time deposits . ( 6 ) stockholders ' equity attributable to first capital , inc. 47 rate/volume analysis . the following table sets forth the effects of changing rates and volumes on net interest income and interest expense computed on a tax-equivalent basis . information is provided with respect to ( i ) effects on interest income attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) effects attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) effects attributable to changes in rate and volume ( change in rate multiplied by changes in volume ) . tax exempt income on loans and investment securities has been adjusted to a tax-equivalent basis using the federal marginal tax rate of 34 % . replace_table_token_21_th 48 comparison of financial condition at december 31 , 2016 and 2015 total assets increased from $ 715.8 million at december 31 , 2015 to $ 743.7 million at december 31 , 2016 primarily due to increases in securities available for sale and net loans receivable partially offset by a decrease in cash and cash equivalents . net loans increased from $ 359.2 million at december 31 , 2015 to $ 381.2 million at december 31 , 2016. the primary contributing factor to the increase in net loans was an increase of $ 12.0 million in commercial real estate loans . the bank also increased residential construction loans , other consumer loans , and home equity and second mortgage loans by $ 4.3 million , $ 6.6 million and $ 4.4 million , respectively , during 2016. residential mortgage loans decreased $ 10.1 million during 2016 as the bank continued to sell the majority of newly originated residential mortgage loans in the secondary market . the bank originated $ 51.2 million in new residential mortgages for sale in the secondary market during 2016 compared to $ 30.1 million in 2015. these loans were originated and funded by the bank and sold in the secondary market . of the total originations for 2016 , $ 13.1 million paid off existing loans in the bank 's portfolio .
| general as the holding company for the bank , the company conducts its business primarily through the bank . the bank 's results of operations depend primarily on net interest income , which is the difference between the income earned on its interest-earning assets , such as loans and investments , and the cost of its interest-bearing liabilities , consisting primarily of deposits , retail repurchase agreements and borrowings from the fhlb . the bank 's net income is also affected by , among other things , fee income , provisions for loan losses , operating expenses and income tax provisions . the bank 's results of operations are also significantly affected by general economic and competitive conditions , particularly changes in market interest rates , government legislation and policies concerning monetary and fiscal affairs , housing and financial institutions and the intended actions of the regulatory authorities . management uses various indicators to evaluate the company 's financial condition and results of operations . many of these indicators were affected by the peoples acquisition as one-time acquisition expenses associated with the acquisition and integration of peoples were partially offset by increases in net interest income after provision for loan losses , noninterest income and the effect of purchase accounting adjustments . indicators include the following : · net income and earnings per share – net income attributable to the company was $ 6.9 million , or $ 2.05 per diluted share for 2016 compared to $ 5.2 million , or $ 1.87 per diluted share for 2015. excluding one-time acquisition-related expenses , the company would have reported net income of $ 6.1 million , or $ 2.18 per share for 2015 . · return on average assets and return on average equity – return on average assets for 2016 was 0.94 % compared to 1.06 % for 2015 , and return on average equity for 2016 was 8.90 % compared to 8.65 % for 2015 .
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in october 2017 , hei refinanced a $ 125 million long-term loan with a 364-day term loan which matures on october 5 , 2018. in november 2017 , hei entered into a five-year , $ 150 million loan agreement at a fixed interest rate of 2.99 % . proceeds of the loan were used to repay a $ 75 million term loan ahead of its march , 2018 maturity and to repay $ 75 million of the $ 125 million 364-day term loan . in december 2017 , hamakua energy issued $ 67 million of senior secured notes at a fixed interest rate of 4.02 % with a maturity date of december 31 , 2030. see notes 5 and 6 of the consolidated financial statements for a brief description of these loans . hei has a $ 150 million line of credit facility . see note 5 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 . 46 as of february 13 , 2018 , 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 ; long term rating * ; and corporate credit ; respectively bbb wr * bbb- commercial paper f3 p-3 a-3 outlook stable stable stable * moody 's long-term debt rating was withdrawn because hei does not currently have any outstanding , publicly traded debt . moody 's continues to rate hawaiian electric 's long-term debt . see utility md & a . 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 . issuances of common stock through the hawaiian electric industries , inc. dividend reinvestment and stock purchase plan ( drip ) , hawaiian electric industries retirement savings plan ( heirsp ) and the asb 401 ( k ) plan provided new capital of $ 30 million ( approximately 1 million shares ) in 2016. from march 6 , 2014 through january 5 , 2016 , and from december 7 , 2016 to date , hei satisfied the share purchase requirements of the drip , heirsp and asb 401 ( k ) plan through open market purchases of its common stock rather than new issuances . also , 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 . operating activities provided net cash of $ 420 million in 2017 , $ 496 million in 2016 and $ 357 million in 2015. investing activities used net cash of $ 815 million in 2017 , $ 736 million in 2016 and $ 706 million in 2015. in 2017 , net cash used in investing activities was primarily due to a hawaiian electric 's consolidated capital expenditures ( net of contributions in aid of construction ) , hamakua energy 's acquisition of a power plant and asb 's purchases of investment securities , partly offset by the repayments of investment securities , proceeds from sale of commercial loans and a net decrease in loans held for investment . financing activities provided net cash of $ 378 million in 2017 , $ 219 million in 2016 and $ 474 million in 2015. in 2017 , net cash provided by financing activities included net increases in deposits and long-term debt and net increases in short-term borrowings and asb 's retail repurchase agreements , partly offset by a net decrease in asb 's 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 . story_separator_special_tag ( see the electric utility and bank segments ' discussions of their cash flows in their respective “ financial condition-liquidity and capital resources ” sections below . ) during 2017 , hawaiian electric and asb ( through asb hawaii ) paid cash dividends to hei of $ 88 million and $ 38 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 , 2017 ) 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 item i—business—restrictions on dividends and other distributions '' note 12 of the consolidated financial statements . forecasted hei consolidated “ net cash used in investing activities ” ( excluding “ investing ” cash flows from asb ) for 2018 through 2020 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 $ 50 million will be required 47 during 2018 through 2020 to repay hei 's remaining $ 50 million balance on its 364-day term loan maturing in october 2018 , which is 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 2018 through 2020 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 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 , and potential refunds of amounts collected from ratepayers ( e.g. , under the earnings sharing mechanism ) . as of december 31 , 2017 , 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 8 to the consolidated financial statements for estimated contributions for 2018 . see note 3 of the consolidated financial statements for a discussion of fuel and power purchase commitments . see note 4 of the consolidated financial statements for a further discussion of asb 's commitments . off-balance sheet arrangements . although the company and the utilities have off-balance sheet arrangements , management has determined that it has no off-balance sheet arrangements that either have , or are reasonably likely to have , a current or future effect on the company 's and the utilities ' financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors , including the following types of off-balance sheet arrangements : 1. obligations under guarantee contracts , 2. retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as credit , liquidity or market risk support to that entity for such assets , 3. obligations under derivative instruments , and 48 4. obligations under a material variable interest held by the company or the utilities in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support to the company or the utilities , or engages in leasing , hedging or research and development services with the company or the utilities . certain factors that may affect future results and financial condition . the company 's results of operations and financial condition can be affected by numerous factors , many of which are beyond its control and could cause future results of operations to differ materially from historical results . the following is a discussion of certain of these factors . also see “ cautionary note regarding forward-looking statements ” and “ risk factors ” above and “ certain factors that may affect future results and financial condition ” in each of the electric utility and bank segment discussions below .
| results of operations . replace_table_token_23_th nm not meaningful . see “ executive overview and strategy ” above and the “ other segment , ” “ electric utility ” and “ bank ” sections below for discussions of results of operations . the company 's effective tax rate ( combined federal and state income tax rates ) was higher for 2017 compared to 2016 due primarily to the ( 1 ) 2017 adjustment to accumulated deferred income tax balances ( adit ) ( exclusive of adit related to the regulated rate base of the utilities ) for the new federal corporate tax rate of 21 % , ( 2 ) 2016 deductibility of previously non-tax-deductible merger costs and ( 3 ) higher tax benefits recognized in 2016 for the domestic production activities deduction ( dpad ) related to the utilities ' generation activities . the company 's effective tax rate was lower for 2016 compared to 2015 due primarily to the 2016 items listed above . the new lower federal tax rate of 21 % applicable after 2017 impacts the adit on the balance sheet as of december 31 , 2017 since the adit should reflect the rate applicable when the temporary differences subsequently reverse . 2017 income tax expense is based on the 35 % federal tax rate in effect through december 31 , 2017 with an adjustment to reduce adit for the new lower federal tax rate of 21 % . other segment . hei corporate-level operating , general and administrative expenses were $ 18 million in 2017 compared to $ 19 million in 2016 and $ 34 million in 2015. in 2016 and 2015 , hei had approximately $ 1 million ( expenses , net of reimbursements of expenses from nee and insurance ) and $ 17 million , respectively , of expenses related to the previously proposed merger with nee .
| 4,797 |
depreciation and amortization – owned hotel properties are depreciated over the estimated useful life of the assets and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets . presently , hotel properties are depreciated using the straight-line method over lives story_separator_special_tag executive overview general we believe that industry fundamentals continue to show revpar growth through 2016 , albeit at a slower pace . nevertheless , this growth is still expected to exceed historical averages . near-term supply growth on the other hand is expected to remain below long-term averages in 2016. we will continue to seek ways to benefit from the cyclical nature of the hotel industry . as of december 31 , 2015 , we owned 132 consolidated hotel properties , including 130 hotel properties directly owned , and two hotel properties owned through a majority-owned investment in a consolidated entity , which represents 27,977 total rooms , or 27,950 net rooms excluding those attributable to our partner . currently , all of our hotel properties are located in the united states . on june 17 , 2013 , we announced that our board of directors had approved a plan to spin-off an 80 % ownership interest in an 8-hotel portfolio , totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners ) , to holders of our common stock in the form of a taxable special distribution . the distribution was comprised of common stock in ashford prime , a newly formed company into which we contributed the portfolio interests . the distribution was made on november 19 , 2013 , on a pro rata basis to holders of our common stock as of november 8 , 2013 , with each of our stockholders receiving one share of ashford prime common stock for every five shares of our common stock held by such stockholder as of the close of business on november 8 , 2013. on february 27 , 2014 , we announced that our board of directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution . the spin-off was completed on november 12 , 2014 , with a pro-rata taxable distribution of ashford inc. 's common stock to our stockholders of record as of november 11 , 2014. the distribution was comprised of one share of ashford inc. common stock for every 87 shares of our common stock held by our stockholders . in addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of ashford inc. each holder of common units of the operating limited liability company of ashford inc. could exchange up to 99 % of those units for shares of ashford inc. stock at the rate of one share of ashford inc. common stock for every 55 common units of the operating limited liability company subsidiary of ashford inc. the distribution was made on november 12 , 2014. following the spin-off , we continue to hold approximately 598,000 shares of ashford inc. common stock , which represents an approximate 30 % ownership interest in ashford inc at december 31 , 2015. in connection with the spin-off we entered into a 20-year advisory agreement with ashford inc. at december 31 , 2015 , we wholly-owned one mezzanine loan with a net carrying value of $ 3.7 million . based on our primary business objectives and forecasted operating conditions , our current key priorities and financial strategies include , among other things : acquisition of hotel properties that will be accretive to our portfolio ; disposition of non-core hotel properties ; pursuing capital market activities to enhance long-term stockholder value ; preserving capital , enhancing liquidity , and continuing current cost-saving measures ; implementing selective capital improvements designed to increase profitability ; implementing effective asset management strategies to minimize operating costs and increase revenues ; financing or refinancing hotels on competitive terms ; utilizing hedges and derivatives to mitigate risks ; and making other investments or divestitures that our board of directors deems appropriate . in june 2015 , our board of directors modified our investment strategy to focus predominantly on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have revenue per available room ( “ revpar ” ) generally less than twice the national average . the change in our investment strategy was made in conjunction with our announcement that we plan to sell the vast majority of our select-service hotel portfolio.we believe that as supply , demand , and capital market cycles change , we will be able to shift our investment strategy to take advantage of new lodging-related investment opportunities as they may develop . our board of directors may change our investment strategy at any time without stockholder approval or notice . 47 recent developments on january 2 , 2015 , we refinanced two mortgage loans totaling $ 356.3 million . the refinance included our $ 211.0 million mortgage loan due november 2015 and our $ 145.3 million mortgage loan due july 2015. the new loans totaled $ 477.3 million in four loan pools . the new loans continue to be secured by the same 15 hotel properties . on january 29 , 2015 , we commenced a follow-on public offering of 9.5 million shares of common stock . the offering priced on january 30 , 2015 , at $ 10.65 per share for gross proceeds of $ 101.2 million . we granted the underwriters a 30-day option to purchase up to an additional 1.425 million shares of common stock . on february 10 , 2015 , the underwriters partially exercised their option and purchased an additional 1.03 million shares of our common stock at a price of $ 10.65 per share . the net proceeds from the offering after underwriting discount and offering expenses were approximately $ 110.9 million . story_separator_special_tag in june 2015 , the board of directors modified our investment strategy to focus predominantly on upper upscale , full-service hotels and in conjunction with this modification , on june 26 , 2015 , we announced that we planned to sell a portfolio of approximately 23 select-service hotels that are mostly brand-managed . the planned sale of the portfolio is consistent with our newly refined strategy , which focuses predominately on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have revpar generally less than twice the national average . in august 2015 , an additional select-service hotel was added to this plan . in january 2016 , the company announced that it revised its plan to pursue the sale of these 24 hotels in smaller groups and individually . further , the company will pursue the opportunistic sales of another 38 select-service hotels over time . on july 1 , 2015 , we acquired a 100 % interest in the w atlanta downtown ( “ w atlanta ” ) in atlanta , georgia for total consideration of $ 56.8 million . in conjunction with the close of the transaction , we completed the financing of a $ 40.5 million mortgage loan . the mortgage loan is interest only and provides for a floating interest rate of libor + 5.10 % . the stated maturity is july 2017 , with three one-year extension options . on july 13 , 2015 , we announced that our board of directors had declared the distribution ( 1 ) to our stockholders of approximately 4.1 million shares of common stock of ashford prime to be received by ashford trust upon redemption of ashford prime op common units and ( 2 ) to the common unitholders of ashford trust op of our remaining common units of ashford prime op . the distribution occurred on july 27 , 2015 , to stockholders and common unitholders of record as of the close of business of the new york stock exchange on july 20 , 2015. as a result of the distribution , we have no ownership interest in ashford prime as of december 31 , 2015. on july 23 , 2015 , we acquired a 100 % interest in the le meridien chambers minneapolis ( “ le meridien minneapolis ” ) in minneapolis , minnesota for total consideration of $ 15.0 million . the acquisition was funded with cash . on july 31 , 2015 , we entered into a block trade with an unaffiliated third party , pursuant to a sale arrangement between the company , ashford inc. and ashford prime . the block trade included the repurchase and retirement of approximately 5.8 million shares of our common stock at a price of $ 9.00 per share for a total cost of approximately $ 51.8 million . the sale arrangement and block trade were evaluated and approved by the independent members of our board of directors . the block trade purchase price and other terms of the sale arrangement were the result of negotiations with the third party . we did not receive any concessions or economic benefits from ashford inc. pertaining to our current contractual arrangements with ashford inc. in connection with this block trade . the block trade settled on august 4 , 2015. on august 5 , 2015 , we acquired a 100 % interest in the hilton garden inn - wisconsin dells in wisconsin dells , wisconsin for total consideration of $ 15.2 million . in conjunction with the close of the transaction , we completed the financing of a $ 12.0 million mortgage loan . the mortgage loan is interest only and provides for a floating interest rate of libor + 4.95 % . the stated maturity is august 2018 , with two one-year extension options . on october 15 , 2015 , we acquired a 100 % interest in the hotel indigo ( “ indigo atlanta ” ) in atlanta , georgia for total consideration of $ 26.9 million . as part of the transaction , we assumed a mortgage loan with a fair value of $ 16.6 million , and a principal balance of $ 16.0 million . the assumed debt matures in june 2017 and carries a fixed rate of 5.98 % . on october 30 , 2015 , we obtained a new $ 100.0 million secured revolving credit facility which matures october 2016. the credit facility provides for a one-year revolving line of credit priced at 200 to 300 basis points over libor or base rate . the credit facility also contains customary financial covenant tests with respect to minimum fixed charge coverage ratio and maximum leverage tests allowable . on november 10 , 2015 , we acquired a 100 % interest in the w minneapolis foshay ( “ w minneapolis ” ) in minneapolis , minnesota for total consideration of $ 88.1 million . as part of the transaction , we assumed a mortgage loan with a fair value of $ 57.7 million , and a principal balance of $ 55.5 million . the mortgage loan carries a fixed rate of 5.46 % . the stated maturity is may 2023 . 49 on december 2 , 2015 , we refinanced three mortgage loans totaling $ 273.5 million . the refinance included our $ 92.8 million mortgage loan due december 2015 , which had an outstanding balance of $ 90.7 million , our $ 105.2 million mortgage loan due february 2016 , which had an outstanding balance of $ 102.7 million , and our $ 75.5 million mortgage loan due february 2016 , which had an outstanding balance of $ 73.8 million . the new loan is a $ 375.0 million mortgage loan due december 2017. the $ 375.0 million mortgage loan is interest only and provides for a floating interest rate of libor + 4.87 % . the stated maturity is december 2017 , with four one-year extension options . the new loan continues to be secured by 17 of 18 hotel properties . the springhill suites in jacksonville , florida is now unencumbered .
| results of operations revpar is a commonly used measure within the hotel industry to evaluate hotel operations . revpar is defined as the product of the adr charged and the average daily occupancy achieved . revpar does not include revenues from food and beverage or parking , telephone , or other guest services generated by the property . although revpar does not include these ancillary revenues , it is generally considered the leading indicator of core revenues for many hotels . we also use revpar to compare the results of our hotels between periods and to analyze results of our comparable hotels ( comparable hotels represent hotels we have owned for the entire year ) . revpar improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs . revpar improvements attributable to increases in adr are generally accompanied by increases in limited categories of operating costs , such as management fees and franchise fees . 54 the following table summarizes the changes in key line items from our consolidated statements of operations for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands ) : replace_table_token_9_th 55 comparison of year ended december 31 , 2015 with year ended december 31 , 2014 the following table illustrates key performance indicators for our hotel properties included in continuing operations for the years ended december 31 , 2015 and 2014 .
| 4,798 |
the deferred tax assets and liabilities represent the expected future tax return consequences of those differences , which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled . the company 's securities investments that are bought and held for an indefinite period of time are classified as available-for-sale securities . available-for-sale securities are recorded at fair value on the balance sheet in current assets , with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income . all of the company 's available-for-sale are marketable securities and have no maturity date . the company 's securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities . trading securities are recorded at fair value on the balance sheet in current assets , with the change in fair value during the period included in earnings . recently enacted and proposed regulatory changes - recently enacted and proposed changes in the laws and regulations affecting public companies , including the provisions of the sarbanes-oxley act of 2002 and rules proposed by the sec and nasdaq could cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements . the new rules could make it more difficult for us to obtain certain types of insurance , including directors and officers liability insurance , and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage . the impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on the company 's board of directors , or as executive officers . we are presently evaluating and monitoring developments with respect to these new and proposed rules , and we can not predict or estimate the amount of the additional costs we may incur or the timing of such costs . 10 in february 2013 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2013-02 , comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income , to improve the transparency of reporting these reclassifications . other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period . those gains and losses are later reclassified out of accumulated other comprehensive income into net income . the amendments in the asu do not change the current requirements for reporting net income or other comprehensive income in financial statements . all of the information that this asu requires already is required to be disclosed elsewhere in the financial statements under u.s. gaap . the new amendments will require an organization to : - present ( either on the face of the statement where net income is presented or in the notes ) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under u.s. gaap to be reclassified to net income in its entirety in the same reporting period ; and - cross-reference to other disclosures currently required under u.s. gaap for other reclassification items ( that are not required under u.s. gaap ) to be reclassified directly to net income in their entirety in the same reporting period . this would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account ( e.g. , inventory for pension-related amounts ) instead of directly to income or expense . the amendments apply to all public and private companies that report items of other comprehensive income . public companies are required to comply with these amendments for all reporting periods ( interim and annual ) . the amendments are effective for reporting periods beginning after december 15 , 2012 , for public companies . early adoption is permitted . the adoption of asu no . 2013-02 is not expected to have a material impact on our financial position or results of operations . in january 2013 , the fasb issued asu no . 2013-01 , balance sheet ( topic 210 ) : clarifying the scope of disclosures about offsetting assets and liabilities , which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by asu 2011-11. the new asu addresses preparer concerns that the scope of the disclosure requirements under asu 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users . in choosing to narrow the scope of the offsetting disclosures , the board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with u.s. gaap and those prepared under ifrss . like asu 2011-11 , the amendments in this update will be effective for fiscal periods beginning on , or after january 1 , 2013. the adoption of asu 2013-01 is not expected to have a material impact on our financial position or results of operations . in july 2013 , the fasb issued accounting standards update 2013-11 income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carry-forward , a similar tax loss , or a tax credit carry-forward exists . an unrecognized tax benefit , or a portion of an unrecognized tax benefit , should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward , a similar tax loss or a tax credit carry-forward , except as follows . to story_separator_special_tag the deferred tax assets and liabilities represent the expected future tax return consequences of those differences , which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled . the company 's securities investments that are bought and held for an indefinite period of time are classified as available-for-sale securities . available-for-sale securities are recorded at fair value on the balance sheet in current assets , with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income . all of the company 's available-for-sale are marketable securities and have no maturity date . the company 's securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities . trading securities are recorded at fair value on the balance sheet in current assets , with the change in fair value during the period included in earnings . recently enacted and proposed regulatory changes - recently enacted and proposed changes in the laws and regulations affecting public companies , including the provisions of the sarbanes-oxley act of 2002 and rules proposed by the sec and nasdaq could cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements . the new rules could make it more difficult for us to obtain certain types of insurance , including directors and officers liability insurance , and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage . the impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on the company 's board of directors , or as executive officers . we are presently evaluating and monitoring developments with respect to these new and proposed rules , and we can not predict or estimate the amount of the additional costs we may incur or the timing of such costs . 10 in february 2013 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2013-02 , comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income , to improve the transparency of reporting these reclassifications . other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period . those gains and losses are later reclassified out of accumulated other comprehensive income into net income . the amendments in the asu do not change the current requirements for reporting net income or other comprehensive income in financial statements . all of the information that this asu requires already is required to be disclosed elsewhere in the financial statements under u.s. gaap . the new amendments will require an organization to : - present ( either on the face of the statement where net income is presented or in the notes ) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under u.s. gaap to be reclassified to net income in its entirety in the same reporting period ; and - cross-reference to other disclosures currently required under u.s. gaap for other reclassification items ( that are not required under u.s. gaap ) to be reclassified directly to net income in their entirety in the same reporting period . this would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account ( e.g. , inventory for pension-related amounts ) instead of directly to income or expense . the amendments apply to all public and private companies that report items of other comprehensive income . public companies are required to comply with these amendments for all reporting periods ( interim and annual ) . the amendments are effective for reporting periods beginning after december 15 , 2012 , for public companies . early adoption is permitted . the adoption of asu no . 2013-02 is not expected to have a material impact on our financial position or results of operations . in january 2013 , the fasb issued asu no . 2013-01 , balance sheet ( topic 210 ) : clarifying the scope of disclosures about offsetting assets and liabilities , which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by asu 2011-11. the new asu addresses preparer concerns that the scope of the disclosure requirements under asu 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users . in choosing to narrow the scope of the offsetting disclosures , the board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with u.s. gaap and those prepared under ifrss . like asu 2011-11 , the amendments in this update will be effective for fiscal periods beginning on , or after january 1 , 2013. the adoption of asu 2013-01 is not expected to have a material impact on our financial position or results of operations . in july 2013 , the fasb issued accounting standards update 2013-11 income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carry-forward , a similar tax loss , or a tax credit carry-forward exists . an unrecognized tax benefit , or a portion of an unrecognized tax benefit , should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward , a similar tax loss or a tax credit carry-forward , except as follows . to
| results of operations - for the years ended december 31 , 2013 and 2012 , the company had net loss from operations of approximately $ 58,000 and $ 315,000 , respectively . total revenues - for the years ended december 31 , 2013 and 2012 , the company had total sales of approximately $ 1,307,000 and $ 1,118,000 , respectively , for an increase of approximately $ 189,000 or 17 % . management believes revenues will continue to grow in the future as airport traffic increases . costs and expenses - costs of revenues , which include the costs of food , beverage , and kitchen supplies , remained flat as a percentage of sales from 2012 to 2013. cost of revenue increased $ 66,399 to $ 442,174 for the year ended december 31 , 2013 as compared to $ 375,775 in the prior year . the cost of labor decreased 6 % as a percentage of sales from 2012 to 2013 from $ 357,149 to $ 331,899. the decrease was due to improved staffing policies . several part-time hourly employees were transitioned to full-time salaried employees due to the sales increase the cost of rent decreased approximately 4 % as a percentage of sales from 2012 to 2013. e.a.j . phl airport pays $ 14,000 per month basic rent plus 20 % of gross revenues above $ 1,200,000 under the lease . the rent is a fixed cost and sales are variable , so the total rent paid varies from year to year . depreciation expense increased approximately $ 22,000 from 2012 to 2013. this increase is attributable to additional depreciation taken on leasehold improvements . general and administrative expenses decreased 14 % as a percentage of sales from 2012 to 2013. general and administrative expenses decreased $ 112,799 to $ 302,615 for the year ended december 31 , 2013 as compared to $ 415,414 in the prior year .
| 4,799 |
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